The First Element Of Managerial Accounting Is Cost Be 538792

The First Element Of Managerial Accounting Is Cost Behavior Within An

The first element of managerial accounting is cost behavior within an organization. Management analysis of cost behavior influences cost classifications and decisions made in order to control costs. This module covers two main concepts—cost management and how it is used in strategic decision making. In any strategic decision making, ethics always should be top priority. Not only is making ethical decisions the correct thing to do, but it is also key to running an efficient, long-term business.

For example, assume you are in charge of the pharmacy in a hospital. In your role as manager, you need to help control the cost of medications administered to patients. Many of these drugs are very expensive and are never fully reimbursed by the patients’ insurance companies. One day, an individual offers to sell you the required medications for exactly one-half of the cost currently paid. This individual represents a company that has had significant issues with timely delivery in the past and that has been subject to multiple lawsuits by other hospitals.

The company’s failure to deliver the drugs on time had caused significant patient-care issues within those hospitals. Strictly from a cost standpoint, you might think it would be sensible to switch to this vendor. However, ethically, is it appropriate to make the switch that may save cost but also risk the well-being of patients? Strategic decisions are the most important decisions a company can make because they dictate future decisions and level of organization performance. Some common examples of strategic decisions include: · Finding or seeking out new business opportunities that will allow the organization to grow and expand · Responding to any threats to competitive advantage to protect the company’s place in the industry · Creating goals related to the performance of the organization and finding ways to reach these goals in a reasonable time frame There are many other strategic decisions not listed that companies make on a daily basis.

Cost management is made up of three parts: · A philosophy to increase customer value while keeping costs at a minimum · An attitude that accepts all decisions made by management will incur a cost · Techniques to allow an organization to increase customer value while at the same time reducing costs In order to do these three things, managers must always collect and interpret information to find alternate ways of doing business. One common way of doing this is through a cost-benefit analysis. A cost-benefit analysis is used to assess the believed benefits and costs of a business move. If the benefits outweigh the costs, the decision will be considered beneficial. If the costs outweigh the benefits, the decision will not be considered worthwhile.

Using the navigation on the left, please proceed to the next page. Corporate finance. In the context of Corporate Finance, discuss whether value maximization is always ethical. Is there a conflict between “doing well†and “doing goodâ€? When there are conflicts, how may government regulations or laws tilt the firm towards doing good?

In your discussion, develop a case for the interrelationship of ethical decision making by corporate management and the profitability of the firm. Word limit: 2,500 Management Accounting You are required to select a public listed company in any industry and jurisdiction to discuss the challenges and problems that the company is currently facing. In your discussion you should also provide any potential solution to mitigate the challenges and problems that the company is encountering. Discuss 4 challenges and 4 Solutions. Word limit: 750 Note: 10 refernces of each question.

Managerial Accounting ©2012 Argosy University Online Programs Kotter’s Eight-Step Change Model Kotter’s Eight-Step Change Model is the most simple and commonly used way to form a strategic plan. The eight steps of this process are described as follows: 1) Identify a need by looking within the organization and determining what needs to be changed. 2) Assemble a team to lead and manage the change by identifying people within the organization who are best suited to improve the running of the company. 3) Develop a change vision and strategy for achieving it by finding out the best way to implement the changes within the company. 4) Communicate the vision and strategy for change by making the members of the change team role models and by making all employees aware of the company’s new vision.

5) Encourage innovation and remove obstacles by always being open to change and not focusing on the past. 6) Ensure short-term achievements are frequent and obvious. 7) Use successes to create opportunities for improvement in the entire organization. 8) Reinforce a culture of change by promoting more improvement, better leadership, and more effective management. Reference Kotter, J.

P. (1996) Leading change. New York, NY: Harvard Business Review Press. Operation costing is a cross between job-order costing and process costing. This process is used when an organization produces great amounts of similar products that require the use of different materials, for example, pants made from many different materials such as wool, cotton, polyester, and spandex. In job-order costing, multiple files are used to track the costs of materials used for the job such as data sources for product costing, costing estimation for jobs in the future, and internal and external financial reporting.

