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Contents

1. INTRODUCTION ................................................................................................................................... 2 2. TASK A ................................................................................................................................................. 2 2.1 CONCEPT OF PRICING DECISIONS ....................................................................................... 2 2.2 MODEL FOR PRICING DECISIONS AND FACTORS INFLUENCING PRICING DECISIONS ........................................................................................................................................ 3 2.3 THE USEFULNESS OF FINDING THESE PRICING FACTORS ............................................ 5 3. TASK B ................................................................................................................................................. 6 3.1. RELEVANCE OF STANDARD COSTING IN ACCOUNTING MANAGEMENT ................ 6 3.1.1. ROLE OR SIGNIFICANCE OF STANDARD COSTING .................................................. 6 3.2. VARIANCE ANALYSIS ............................................................................................................ 7 3.2.1. VALUE OF VARIANCE ANALYSIS ................................................................................. 8 3.2.2. LIMITATIONS OF VARIANCE ANALYSIS .................................................................... 9 4. TASK C ................................................................................................................................................. 9 4.1. ABC (ACTIVITY BASED COSTING) ...................................................................................... 9 4.1.1. ADVANTAGES OF ABC .................................................................................................. 10 4.1.2. DISADVANTAGES OF ABC............................................................................................ 11 5. SUGGESTIONS FOR THE IMPROVEMENT IN THE ACCOUNTING PERFORMANCE: ............................ 11 6. CONCLUSION: .................................................................................................................................... 11 REFERENCES .......................................................................................................................................... 13

1. INTRODUCTION: An organizations management accounting is observed as a managerial activity where the information of the financial matters is used by the managers for providing them an effective method for suitably decide the decisions related to the business and thereby help the organization to meet the budget targets. The process of applying strategy in this managerial activity is called as the strategic management accounting. Researches consider this as a potential sector where proper research will help to give good effective support to the management accounting. As written in (Drury, 2007), strategic management accounting can be use of the accounting information for the purpose of strategic financial decisions in an organization. Through this process the company will be able to use the financial resources effectively so that budgeting targets are met. The topic having the central attraction in this article is strategic management accounting. The authors role in this article is to consider three main task and with the completion of the task provide suitable suggestions for the improving the attainment of the budget target effectively. The aim for the task 1 is analyse the pricing decision concepts and models used by an organization. The function of author in article two is based on the analysis of the costing standards as well as the variances. The limitations and the value of the analysis of variance are also discussed in the task two. The final task gives more importance to the activity based system of costing and to give an analysis of the disadvantages and advantages of it. By this article a good understanding of the pricing strategy will be achieved and will help in the effective design of the strategic management accounting system in an organization. 2. TASK A: 2.1 CONCEPT OF PRICING DECISIONS: The information related to accounting is in most cases regarded as an effective input for the decision of pricing strategy. Discretion in the price setting is kept by most of the organizations that sell services and products that are customized highly or have distinct features when compared to the substitutes. Therefore the best available strategy to have a financial stability is the process of pricing in the organization and the strategy related to it. This becomes an influential element in the strategic management accounting which will result in the meeting of the organizational budgeting targets (Saxena, 2005).

As the organizations changes the view of the service sector, the pricing decisions also will tend to change. For example an organization in the consumer electrical sector will have to give major emphasis value for the customer and pricing decisions need to be done accordingly. Therefore based on the industry or sector where the service is given, the pricing decisions need to be modelled into a good shape. The factor called cost information is relevant in the process of making a pricing decision. For an organization like the current organization under consideration which focuses on the selling of electrical goods and products to the customers should give more importance to the cost of the product before making the pricing decisions (Baker, et.al, 2010). The information related to the cost of the product also has good significance in the direction of product mix and output marketing strategy of an organization. 2.2 MODEL FOR PRICING DECISIONS AND FACTORS INFLUENCING PRICING DECISIONS: Figure 1: Factors influencing pricing decisions

Source: By author, 2011 A framework for the pricing decisions is shown in the figure 1. For making a good pricing decision, the organization need to focus of the cost information related to the product and the relevance of the external market.

