Chapter 12-13 Management Accounting Techniques (Characteristics…
Management Accounting Techniques
Costing techniques are methods for ascertaining cost-for-cost control and decision-making purposes. They can be applied to make-or-buy decisions, negotiation, price appraisal and assessing purchasing performance
Sections in Costing techniques
Element of cost
Flow of costs
Problem in cost determination
Advantage of costing
Fixing a standard price
Framing of production policies
Comparising and analysis data
Emphasis of cost
Balancing of authority and responsibility
Management by exception
Budgetary is a system which uses as a tool for planning and control
This system helps to assess the performance of each and every person in the Organization.
Advantage of BC
Compels management think about the future
Promotes coordination and communication
Clearly defines areas of responsibility
Provides a basis for performance appraisal
Improves the allocation of scarce resources
Budgets can be seen as pressure devices imposed by management
Departmental conflict arises due to
disputes over resource allocation
departments blaming each other if targets are not attained
It is difficult to reconcile personal/individual and corporate goals
Managers may overestimate costs so that they will not be blamed in the future should they overspend
Participation: involve as many people as possible in drawing up a budget
Comprehensiveness: embrace the whole organisation.
Standards: base it on established standards of performance.
Flexibility: allow for changing circumstances.
Feedback: constantly monitor performance.
Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres
Capital Investment Appraisal
A planning process which facilitates the determinantion of the concerned firm's investments both lobg term and short term.
net present value
accounting rate of return
internal rateof return
modified internal rate of return
adjusted presen value
pay back period
discounted pay back period
real option anlysis
is the budgeting of major capital and investment to company expenditure
one of the primary goals is to increase the value of the firm to the shareholders