When using costing methods, assigning cost can be very difficult, and the best way of doing this is to use predetermined overhead rates to assign manufacturing overhead costs. This rate is usually determined at the beginning of the year and stays constant for the whole year. Predetermined overhead rates remove any fluctuations in the application of manufacturing overhead rates to various jobs. The final product costs are said to be normal costs because of this. The manufacturing overhead account is important and is used very often.

It records both the actual overhead and the overhead that is applied to the work in process inventory. When normal costing is used, the actual overhead is almost never equal to the applied manufacturing overhead. This difference is known as over variance. This variance can either be overapplied or underapplied. Underapplied variances occur when the actual cost is greater than what was actually applied.

Overapplied variances occur when the actual cost is less than what was actually applied. Standard costing and actual costing are the alternative methods to normal costing. In actual costing, the actual costs of both direct and indirect resources are applied to the products. In standard costing, costs are assigned to products after applying predetermined or standard rates for both direct and indirect costs. It is difficult to manage jobs, but it is important as this is how cost is minimized, and quality is maximized.

Having this philosophy helps to maintain a high level of customer satisfaction. One of the common ways of managing jobs is by implementing project percentage of completion charts. This is a chart that shows how much of the project should be completed at a set time and how much actually has been completed. Another commonly used method is the Gantt chart, which shows all the necessary stages needed to complete the project and in what order they should be completed. Cost behavior is the volatility of product costs due to changes in production levels or sales volumes.

Product costs include material costs, labor costs, and other overheads. Any change in the production levels and sales volumes can affect profitability. Here are some examples of how costs change: · Variable costs change in proportion to total volume produced but remain the same on a per-unit basis. · Fixed costs differ from variable costs in that they remain constant with change in volume produced but vary on a per-unit basis. · Mixed costs are a combination of fixed and variable costs. · Step costs vary over a wide range of activity levels but remain constant over a narrow range. In addition to these types of costs, here are some terms you will also learn: · Contribution margin is the difference between the total sales and the total variable costs of an organization. · Variable-costing statement presents the net income obtained by subtracting fixed expenses from the difference between total sales and total variable costs. · Cost-volume-profit analysis determines the financial impact of the relationship between cost, volume, and profit. · Break-even analysis determines whether or not total sales are equal to the total costs.

A company reaches the break-even point when it is making neither a profit nor a loss. · Variable costing is the unit cost of a product obtained by including both direct or variable costs and excluding fixed costs. · Absorption costing is the unit cost of a product obtained by including the direct as well as indirect or fixed costs. In this module, you will become familiar with overall cost concepts, and analyze cost behavior within various costing systems. Methods for using costs in planning and budgeting decisions will also be covered. Costs are used to evaluate past performance and make crucial decisions that may impact the entity indefinitely across all departments and levels. Application of Concepts You will then have the opportunity to apply accounting concepts to management situations in your two course projects, the Required Assignments (RAs), due in Modules 3 and 5 .

The biggest challenge to analyzing and computing costs is the allocation of overhead. Imagine that you are building a new home. When meeting with the contractor, he or she will give you an approximate price to build the home. That price is based on the builder’s cost to build the house as well as the profit expected for the contractor. Based on the home plans and supplier relationships, the builder can easily calculate the cost of materials and labor of subcontractors who would carry out the day-to-day construction.

It gets complicated when it comes to the other costs the builder incurs. These costs, known as overheads, need to be recovered, but they are not directly tied to the cost of your home. Examples of such costs would be advertising, gasoline for trucks used by supervisors to drive between construction sites, salaries for secretaries and support staff in the office, and any other cost of the sort. How can a builder take these costs and allocate them fairly across all projects? In this module, you will explore job-order costing systems—one method commonly used to allocate overheads and estimate costs of a project provided to a customer.

Cost management analysts work very closely with other management colleagues to put together cost management systems that coincide with the overall decision-making strategies of the organization. One important component of the cost management system is the product costing system that accumulates all production costs and assigns them to the appropriate products. The most commonly used product costing systems are job-order costing and process costing. When job-order costing is implemented, each separate job is treated as a separate unit of output and costs are assigned as the resources are used up. A job is defined as a single product or small group of similar products.

