Management Support Function
As a management support function, management accounting must have take into consideration a number of things including but not in any way limited to a number of accounting techniques, emerging trends in the field of management etc. In this text, I concern myself with an analysis of the case study and seek to find out whether the solutions proposed would be useful to agricultural enterprises inclined towards utilizing management accounting techniques. I also explain the dysfunctional decisions that could have been made by failure to utilize ABC and lastly discuss the relevance of ABC as per the settings presented by the suggested readings.
Proposed solutions of the case study: Significance to agricultural enterprises seeking to employ management accounting techniques
When it comes to the cost and profit centers, the case presents efforts made as far as distinguishing profitability and cost of production is concerned. Further, there are deliberate efforts being undertaken to come up with a management accounting system which shall go a long way towards facilitating the information gathering process so as to enhance efficiency in management. When it comes to the relevance to agricultural enterprises seeking to employ management accounting techniques the approach distinguishing profitability and the production costs helps in the identification of problem in such a way that timely solutions can be found.
Further, Cost and profit centers go a long way towards availing to the management a tool of measurement for the business’s various component activities. According to Kinney & Raiborn (2010), a cost centre is a business’ component operating unit whose given function brings about costs which are in one way or the other related to the operations of a business or avails profits to a business.
In an agricultural enterprise, a cost centre could include the accounting department while the marketing department could be taken to be a profit centre.It can also be noted that the criteria of allocation as well as allocations is largely relevant when it comes to the distribution of costs to cost centers i.e. production or support. For enterprises operating in the agricultural marketplace, they can choose from wide range allocation methods. In this case, the service centers include but are not in any way limited to vehicles, transportation, employees, maintenance as well as equipment.
ABC: Dysfunctional decisions as a result of using traditional cost allocation
It can be noted that if the Farm Council Case failed to use Activity Based Costing (ABC), a number of dysfunctional decisions could have been made by reliance on the traditional cost allocation. It is important to note that volume in some instances is not the cause of indirect or common costs that demand allocation. However, if the Farm Council Case in the scenario recounted used traditional cost allocation, it could have ended u basing allocations on volume including but not in any way limited to machine hours in terms of production, amount of products manufactured as well as the labor hours (direct).
Hence in that regard, dysfunctional decisions could have been made as the root causes of costs are not the basis for traditional cost allocations. For instance, machine hours cannot be taken to be the cause of manufacturing overheads no matter their significance. However, in this case, the allocation of the overhead may still be made using those hours.
It is important to note that some special costs including but not limited to additional storage, special handling, brief production rune etc. may not be allocated to all products on the machine hours basis as doing so would bring about largely misleading as well as inaccurate individual production costs.
Allocations in this case should be founded on their root causes. When it comes to my preference as far as the solutions are concerned, I would prefer the initial solution due to its efforts as far as distinguishing profitability and cost of production is concerned. the alternative solution in this case does not explicitly state any attempts to come up with such a distinction. Instead, it considers the centers relationship for a managerial accounting formulation (alternative) that significantly deviates from that which is chosen by farmers.
Discussion in relation to the proposed readings
According to the author of the article, the classifications of costs as either variable or fixes is largely inappropriate because such classifications were originally introduced when variations in costs were believed to be largely linked to volume. Hence in that regard, the utilization of this model in the decision making process is likely to inform erratic decisions as far as decision making is concerned in the business setting.
It is therefore better to thing of costs as or in terms of consumer focused activities rather than on them either being variable or fixed. This is in consistence with Activity Based Costing. Hence by utilization of activity based costing, it is possible to identify activities I the enterprise as well as their associated resource costs and hence one can get a more vivid picture of the actual costs incurred as far as doing business is concerned.
Conclusion
In conclusion, it is important to note that the significance of Activity based Costing (ABC) lies mainly in its assignment of costs rather than the allocation of the same. Hence by enabling an individual to come up with the associated costs of resources as well as the resources themselves, the relevance of ABC in cost accounting cannot be overstated.
References
Kinney, M.R. & Raiborn, C.A. (2010). Cost Accounting. Cengage Learning
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