The influential determinants related to the pricing of the organization can be stated as follows (Havaldar, 2005), 1. Pricing objectives 2. Cost 3. Marketing objectives 4. Demand 5. Customer response and expectations 6. Competition 7. Government Policy Pricing objectives: The pricing objective type selected by the marketer will affect the price determination used by an organization. As an example take the case of an organization which has consideration for the increase of the share value in market through the pricing objectives. The organization will try to fix a price for the product that is less than the competitors product giving the same quality such that consumers are attracted. In some other cases a temporary decrease of the price is also employed in the form of rebates, discounts, etc. The survival in the market is another pricing objective that can affect the decision of the price of a product (Havaldar, 2005). Cost: The factor cost is another main determinant in the decision related to pricing. The organization may adopt the strategy of the using a temporary cost for competing in the market, cash flow generation, market share increase, etc. This reduction of the cost in the form of discounts, rebates, etc are commonly used by most of the organizations (Havaldar, 2005). Marketing Objectives: The organization will adopt the strategy of deciding the price based on the mission and goals of the organization. As an example take the case of a firm selling electrical products to the outside world. The concerned organization will tend use the pricing method that is equivalent to the product quality. The pricing of the electrical product will be based on the product quality and the market value of the product (Ferrell, Pride, 2010). Demand: The demand of the product or the service in the outside world is another main factor which will form as the determiner of the price of the service and organizational product. It is commonly found that if the product purchased or service used by the consumers is of high demand, then the organization will gradually increase the price of the concerned
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element. If the other way goes around that is if the product is of low demand in the market, then the organization may use the pricing strategy of reducing the price so that the more consumers are attracted (Ferrell, Pride, 2010). Customer Response and Expectation: Another main element to be analysed as a factor of the pricing strategy is the customer response to the price being defined for the product and service. The organization must clearly understand how the price will be interpreted by the customers and what all are the expectations of the customer regarding the price of a service or an organizational product (Ferrell, Pride, 2010). Competition: The competitors in the market can also be regarded as the element for the pricing decision strategy. Based on the competitors the organization has to change the pricing strategy. For example the organization may tend to decrease the cost for keeping up with the market competitors (Easey, 2008). Government Policy: The policy of the government or the laws of taxation is another important element deciding the price of the product. The organization will need to consider the existing government rules in the country, the legal forces, etc before giving a price to a product or a service (Easey, 2008). The main factors which will decide how a price is defined to a product have been discussed in the above paragraphs. The author will suggest the organization to consider these factors in finding out the pricing of the product. The organization need to define the price of the product based on the market condition and the demand of the product. 2.3 THE USEFULNESS OF FINDING THESE PRICING FACTORS: The strategy focussed on the analysis of the factors of pricing strategy will help to create a good pricing mechanism for the organization. The identification of these members will determine by what all factors an organization strategy of pricing can change and how the pricing strategy will help in the organizational growth. For example, the organization currently under study has a major role in the selling of electrical products to the customers. Such an organization before the price definition of the product needs to analyse the aforementioned factors both internal and external. Based on the analysis the relevance of each of the factors in achieving the target budget has to be recognised. A price definition of the product based on this will help the organization to meet the goals and will give improved profits (Easey, 2008).
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3. TASK B: 3.1. RELEVANCE OF STANDARD COSTING IN ACCOUNTING MANAGEMENT: Standard cost is observed as the cost which is predetermined in scientific computation by which the actual performance efficiency of the entity can be found out. In the observation of CIMA, UK, the name standard cost can be defined as the calculation of cost in advance with regards to the total cost that can be expected under the current work environment. In simple words, an organization will find out an estimate of the cost for the production of the functional units in the present work environment. This process is done before the actual production cost has been incurred (Gopal, 2009). Standard Costing in the observation of CIMA, UK, can be considered as the process of making a preparation of the standard cost as well as the use of the concerned term. It will also involve the comparison between the variance analysis and actual cost. In short, the name standard costing can be observed as the process in which the standard cost are setup followed by the application of the standard cost found in the measurement of the deviation between the variance analysis and the actual cost. The net result will be the improvement in the production functions efficiency (Debarshi, 2011). The main characteristics related to the term standard costing can be defined as follows, 1. The management accounting process will help in the determination of the standards that are appropriate in advance for the sales and the cost. 2. Will help in the comparison of the variance analysis and the actual cost. 3. The causes of deviations from the actual cost can be determined using the standard costing. 4. Helps in the effective correction of off standard variance (Smith, 2007). 3.1.1. ROLE OR SIGNIFICANCE OF STANDARD COSTING: The main advantages or the significance of standard costing is very important as it will give the organization a measurement of the actual cost and the variances or deviations from the actual cost along with the analysis of the cause of deviation.