Paper For Above instruction

Cost behavior is a fundamental element in managerial accounting, providing critical insights into how costs react to changes in production levels or sales volumes. Understanding the volatility of product costs enables managers to make informed decisions that optimize operational efficiency, enhance profitability, and ensure sustainable growth. This paper explores the concept of cost behavior within various costing systems, its implications for managerial decision-making, and its relevance to strategic planning and ethical considerations in business.

Introduction

Cost behavior refers to the way in which costs change in response to varying levels of activity or output within an organization. It is a vital aspect of managerial accounting because it affects budgeting, cost control, pricing strategies, and financial forecasting. Accurate classification and analysis of costs—such as variable, fixed, mixed, and step costs—allow managers to predict how changes in production or sales can impact overall profitability. Furthermore, understanding cost behavior aids in the development of effective cost management strategies, which are crucial for maintaining competitive advantage and ensuring ethical decision-making.

Cost Behavior and Cost Classifications

Cost behavior encompasses different types of costs based on their response to activity changes. Variable costs, such as materials and direct labor, change proportionally with the level of production. Fixed costs, including rent and salaries, remain constant regardless of activity levels, but their per-unit cost decreases as output increases. Mixed costs contain elements of both variable and fixed costs, exemplified by utility expenses that have a fixed component plus a variable portion based on usage. Step costs are costs that remain constant over a specific range of activity but jump to a higher level once that range is exceeded.

Proper classification of these costs is essential for conducting cost-volume-profit (CVP) analysis, which helps determine break-even points and target profit levels. For example, understanding how fixed costs are spread over increased output helps managers evaluate the profitability of scaling operations or launching new products.

Implications of Cost Behavior in Cost Management Systems

Cost management strategies leverage knowledge of cost behavior to optimize resource allocation and improve decision-making. Normal costing, for example, assigns overhead using predetermined rates based on estimated activity levels, facilitating consistent cost estimation across periods. Variance analysis, which compares actual costs to applied costs, highlights inefficiencies and areas for improvement, thus promoting ethical management practices by ensuring transparency and accountability.

Cost behavior analysis also influences the selection of costing methods—such as job-order costing versus process costing—depending on the nature of production. Job-order costing tracks costs for specific jobs or orders, useful for customized products, while process costing aggregates costs over continuous production. Both systems rely heavily on understanding how costs behave in relation to output.

Cost Behavior and Ethical Decision-Making

Understanding cost behavior directly impacts ethical decision-making. For example, managers might consider whether to allocate overhead costs in a manner that inflates profits or understates costs to meet financial targets. Ethical considerations come into play when decisions are driven solely by short-term financial gains at the expense of stakeholder trust, regulatory compliance, or societal well-being.

Cost behavior insights support transparent reporting, accurate cost allocation, and fair pricing. These principles help prevent manipulation of financial data that can mislead investors or regulators, aligning business practices with ethical standards.

Cost-Benefit Analysis in Strategic and Ethical Contexts

A cost-benefit analysis assesses the potential benefits and costs of a decision, guiding management toward ethically sound choices that maximize long-term value rather than merely short-term gains. For instance, in strategic decisions such as switching vendors or investing in new technology, understanding the cost behavior of associated costs ensures realistic evaluations where ethical considerations—such as supplier reliability and product safety—are integrated into financial analyses.

Moreover, regulatory frameworks often tilt the playing field by mandating disclosures, fair competition practices, and environmental safeguards. These laws help mitigate conflicts between profit maximization and doing good, encouraging companies to adopt sustainable and ethical practices even when short-term costs seem unfavorable.

Conclusion

Cost behavior analysis is indispensable in managerial accounting, influencing planning, budgeting, decision-making, and ethical practices. By classifying and understanding how costs respond to activity changes, managers can make more accurate forecasts, allocate resources efficiently, and uphold ethical standards. Ensuring that ethical considerations underpin all strategic decisions enhances both corporate reputation and financial stability, creating a sustainable foundation for long-term success.

References

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