All your Writing needs covered

Management Accounting Regarding New Product

Calculate the price
of
your order:

275 words
+
Approximate price
$ 0.00

Management Accounting Regarding New Product

Introduction

Contemporary managers have come to establish the viability of cost accounting. As such, it is through it that one can be able to understand the costs associated with running an entity. According to many researchers, cost accounting is identified as having arisen out of the industrial revolution. During this time, running a large organization presented complexities and as such, they led to recording as well as tracking cost systems being developed.

On-Time Delivery!
Get your customized and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

These systems proved beneficial as they eventually helped the owners of the big organizations make viable decisions. With regards to the early industrial age, the costs, which entities incurred, can be today classified under variable costs. This is because; their variance was directly proportional to the amount produced. During this time, the managers to entities used the totals of the variable costs used in the production and therefore using it as a guide to decision making process.

In management accounting, the aspect of cost accounting is significant and as such, it should be taken into keen consideration. One of the major costs associated with production is the standard cost. Drury (2007, p. 44) notes that standard costing is a process that involve the creation as well as the usage of the costs used in the process of producing goods and services under the postulations of normal conditions with regard to operations. Usually, the production costs considered in cost accounting are estimates.

Bragg (2002, p. 40) asserts it is not necessarily that standard costs matches the real costs incurred during the process of production. Therefore, it is upon the accounting practitioners to compute for the variances exhibited between the actual as well as the standard costs. In addition, they must charge the variance to the cost of goods sold.

Thesis statement

With regard to standard cost accounting, this paper will focus on identifying some of the problems that may surface when cost accounting is practiced. In addition, the paper will also identify an approach based on balanced scorecard technique and thereby defining the benefits that the approach presents. Part B of this article will focus on accounting calculations aimed at showing whether a new product can provide the targeted net cash flow. Further, the length of time in which a second unit can take given some specified rates of learning.

Problems of using standard costing

Standard costing and lean production

Lean costing cannot in any way fit with standard costing. The companies that employ the use of lean production strategy find standard costing as less functional in addition to being destructive. Lean production involves producing below the full capacity of an entity. The incompatibility of standard cost accounting in lean production owes to the fact that the use of evaluating standard costing under traditional costing, which was established in such a way that it could only support full production rather than underproduction.

Despite the less than full capacity produced in lean production, entities that practice it still makes profits and as such, it comes from the presence of a greater flow considering the volume produced on the same resources. The measurements used in standard costing tend to focus on such aspects as departmental budgeting, machine use as well as labour efficiency among other measurements. Contrastingly, measurement of costs used in lean production tends to focus on value stream, first time quality as well as throughput among other lean production elements.

Yes, we can!
Our experts can deliver a custom Management Accounting Regarding New Product paper for only $13.00 $11/page
Learn More
322 specialists online

The principles used in standard costing work best in a situation involving utilization of resources at a maximum, as well as manufacturing taking the full capacity into consideration. On the other hand, the principles used in lean production work best whenever the opposite of standard cost principles conditions prevails.

Optimism of standard costing

The optimistic nature of standard costing is surfaced by the presence of ideal cost in it. According to ideal cost, excluding of wastes inefficiencies as well as any other kind of hindrances is necessary in an effort towards achieving the full capacity. With regard to the real process of production, these hindrances are experienced occasionally. Maskell & Bruce (2004, p. 27) indicates that these hindrances are taken as motivators of cost reduction whereby they are employed by some entities as one of the ways to discipline the workers. In turn, the innovativeness as well as the self esteem of the workers becomes undermined. There can never be a situation where the physical assets as well as production machineries opts to resist the goals of the company to mass production as well as efficiency but humans can.

As such, there is a tendency of standard costing not focusing on the needs of the workers. Instead, this technique is only focused on exploiting the entrepreneurial skills in an effort towards achieving strategies, which are profitable. Budgets are used as tolls for specifying each day’s cost levels and therefore signifying managerial myopia. This is a clear indication that standard costing gives rise to unqualified decisions going into the future.

According to Kaplan & Robin (2012, p. 7), there is no provision of information necessary for controlling overhead as well as various other indirect costs in an effort towards holding on to the adopted production policy.