The main significance and the role of standard costing can be summarised as below, 1. The management activity of standard costing will allow the organization to make a good and effective control of the cost along with the supply of adequate information for the control of cost. 2. The process of standard costing will help in the identification of the weak and strong areas of the production function. 3. The process will help in the measurement of efficiency related to the actual performance 4. The method is identified as an effective tool for the process of planning and also for budgeting. 5. This can be used as a good tool for the products price quotation (Smith, 2007). 3.2. VARIANCE ANALYSIS: Variance can be defined as the deviation found original or observed performance from that of the performance standard being defined by the organization. According to the theories of CIMA, UK, the term is defined to as the difference existing between the observed performance and the standard cost. The analysis activity of this difference is called as the variance analysis. The process of analysis will try to find out the main idea behind the cause of the deviation from the expected value to the observed performance (Hilton, 2010). The process of variance analysis consist of three main actions as follows, 1. Calculation of the individual variances 2. Finding out the reason or cause for the presence of deviation 3. Helping in the correction process (Young, 2003). There are different types of variances like material variance, price variance etc. A simple example in the calculation of the price variance and material variance is shown in figure 2 as,

Figure 2: An example of the price variance and the material variance

Source: (Hermanson, Edwards, Susan, 2006) 3.2.1. VALUE OF VARIANCE ANALYSIS: The variance analysis is an element which will help the organization to make an investigation of the cause behind the deviation of the performance. Through this analysis proper corrective measures can be taken thereby reflecting towards the meeting of the organizations budget target (Harrison, Lock, 2004). The summarisation of the value of the variance analysis is as follows, 1. The process of variance analysis will help in the assessment of the individual, departmental and overall efficiency of the topic under consideration. 2. The process is seen as a tool which will help in the control of cost as well as the reduction of the concerned. 3. The process of variance analysis will help in the development of action plans for the future (Harrison, Lock, 2004). The above said are the main highlights of the variance analysis. The overall significance of variance analysis can be described as follows. The act of analysis of the variance will help in the finding of the actual deviation that has happened and this deviation is reported to the
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managers. With this result, the financial managers can create necessary steps to correct these deviations. As a result of the correction the production cost can be reduced effectively and proper control measures for the production cost can be taken. 3.2.2. LIMITATIONS OF VARIANCE ANALYSIS: The above paragraphs described the use of variance in finding out the deviation of the actual performance from the budgeted performance. Even though the process will help in this activity, there exist some limitations to the process. The main limitations of the variance analysis is as follows, 1. The process cannot give explanation to why the organizational unit under the concern deviated its performance from the budgeted performance 2. The process also will not give explanation to why the volume is lower or higher than the expected volume (Debarshi, 2011). Therefore the tool can only be used in the process of assisting the managers, helping the group to have more knowledge of the organization and thereby helping the group to take corrective actions. 4. TASK C: 4.1. ABC (ACTIVITY BASED COSTING): The activity based-accounting is observed as a new emergent concept in the sector of financial accounting. The process of using ABC system of costing has a lot of advantages when compared with the traditional methods of accounting systems. The elemental theme of the activity based costing system is to assign the cost in terms of the activities done in the organization under consideration. A particular cost will be assigned to all the activities and will be summarised to get the total cost (Chadwick, 2006). The activities will be separated or isolated from each other. The main functionalities of the activity based costing system is as follows, 1. The defining of the cost will be applied for all the products passing through a activity defined specifically. 2. The cost of the products assigned will be isolated. 3. Take the utilisation of the technological advancements. 4. Production process will be defined using the activity based costing system.
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5. Can be considered as an elemental part of TCM (Total-cost-management) (West, Hussey, Mike, 2005). The organization under consideration is using the absorption costing system and is planning to change to the activity based costing system for the meeting of the budget targets. The main advantages and the disadvantages in the shifting of the costing system from absorption to activity based can be considered as follows, 4.1.1. ADVANTAGES OF ABC: 1. Accuracy: The important and the notable significance of activity based costing system when considered to the absorption system is the improved accuracy shown. The information of cost provided by the ABC system is considered to be more accurate which will help the managers to take good decisions regarding the price of the product, line charges, etc. 2. Technology Use: Another main advantage of ABC is improved use of the technology and the related equipments in the calculation of the cost of the product. The drawback of the absorption system was that the process is too old and cannot be applied with the new technologies. 3. Equitable approach of product cost charging: The ABC employs an equitable method for the determination of the cost of products related to the activities. This was a major drawback of the absorption system and the gap will be filled by the use of the ABC. 4. Consideration of the complexity of the product: The approach of ABC takes into account the production complexity and based on this the cost of the unit will be defined. This approach is not found in the methodology of the absorption costing. 5. Cost Control: The process of ABC will provide a more accurate and precise level of the control of the cost compared to the absorption costing. This is achieved through the process of defining cost based on the product activity and the management of those activities (Kurt, 2009).

