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Management Accounting

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Introduction

AVCE Business Unit 10 Management Accounting (E1) Introduction Jones' Compact cars, is a small family run business in rural Southgate. The business was established 40 years ago by old Mr. Jones and during that time, a Jones Compact car has become a well-known manufacture of classic remote control cars, its start product being the flame red MG. Old Mr. Jones has recently has taken his nephew, young Ken, into the business, in the hope that he will carry on the firm in the family tradition when he himself retires. Young Ken is a business graduate of Durham University, is excited at the prospects of taking over Jones' Compact car, but realises that the firm is not functioning particularly efficiently and that there is much room for improvement. One of the main objectives for Jones' Compact cars is of meeting a target of increasing profits by at least 10% per year over the next five years. E1 What is Management Accounting? Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. ...read more.

Middle

total recognised gains and losses - A cash flow statement - Notes to the accounts Types of Costs There are three types of costs Jones Compact Cars have within their business. These are Variable costs, fixed costs and semi-variable costs. A Variable cost is costs, which, rise as output rises. These could be raw material as the more the output Jones Compact Cars produce, the more raw materials will be required. Also direct labour can also be variable costs, for example during Christmas there are high demands for products such as compact cars and so direct labour may need to be employed to keep up with demand. Another type of cost is Semi-Variable costs, which are costs, which consists of both fixed and variable elements. This is because they are not entirely fixed or variable costs. Labour is a good example. If Jones Compact Cars employees a member of staff on a permanent basis, no matter what level of output, this is a fixed cost. If this member of staff is asked to work overtime at nights and weekends to cope with extra production levels, then the extra cost is variable. Such labour costs can be identified as Semi-Variable costs. Another example could be the cost of telephone charges. This often consists of a fixed or "standing charge" plus an extra rate, which varies according to the number of calls. Fixed costs are cost, which are fixed in the short run and don't vary according to output. ...read more.

Conclusion

This means that Jones Compact Cars should buy all their raw materials in bulk as they can get them at a cheaper discounted price. Also Jones Compact Cars can reduce fixed costs by changing their premises from where they operate and moving to cheaper premises. By reducing their costs Jones Compact cars will be reducing their production costs, which can mean they will have increased profits and by reducing costs Jones Compact Cars can also reduce their prices of compact cars, which may increase sales leading to increased profits. Also reducing their costs would mean that Jones Compact Cars could become more competitive in the compact cars market. Another objective for Jones Compact Cars is to survive in the compact cars market in which they operate. In order for them to survive I think they should introduce a new line of products through diversification. Diversification is a strategy for growth that involves developing products or business areas that are outside the organizations markets. For example, Jones Compact cars currently manufacture compact cars and they could decide to introduce new products and services such as, credit cars, new games, or even clothes. Jones Compact cars need to operate a policy of diversification by trying to identify the most attractive and rapidly developing industries to engage in order in survive. I think the best business strategy to survive, which would guarantee success is to enter attractive and emerging industries, rather than staying in static and slow developing ones. ?? ?? ?? ?? Jaymit Patel 1 ...read more.

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