Standard costing over focus on statistical applications

Standard and estimated costs and make up the predetermined costs. According to Gupta (2006, p. 46), standard costing is dependent on both the statistical data as well as approach, which are used as indexes in management of costs. On their part, there is a highly subjective evident in estimated costs in addition to being dependent on the experience as well as the intuition of an entity manager. Consequently, there arise boundaries, which according to Tyagi & Praveen (2008, p. 23), are conflicting, between these two costs. As a result, the process of policy implementation becomes hard to address.

The fact that standard costing over focus on statistical variances concludes that the management is unable to choose a company wide strategy. Rather, they tend to choose more local strategies, which are less significant.

Balanced Scorecard approach

A balanced scorecard is a tool used in strategic performance management. Usually, it is identified as having a semi-standard structure report. However, it has automation tools as well as proven design methods, which support it. A balanced score card is used in entities by task managers to track the accomplishment of tasks usually by the employees who are under their supervision in addition to monitoring the eventualities of those activities.

Cut 15% OFF your first order
We’ll deliver a custom Accounting paper tailored to your requirements with a good discount
Use discount
322 specialists online

Benefits of a scorecard based approach

Balance

The use of a balanced scorecard approach derives an aspect of balance in the entity. Instead of putting the entire focus on the financial aspect in an entity, use of a balanced scorecard approach ensures that the leaders consider the entire spectrum of the entity’s performance. A balanced scorecard approach consider such measures as development of the employees, process efficiency as well as customer experience in addition to financial measures. This in turn ensures that the possible problems that surface whenever an area is improved at the expense of another are avoided (Kammerer 2008, p. 15).

Scalability

A scorecard based approach is identified with the advantage of being scalable. As such, in order to assess an entity performance, the same metrics can be employed at different operational levels.

Focus on customer

The use of an approach based on a scorecard approach helps the managers of an entity to gain insights into the experiences of the clients. The metrics in the area of growth as well as development are essential as they derive information concerning a client’s satisfaction. This information in turn affects the retention of the clients and consequently, an entity maintains or improves its profitability in addition to its productivity.

Proactive approach

An approach based on score card technique enables an entity’s manager to shift from being reactive to being proactive. Such an approach entails both the result metrics as well as metrics providing an insight with regard to an ongoing performance in addition to drivers influencing the output. Therefore, managers of an entity are able to maintain awareness regarding the levels of performance as well as any problem that may come to surface and hence strategies aimed at minimizing the effects of these problems can be established (Bhattacharyya 2012, p. 40).

Question one

Learning curve y=nax

Where y=average cost per Unit

a=cost of first 1400 Units

Get a custom-written paper
For only $13.00 $11/page you can get a custom-written academic paper according to your instructions
Let us help you
322 specialists online

x=Total number of units produced

b=Learning factor (log LR/log 2)

LR=the learning rate as a decimal

LR=Log 0.75/Log 2

LR=-0.4150

At the learning rate of 0.75 (75%), the learning factor (b) is equal to -0.3219.

Bonus Ltd

Sales

2, 750 units

Sales Revenue

(2,750 units x £650)

£ 1,787,500

Costs

Direct materials (W1) £495,000

Direct Labour (W2) £ 333,280.56

Variable overheads £ 133,312.22

Net cash flow £ 825,907.20

Target cash flow £ 550,000

Inference: The new product will provide the target net cash flow.

Workings

Direct material £495,000

Direct labour

For the first fourteen hundred Units y=ax

y=4,050 x1400-0.4150

y=£200.36

Total cost for first 1400 units =£200.3603992449024 x 1400 = £ 280,504.56

All units after the first 1400 will have the same cost as the 1400th unit. In order to come up with the cost of the 1400th units, one needs to take the cost of 1399 units from the cost of 1400 units.

For 1399 units y=ax

y = 4,050 x 1399 -0.4150

y=£200.42

Total cost for first 1399 units =200.42 x1399 =£280,387.33

Cost of 1400th unit is £280,504.55894286337-£280,387.3307311298= £117.28

Total cost for the 12 months of production

£ 80,504.56+(£117.28 x 450) =£333,280.56

Variable overhead

Variable overhead is estimated at £3.60 per labour hour or 40% 0f direct labour.