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4.1.2. DISADVANTAGES OF ABC: The main limitations of ABC compared to the absorption costing system is as follows, 1. Need for analysis in detail: The ABC requires or demands the need for more analysis in the determination of the cost compared to the absorption system like analysis of the cost drivers, cost pools, etc. 2. Need for simplification: The need for simplifying the process is another drawback of the system compared with the absorption system. 3. Complexity: The system is more complex when considered with the absorption system. 4. Costly: The system may be more expensive compared with the absorption costing system (Kurt, 2009). The above mentioned are the main advantages and disadvantages of the activity based costing system. 5. SUGGESTIONS FOR THE IMPROVEMENT IN THE ACCOUNTING PERFORMANCE: On the analysis of the study made by the author in the case study, the following of the below said procedures will help the company to meet the target budget and attain profit as, 1. Decide the price of the product based on the analysis of the internal factors and the external factors affecting the pricing strategy. 2. The demand of the product and the pricing objectives will have to be given more importance in the design of the price of the product. 3. The process of the analysis of the variance can help in the assessment of the unfavourable prices and can help in the correction of the deviation. 4. Employ activity based costing system and replace the ole traditional absorption system as more control of cost can be attained. 6. CONCLUSION: The strategic management accounting is an important part of the organizations financial management. With this process the organization will be able to meet the targets as specified in the budget and will therefore help in the maximisation of the profit. The current article disused these matters giving more importance to factors of pricing strategy, variance analysis
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and activity based costing system. From the article it can be concluded that for an organization to meet the budget targets the above mentioned terms are necessary and require a detained investigation in these matters.

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REFERENCES: Chadwick L, 2003: Essential management accounting for managers, 4th Edition, Pearson Education, Pages: 140 150 Debarshi B, 2011: Management Accounting, 3rd edition, Pearson Education India, 189 194 Drury C, 2007: Management and Cost Accounting, 7th Edition, Cengage Learning, Pages: 133 140 Gopal R, 2009: Accounting for Managers., 3rd Edition, New Age International, Pages: 136 145 Hermanson R, Edwards J and Susan I, 2006: Managerial Accounting, 1st Edition, Freeload Press, Pages: 102 110 Hilton R, 2010: Managerial Accounting, McGraw-Hill Companies, Pages: 145 150 Kurt H, 2009: Essentials of Managerial Accounting, 3rd Edition, Cengage Learning, Pages: 133 136 Mike B, Hussey R, West C, 2005: Essentials of management accounting in business, 5th Edition, Cengage Learning, Pages; 98 104 Ray P, 2009: Managerial Accounting for Business Decisions, 3rd Edition, Pearson Education, Pages: 122 126 Saxena R, 2005: Marketing Management, 3rd Edition, Tata McGraw-Hill Education, Pages: 196 200 Smith J, 2007: Handbook of Management Accounting, 4th Edition, Elsevier, Pages: 133 140 Web resources: www.googlebooks.co.uk, assessed on 12/11/2011 www.emerald.co.uk, assessed on 13/11/2011 www.athensauthentication.org, assessed on 01/12/2011

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