Managerial Accounting Assignment (Essay Sample)

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Managerial Accounting Assignment
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Managerial Accounting Assignment
Introduction to management accounting and costing:
Management accounting which is acknowledged as back bone of any business basically depends on single potent constituent and that is cost management. So, from accounting point of view a fruitful activity of a business is all about managerial accounting. It starts from implementation of costing method, focuses at cost control, and ends at variance analysis and justifications. Therefore, indeed, there is no doubt about that those businesses which follow strict cost control system definitely achieve high goals and eventually ultimate success. Hence, management accounting is truly considered as key to success (Lucey, 2015).
In this treatise, we will examine high-low technique of categorizing different costs and the purpose of such categorization. Moreover, we will also explain that how activity-based costing is used within a job-order costing system or process costing system.
What is High-low costing method?
High-low costing method which is also known with the name of mixed costing technique is used when high fluctuation in fixed as well as variable cost rates incur of a business activity. For instance, in a normal costing scenario when the cost card for a job is prepared, it actually uses fixed and variable costs with the predefined and/or fixed rates of the variables. On the other hand, when there is fluctuation in the fixed and variable cost rates the high-low costing method required to be applied.
Examining high-low technique of categorizing different costs:
In the high-low costing method, the management accountant as well as top management’s prime responsibility is to point out the highest and the lowest points of cost. These high and low points are being generated due to the fluctuation in the rates of fixed as well as variable cost. The next step is to divide these changes in cost with changes in activity when high and low cost points are being determined in the range. This is being explained with the help of formulas and its brief description.
Formula to measure high-low variable cost is here under:
Variable rate=high point cost – low point cost______
high point activity – low point activity
Brief description of the formula:
In the above formula we can see that the high point of cost is being subtracted from low point cost. Similarly, high point activity is being subtracted from low point activity. Finally, the value of high-low point cost is divided with the value of high-low point activity. In this way we have gained the variable rate.
Formula to measure mixed cost is here under:
Total cost=Rate * activity + fixed cost
Brief description of the formula:
At the end we will multiply the rate with the activity and add the fixed cost to measure the mixed or average cost of the unit produced. In this way we have gained the mixed/average cost of a unit.
Purpose of high-low technique of categorizing different costs:
Purpose of high-low technique of categorizing different costs is to determine the exact figure of cost incurred on a production unit. For instance, when a manufacturer utilizes a commodity in the production of its product that has high fluctuation in its rate such as oil, it is obvious and evident to the manufacturer that the change in oil prices is constant because of the nature of commodity and fluctuated market. Moreover, basically, high-low technique of categorizing different costs helps to determine the accurate cost of a unit produced and it not only provides the exact cost per unit but also is a critical component in the pricing process. Hence, the purpose of high-low technique of categorizing different costs is quite critical in the business process and progress (Accounting Focus, n.d.).
What is activity based costing:
Activity based costing denotes to the costing method which includes direct and indirect i.e. overhead costs together so that it can be count for to each of the produced units by a manufacturer. Activity based costing method is widely used in the manufacturing business concerns as it adds huge indirect costs such as management expenses and salaries and make it a integral part of a unit’s cost (Staff Investopedia, 2018).
Explain how activity-based costing is used within a job-order costing system or process costing system:
Activity based costing system is normally used in process costing and process costing is normally implemented in the manufacturing businesses. One reason why this costing system is widely and commonly utilized in the manufacturing sector is because it possesses as well as enhances the reliability of cost data. However, it can be and is