0.4 x £333,280.56

Variable overheads = £133,312.22

Question Two

Calculate the length of time the second unit will take if the actual rate of learning is;

65%

Time for first 1400 Unit batch 450

Average time for the two batches at 65% 450 x 0.65 = 292.5

Total time for the two units batches

2 x 292.5 = 585

Time for second unit batch

585– 450 = 135

85%

Time for first Unit batch 450

Average time for the two unit batches at 85% 450 x 0.85= 382.5

Total time for the two units batches 2 x 382.5= 765

Time for second unit batch 765-450= 315

Inference: The learning rate of 65% shows faster learning. This is because; the time taken for the two successive unit batches is greatly reduced at as compared to learning rate of 80%.

Conclusion

From this analysis, it is evident that standard cost accounting is disadvantageous when employed to financially measure the performance of an entity. Foremost, many scholars have identified this technique as incompatible with lean production. The principle of standard costing contrasts with the lean production principles. This analysis also found standard costing as being too optimistic. Further disadvantage is that standard costing techniques tend to focus more on statistical applications (Walsh 2003, p. 37).

An approach based on a balanced scorecard is an effective approach and as such, many managers prefer employing it during the process of performance measurement. Among the benefits of such kind of an approach include; scalability, balance, it is focused on the customer in addition to being a proactive approach (Gummesson 2001, p. 435). This analysis also established that a new product can either meet or fail to meet the targeted net cash flow. This depends on the direct materials, direct Labour as well as variable overheads assigned to the new product. The figure from these three is subtracted from the intended sales of the new product and then matched with the targeted net cash flow.

References

Bhattacharyya, D 2012, ‘Performance Management Systems and Strategies’, Accounting Costing, Vol.10, No. 2, pp. 34-45.

Bragg, SM 2002, ‘Accounting Reference Desktop’, American Journal of Accounting, Vol. 3, No. 2, pp. 33-45.

Drury, C 2007, ‘Management and Cost Accounting’, American Journal of Accounting, Vol. 2, No. 2, pp. 30-44.

Gummesson, E 2001, Cost Management, Cengage Learning, Belmont.

Gupta, P 2006, ‘Six Sigma Business Scorecard’, Accounting Costing, pp. 34-50.

Kammerer, M 2008, ‘The Balanced Scorecard – advantages and disadvantages’, American Journal of Accounting, Vol. 9, No. 3, pp. 10-15.

Kaplan, RS & Robin C 2012, ‘Cost & Effect: Using Integrated Cost Systems to Drive Profitability’, accounting concepts, Vol. 12, No. 2, pp. 5-10.

Maskell, BH & Bruce, B 2004, ‘Practical Lean Accounting: A Proven System for Measuring costs’, accounting concepts, Vol. 10, No. 3, pp. 20-27.

Tyagi, R & Praveen, G 2008, ‘A Complete and Balanced Service Scorecard: Creating Value’, Accounting Costing, Vol. 6, No. 3, pp. 13-23.

Walsh, JP 2003, Cost & Management Accounting Techniques, John Wiley and Sons, London.

Basic features

  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support

On-demand options

  • Writer's samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading

Paper format

  • 275 words per page
  • 12pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, CHicago/Turabian, Havard)

Guaranteed originality

We guarantee 0% plagiarism! Our orders are custom made from scratch. Our team is dedicated to providing you academic papers with zero traces of plagiarism.

Affordable prices

We know how hard it is to pay the bills while being in college, which is why our rates are extremely affordable and within your budget. You will not find any other company that provides the same quality of work for such affordable prices.

Best experts

Our writer are the crème de la crème of the essay writing industry. They are highly qualified in their field of expertise and have extensive experience when it comes to research papers, term essays or any other academic assignment that you may be given!

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00

Expert paper writers are just a few clicks away

Place an order in 3 easy steps. Takes less than 5 mins.

error: Content is protected !!
Open chat
1
Reliance Papers Inc.
Get Help With All Your Homework Questions. Any Deadline, Affordable, Quality Work Guaranteed!!