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Management accounting.

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Introduction

Q1 ( i ) The purpose of management accounting in the organisation is to support competitive decision making by collecting, processing, and communicating information that helps management plan, control, and evaluate business processes and company strategy. The process of management accounting is the process of creating and using cost, quality, and time-based information to make effective decisions within the organisation. Finally, cost accounting obviously plays a key role in tracking and reporting relevant product and service costs. The significance of managerial accounting is that it has to meet several information needs. According to Horngren C. T., G. Foster, and S.M. Datar (2003) the major functions of managerial accounting include the following: Planning and budgeting. Planning extracts the most useful trends based on past performance, and incorporates known or expected changes in other variables. Budgeting goes further by incorporating motivational aspects, and expectations based on macroeconomic variables. Decision-making. Management accountants prepare analyses based on past variables and their assessments of other key variables in the future. Accountants are most familiar with the data and often participate in the decision process. Product and service costing. Allocation of cost to production and services is mandatory for tax and financial accounting purposes, and is necessary for decision making and planning. Control of operations. Frequent feedback on the cost of manufacturing operations is required to ensure that the process is "in control." Standard costs and nonfinancial measures are used as benchmarks against which the management accountant periodically compares the current cost of a specific manufacturing process. ...read more.

Middle

Decentralisation does not necessarily mean that a unit manager has the right to make all decisions relating to that unit. Top management selectively decides the types of authority to pass on and the types to deny. It also lets the individual closest to the operational unit make decisions for that unit, thereby reducing the time spent in communicating and making decisions. Decentralisation can, however, extend responsibility too thinly throughout the organisation; can effect in antagonism among managers that might lessen organisational goal congruence, and could create high costs of incorrect decisions made by the decentralised unit managers. As with any management method, decentralisation has advantages and disadvantages, which should be measured in order to reach an optimal degree of decentralisation (Horngren et al.2003). Firstly, added responsibility and decision-making authority often outcome in increased job satisfaction and provide greater incentive for the manager, hence increases the motivation and productivity of personnel and unit performance. Also greater decision-making opportunity provides valuable training for managers as they rise in an organisation. One more advantage could be the better sensitivity to unit needs as the information is a key for decision-making. Decisions are best made at the level in the organisation where a problem or an opportunity arises; the local manager typically has more information upon which to base a decision. The closer to customers, suppliers and employees the better chances to improve quality and decrease costs of production. Decentralisation also increases the speed of making decisions, although it depends on the autonomy delegated. ...read more.

Conclusion

Journal Entries to transfer costs from WIP to Finished Goods Dr Finished Goods 107,489.00 Cr Work in Process 107,489.00 Computation of Overhead applied: Actual $24,500.00 Applied (100% of direct-labour) $21,574.00 Under-applied Overhead $2,926.00 Q3 ( i ) All manufacturing costs not classified as direct materials and direct labour are classified as manufacturing overhead;(e.g., idle time, overtime premium, indirect labour, indirect materials, factory depreciation, factory rent, factory insurance, etc.) Some of these costs are classified as variable and others are fixed. Overtime premium is usually considered as indirect cost because the timetable for service job is normally casual or in accordance wit minimising overall work time. As Horngren et al. (2003) state, "...overtime premium is considered to be attributable to the heavy overall volume of work". That is why it is regarded as overhead, caused by all service jobs done during the reporting period. With reference to above, shop's computation of the service charge in the case has been not properly done. ( ii ) Allocation of overtime premium between direct labour costs and general overhead: Direct Labour: 9 hours x $14 = $126 General Overhead: 1 hour x $7 = $7 Total Costs: = $133 Cost per hour: 133 : 9 = $14.78 Justification for the allocation in ( i ) ( iii ) The shop can be justified in charging overtime premium if the customer has required the repair job to be done urgently, "rush job" (Horngren et al. (2003), p.44) so the overtime premium can should be allocated to that concrete job as direct cost. ...read more.

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