Balanced Scorecard, Costing System, and Production Costs - Assignment Example

Intermediate Management Accounting past paper essays Contents Answer 4 3 Answer 5 4 Answer 6 4 Answer 7 5 Answer 9-Balanced scorecard 5 Answer 10-Costing system 6 Answer 9-Production costs 7 Answer 10-Accounting and sustainability 7 Answer 4 For firms which do not have centralized operation, an essential requirement for them is responsibility centres which include cost centres, revenue centres, investment centres and profit centres. The performance monitoring measures for these centres are standard cost, divisional profit and return on investment. The transfer price here is the amount that division A of a company charges to division B of the same company for a product transferred. The advantages of using transfer pricing is as follows: Efficient, timely and effective decisions can be taken as the management is closer to the local conditions. Top management is not required to be involved in local problems as the same are handled by the local managers. The responsibility given to the local managers’ help them take decisions independently and hence make good future managers. There are several limitations or disadvantages of it: The idea of working for a common goal may get dissolved as all local managers are working locally. Due to decentralization, the cost of obtaining detailed information is higher and the top management may not every time get accurate and timely information. Co-ordination among local managers may get hampered. Answer 5 Accounting systems act as critical support systems for managerial decision making in different organizations. Selecting a new market for a product is a critical strategic management decision which is done by suitable evaluation of costs and benefits. This involves the evaluation of the financial and accounting aspects of an organization as well. The financial variability and the system of cost allocation along with evaluation of financial resources, activities and capabilities are to be considered while selecting a target market for expanding into or for launching new or existing products. Important factors like the time factors, employee performance and employee perception, costs factors and performance of the organizations can be suitably evaluated through the use of the accounting systems in an organization. The financial information provided by the accounting systems like profit levels, sales growth, returns and other non-financial information like customer satisfaction levels, performance of the competitors, customer loyalty and competing products act as a support system for managerial decision making for launching a new product into a market including the selection of an entry market. The reverse income analysis is used as a part of accounting to evaluate the capital budgeting aspects of the launch of a product into a new market. Answer 6 The managerial decisions which involve the investments done by an organization in real assets are most important managerial decisions in terms of economic value creation. The capital investments done by a business in new and existing projects including investing in building new plants, buying machinery, launching new products etc. are critical for deciding the economic future of a business. The capital investment activities made by an organization increases the competitive advantage of the company in the long term through creation of profitable avenues for the business. The capital investments help in increasing the Net Present Value (NPV) of new projects undertaken by an organization. This adds to competitiveness of the organization in both the medium and long terms. The investment decisions of a business help in generating additional capital for the organization that it can add to the stocks of capital in the future. The capital investments are evaluated so as to assess the benefits of the company in entering into the investment plan. This would ensure that the project remains profitable and adds to the economic and competitive advantages for the business. Answer 7 Target costing accounting is an advance technique for quantitative costing in an organization. The target costing accounting method is widely used as a part of managerial accounting which helps the managers in taking crucial decisions like launch of a new product or selection of a new market. Target costing is used as a cost management tool to make suitable reductions in the costs associated in various phases of the life of a product. Under the target costing method, the costs can be controlled and reduced so as to ensure that the cost of the products in the business do not exceed the set target costs in the business. The costs should be controlled ion the product design phase to ensure streamlining of operations and efficiency of operations because the maximum costs incurred for the product are observed in the product design phase. Answer 9-Balanced scorecard Balanced scorecard as devised by Kaplan and Norton, takes into account four perspectives- internal customers, learning management, business processes and financial perspectives. However, the current global business scenario has called for the adaptation of the balanced scorecard to take into consideration the environmental and sustainability issues as a critical part. A sustainability balanced scorecard is used to take into account the sustainability and ecological dimensions of the business. The stakeholder interests encompass the ecological and sustainability perspectives. This can be implemented in a balanced scorecard through establishing cause and effect relationships that are based on sustainability activities, resources and capabilities. This considers both the environmental indicated expense as well as the direct and indirect results of the environmentally indicated activities. The balanced scorecard can restructure its dimensions to take into consideration the new perspectives of environmentally indicated activities and costs. However, most balances scorecards as used in modern companies like Tesco are modified to add the environmental and sustainability issues as a key perspective of the balanced scorecard. This approach helps to incorporate the relevant sustainability issues that are directly linked to the customer market, financial market, labour and supplier market. Answer 10-Costing system The costing systems used in professional service firms and mass service entities is the Activity Based costing (ABC) system and Responsibility costing system. Activity based Service systems are more appropriate for use in the service sector because project profitability can be evaluated significantly by this costing system. Activity based costing system is used as a total quality management system that takes into account the performance measurement as well as the costs of various resources, activities as well as cost objects including both products and services. ABC method is useful in the service firms and service entities because it can provide established insight supported by facts about the expenses incurred for products and services as well as profitability of services, products, customers, distribution lines etc. This costing system provides a cross functional views of the activities and the cost objects while taking into consideration the profitability and spending related to service provision as well. The major guidelines that support the Activity Based Costing (ABC) system are the direct cost allocation for products, the indirect cost tracing of products and services and implementing suitable cost centres and cost drivers. Answer 9-Production costs A joint production process is used to allocate product costs to two or more products. The joint production cost is the cost of the input and the cost of the joint production process. A joint production cost system is used for product costing activities. The costs are allocated to the products that are being produced by the joint production methods. The product allocation is needed for income determination and inventory valuation. The costs are usually allocated at the split off point which is the point where the joint products become identifiable as individual products. There are three methods of cost allocation in this process. These are the physical units, methods, the relative sales value method and the net realizable value method. The physical unit method is used to allocate the joint production cost based on the physical characteristics of the products. The relative sales value method is used to allocate costs to products based on the relative sales value to the joint products evaluated at the split off point. The net realizable value method for joint production cost allocation is based on allocating joint costs to the products on the basis of the relative value of the final products measured at the split off points. Answer 10-Accounting and sustainability Accounting is widely used to support sustainability and environmental issues in organizations all across the globe. A new form of accounting known as sustainability accounting and environmental accounting has originated in keeping with these functionalities of accounting practices. This form of accounting aims at disclosing the non-financial information of an organization to external parties like groups of stakeholders, creditors etc. This helps at representing the activities of the organization and maintaining transparency in the impacts of the business and its activities on the society and the environment. Sustainability and environmental accounting is a form of managerial accounting that takes into account the environmental, social and ecological factors as well. This accounting is widely used by organizations to take their internal decisions and formulate suitable management policies to ensure that the impacts of the business on the economic and social areas are gauged properly. This form of accounting takes into account the triple bottom line concept- people, profit and planet. The sustainable and environmental accountability is especially critical because it supports the corporate Social Responsibility (CSR) activities of the organizations while improving the accountability and transparency of the organizational performances. Organizations like Tesco Plc. have started implementing sustainability accounting practices in their business so as to build a good image for the business as well as ensure sustainability in its accounting practices. Read More