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Table of Contents
1.Introduction: ....................................................................................................................................... 2 2.Outcomes of the Questions: ................................................................................................................. 2 2.1Role of Management Accountant: ...................................................................................................... 2 2.1.1.Planning :........................................................................................................................................ 4 2.1.2. Directing: ....................................................................................................................................... 5 2.1.3. Controlling: .................................................................................................................................... 6 2.1.4. Decision Making: ........................................................................................................................... 6 2.2.Relevant and Irrelevant Costs and Revenues: ..................................................................................... 7 2.2.1.Relevant Costs and Revenues: ........................................................................................................ 7 2.2.1.1. Opportunity Cost: ....................................................................................................................... 7 2.2.1.2.Make or Buy Decision: ................................................................................................................. 8 2.2.2.Irrelevant Costs and Revenue: ........................................................................................................ 8 2.2.2.1.Fixed Costs:.................................................................................................................................. 9 2.2.2.1.1. Traceable Fixed Cost: ............................................................................................................... 9 2.2.2.1.2. Common Fixed Cost: ................................................................................................................ 9 2.2.2.2.Sunk Cost: .................................................................................................................................... 9 Continue or Drop out: ........................................................................................................................... 11 2.3. Activity-based Costing: ................................................................................................................... 11 2.3.1.Benefits of Activity-based Costing: ................................................................................................ 12 2.3.2.Problems of Activity-based Costing: .............................................................................................. 12 3.Conclusion:......................................................................................................................................... 13 4.References: ........................................................................................................................................ 15
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Figure (1) which represents the model of the role of the management accountants is developed by (Wells, 2000), and we also observe here that the management accountant of Jessup in strategic management should go beyond the strategic planning to pre-planning processes. Management accountant of Jessup Ltd. should deploy and implement the strategic plan in compliance its goal, measure and evaluate the outcomes. Completing the plan and communicating it to all staff is deployment. Resourcing the plan, putting it into action, and managing those actions are the implementation. Measurement and evaluation includes tracking implementation actions, assessing how the organization in outcomes of those actions based on the outcomes changing and updating the plan. But, he is not only information provider but also a decision maker as well as very important part in the management team. Management accountant provides information and helps in decision making to the owner of the Jessup. In this ways management accountant must help Jessup to run the organization effectively and efficiently.
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2.1.1.PLANNING :
The determination of goals, the selection of some courses of actions and the determination of the ways to implement those actions to achieve the goals of an organization are done by a management accountant (Garrison et al, 2006, and Bamber et al 2008). So the management accountant of Jessup will perform these above activities. Their goal must be specific and future long term oriented. To attain the goal selected actions should be performed being long term oriented. The main goal of an organization is the maximization of profit except for the non-profit organizations. In setting and attaining the goal the management accountant should also be long term oriented. To profit maximization, the best way is to minimize cost, maximize revenues as well as generate sales. To generate sales he should create an exciting and attractive environment following a customer intimacy strategy.
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2.1.2. DIRECTING:
Strategic management accountants in Jessup Ltd. should monitor the companys day-to-day routine operations and observe whether the employees are performing their activities as needed (Bamber et al, 2008), observe the implementation of the plans to achieve the organizations long and short term goals and try to keep the smooth functioning of the organization. After making plan, the management accountant is required to guide its stuff towards achieving the organizations goals. He should assign employees their responsibilities, arbitrate disputes, give solutions to their problems and make many small to large decisions which will affect customers, employees as well as the whole organization (Garrison et al, 2006). The goals of individuals may not be in accordance with the goal of the organization. During that time the management accountant of Jessup should motivate the managers and other employees and direct their efforts maintaining employees interests towards achieving the organizations goals. So, the major role of the management accountant is putting the business into action. For example, when a composer writes a beautiful score of music to bring a life on it, there require all members of the orchestra and a conductor to bring the orchestra into synchronization and harmony with the direction of the composer. So the management accountant should have all available necessary information, such as whether inventory is available when needed, whether productive resources are scheduled appropriately, whether to deliver output transportation system will be available and so on. He must also be concerned about whether Jessup is complying with contracts and regulations needed to comply.
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2.2.RELEVANT AND IRRELEVANT COSTS AND R EVENUES: 2.2.1.RELEVANT COSTS AND REVENUES:
Different revenues and costs in future as between the alternatives are the relevant costs and revenues (R. H. Parker, 1969). In a particular decision making these costs and revenues are relevant. A relevant cost or revenue changes if an alternative cost or revenue is taken. These are also known as Differential Cost or Differential Revenue. Future costs or revenues may be relevant or not based on the situations, based on their types. Future costs or revenue whether are going to be incurred or not depend on the made decision, are relevant (Dennis Caplan). Generally are relevant which costs have impact on the choice of alternatives are relevant such as the variable costs, opportunity costs. For Example, there is a advertisement contract at 10000. The general cost of resource for future usage can not be decided whether to incur or not at 3000, because these will be demolished whether used or not. Service can be provided for the contract at a cost of 8000. So the total cost for providing the advertising service is 11000. But here the above shown cost of 3000 is irrelevant whether the contract is accepted or not the cost is fixed. So this contract will add to the profit margin (10000-8000) 2000. So the management accountant of Jessup Ltd. should accept the contract.
But if Jessup provides this service by negotiating with others the only cost will be 8500. Here the relevant cost of this make or buy decision for Jessup is 9000. So, if the Jessup provides this public relation service by others it can save 500.
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2.2.2.2.SUNK COST:
Already incurred in the past are sunk costs. Which costs are already been incurred as sunk costs should not be considered in decision making. Sunk costs can also be termed as non-refundable costs (Dennis Caplan). So, non-refundable costs are irrelevant in the decision making.
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For ExampleCost Items Revenue (public relation service) Variable costs ( as the name of the organization) Fixed cost (Traceable) Fixed cost (Common) Variable costs (providing service by other) Variable costs (providing service by itself) Total Costs 10000 1000 4000 1000 2500 8500 10000 1000 7000 8000
Cost Items Revenue (public relation service) Variable costs ( as the name of the organization) Fixed cost (Traceable)
Relevant
Relevant
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Activity-based costing works with the following stepsStep-1: Resources are consumed for activities identify these activities and assign costs to them. Step-2: Determine cost drivers that cause these costs. Step-3: Divide total cost by total activity to calculate cost per driver. Step-4: Assign costs to the service items by multiplying activity rate to the number of activity consumed by each division of services.
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3.CONCLUSION:
Jessup Ltd. is a fast growing organization having only two divisions which indicates simple operating process. Although it has simple operating process it needs a management accountant to attain its goal. The responsibility of a management accountant performed when he will plan, direct, control and make decision for Jessup as a management and an accountant. In every decision he will consider whether the organizations objectives, goals, mission and vision will be attained or not. They will also make differentiation between the cost and revenue items which are relevant or irrelevant in decision making and makes decision on the basis of the cost items. In decision making we should not consider all the cost and revenue items, as every cost and revenue items are not relevant in the decision making. So the management accountant by differentiating
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XIII.
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