Management Accounting and how it can be defined Essay

Management Accounting and how it can be defined - Essay Example In other words a more complex definition of Management Accounting expands the simple one and states that the process of providing the information required by management for planning, Organizing and controlling for goals such as: ïÆ'  Recording, Analyzing and reporting on the actual cost and inputs of products, services and processes in which we are very much concerned and which is also our first question ïÆ'  Working with starting cost, function, standard of performance, revenue and quantity budgets, which is related to our second and third questions, ïÆ'  Evaluating Alternative Opportunities, this is last and fourth question. Starting with our first question and second question simultaneously, we will find out the Total Fixed Cost, Contribution Margin, variable cost and Brake Even Point Andre is running a hair cutting saloon in which 5 Barbers work for him 40 hours/week, 50 weeks/year and being paid $9.90 per hour regardless of the number of the haircuts and every one who has a h air cut gets his hair washed so the charger for the shampoo or hair wash is assumed to be already included in it which will come under fixed cost by which his Fixed Cost per year will be $99,000 and $1,750 is the rent and other fixed expenses per month which again comes under Fixed cost by which his Total Fixed Cost per year will increase by $21,000 and the Total Fixed Cost will be $120,000/year and $10,000/month (this calculation is done on yearly ¬Ã‚ ¬Ã‚ ¬Ã¯Æ'  monthly basis). ... Yearlymonthly basis (this calculation is done generally). As we now have our T.F.C i.e. $120,000 we have to calculate Break Even Point i.e. how many haircuts should be done so that we get $120,000 and i.e. 10,000haircuts/year should be done so that we don't get a loss and that is our B.E.P in units. Here there is no Variable cost i.e. no such sort of charges which will increase or decrease the total cost.Moving to our 3rd question i.e. if 20,000 haircuts are performed what will be the Operating income (profit), as we have calculated before our T.F.C i.e. $120,000 which will not change if we do either 1or 10,000 Haircuts/year. Assuming that the cost for one hair cut $12 and if we do 20,000 haircuts our income will be $240,000 and now subtracting the total expenses or T.F.C i.e. $120,000 we get an Operating income i.e. a profit of $120,000. As we have assumed $12/haircut we have included the taxes, Wages, rent, all the fixed expenses, the cost of shampoo and other required material in it. After all this we get a good profit of $120,000 if the saloon works as mentioned i.e. 50weeks/year and the barbers work for 40hours/week. Now for supporting this statement one barber works 2000hours/year as per the calculation and has to do a Minimum of 2haircuts/hour, 80haircuts/week if he works 8hours/day, 5days/week which is again 40hours/week and in 50weeks he can do 4000haircut, if similar calculation is done for the other 4 Barbers our task for 20,000 haircuts will be achieved. In our 4th and last question Andre decides to pay in a revised or in a different way i.e. by decreasing the Wages/hour and giving money/haircut. Andre decides to pay $4/hour i.e. fixed cost and $6/haircut which is

Financial resources and decisions Essay Example | Topics and Well Written Essays - 2500 words

Financial resources and decisions - Essay Example After utilizing the three capital budgeting techniques, I strongly recommend project A as it generates a higher annual rate of return on average investment, shortest payback period, and higher net present value. Task 2. The following table shows the computed unit costs of products A, B, and C. It should be noted that to ensure accuracy, Microsoft Excel Spreadsheet is employed in calculation. The overheads are allocated according to machine hours in the case of machining department, and labor hours in the pressing and cutting department. The overhead rates are computed as follows: 1. For machining overhead costs, the total amount of overhead costs is computed and is divided with the total machine hours; 2. For cutting, the total overhead allocated to cutting is divided by the total number of labour hours both skilled and unskilled; 3. For pressing, the total overhead allocated to pressing is divided by the total number of labour hours used. Thus, machining has an overhead rate of 2.33/ machine hour, cutting has an overhead rate of 1.83 labor hour, and pressing has an overhead rate of 1.42/labor hour. For the services department, these are the cost allocations: The overhead costs for the services departments are allocated based on machine and labor hours computed above. For example, the overhead rate for cutting is allocated by dividing the total costs for cutting by the total number of skilled and unskilled labor hours for cutting. The following are the computed overhead rates for the engineering department: while the following are the computed overhead rates for the personnel department: It should be noted that in the case of personnel department costs allocated to the engineering department and vice versa is computed by...However, this technique disregards the additional cash flow which can be recouped from the project as it only focuses on the time when the whole investment will be recovered. The Net Present Value (NPV) analysis is very much different from the other two techniques discussed as it takes into account the time value of money. This method recognizes that the value of a pound today is greater than its expected value tomorrow. This technique is favored by more economists and managers because it is more realistic. It also takes into account the total cash flow from the investment including the depreciation and the tax shield from it. After utilizing the three capital budgeting techniques, I strongly recommend project A as it generates a higher annual rate of return on average investment, shortest payback period, and higher net present value. The overhead costs for the services departments are allocated based on machine and labor hours computed above. For example, the overhead rate for cutting is allocated by dividing the total costs for cutting by the total number of skilled and unskilled labor hours for cutting. It should be noted that in the case of personnel department costs allocated to the engineering department and vice versa is computed by dividing the total cost to the total number of units produced for each product. Price sett