Management Accounting Essay


Management control is to ensure that the organization achieves its objectives. Once the objectives have been agreed, action plans should be drawn up so that the progress can be directed towards the ends specified in the objectives. Such objectives are used to make comparison with alternatives in decision making & are also the critical elements in evaluating the success or failure of the action plans. One of the most widely used management control systems is the budgetary control & the term “Budget” itself is one of the objectives that is expressed quantitatively in financial value [1]. Undoubtedly budget is drawn up for control purposes & guiding the organization towards its objectives.

The budgeting process is done quite arbitrary by estimating the expenses in the next year or adding a few percentages from last years’ budget. Any contingency & extraordinary dollar spent would be acquired from the miscellaneous item; as long as it is still a positive figure. The main control function of the budget follows the same old rule: no budget, no expenses.

The scope of this paper is to explore better control & management in the organization’s financial resources deployed in training & development, especially in avoiding the ineffective use of resources, increasing accountability, streamlining & improving existing procedures, & managing & measuring performance in a systematic & data-oriented approach.

Control & Performance Measurement System

Referring to Broadbent & Cullen [2], management control is the process by which management ensures that the organization carries out its strategies, i.e. resources are obtained & used efficiently & effectively in the accomplishment of the company objectives. As pointed out by Brooks [3], the role of management accounting is to concern the performance of the organization & the way in which its activities are planned & controlled by its management. Further supported by Bromwich [4], the major functions of management accounting used by management are to plan, evaluate, & control within an organization & to assure use of & accountability for its resources. Although most literatures reviewed (Jeans & Morrow [5], Murphy & Braund [6], Clark & Baxter [7]) stated that the major use of management accounting control is on manufacturing process, the concept of performance measurement can be widely applicable within the organization. Management controls are undoubtedly basic good management practices & basic management tool to address fraud, waste & abuse.

While most literatures would address the issue in organization level but the success of management controls span the whole gamut of management activities of each department. Management controls assist organizations in deciding what should be done or what should be emphasized. They help organizations to allocate funds, monitor activities, and conduct reviews & provide the information organizations need to make mid-course corrections & evaluate individual performance. Such, controls include not only internal accounting controls but also controls that focus on results.

Down to departmental level, management control includes all activities designed to ensure that a department accomplishes its objectives; complies with company policies & uses employees’ time & resources appropriately. Departments are responsible for setting up, following, & regularly reviewing their management controls. The basic departmental responsibility in management control should be more than ensuring expense within budget; management controls should include both financial controls & non-financial controls. Establishing & maintaining an internal control structure is an important departmental management responsibility. To provide reasonable assurance that an entity's objectives will be achieved, the internal control structure should be under ongoing supervision by management to determine that it is operating as intended & that it is modified as appropriate for changes in conditions. Department managers are responsible for the management controls in their departments. In addition, to setting up good management control systems, managers should periodically review their systems to ensure they are working.

A lot of activities within the organization are very often done mostly for the sake of doing them, not for contributing directly to the results of the organization & the department manager is the one who should conduct ongoing review to eliminate or modify such activities. For example my company is under a laboratory accreditation scheme & all employees are required to attend the mandatory “work safety training”. The job of mine in such training is to ensure all new joined employees are attending & then run the video tape. By applying the input-process-output model, the training can be described in Fig.1:

In such open loop system, the only control accomplished is to ensure that all newly joined employees have attended the mandatory training & the resources deployed are only justified by the attending record. Besides of fulfilling the requirement of external audit, the objectives of the training should also include enhancing the work safety of the company. The existing procedures offer no evaluation nor benchmarking for the success or failure of the training; in which largely reduce the efficiency & effectiveness of the resources spent.

To improve the effectiveness of the training, a regulating & evaluation mechanism should be implemented in order to ensure that the objectives of the training are accomplished. The process is modified into a feedback closed loop control system as shown Fig.2:

The output is now not only the attendance record but also to ensure the trainee has learned something from the training. Since the objective is to minimize the frequency of work accident & this factor is also used as the regulator to measure the success of failure of the training. A standard is also required for comparison. For example if the work accident happened then it might imply that the trainees could not successfully acquired the planned knowledge & skill. Revise on input has to be done such as to review whether the training material has been out-dated or the media of the training should be bilingual instead of purely English.

The major advantage of feedback control system is to ensure that the objective of the system is closely monitored & controlled. Once the output varies from the desired result, a regulating procedure & mechanism is to be carried out so that the system returns to its desired state. However, the major drawback of the feedback control system is that it only reacts to what has happened & adjustment is done after the undesirable output has occurred. Sometimes these undesirable outputs may not be acceptable or affordable by the organization. Take the work safety training as example, very often the work accident in laboratory may result in serious injury to the employees or sometimes the result could be fatal. To further improve the control process, a feedforward closed loop control system should be adopted & it is shown below in Fig.3:

The major advantage of the feedforward closed loop control system is to be predictive & proactive. Instead of waiting for the undesirable output occurred, corrective action is done to minimize its occurrence. Not only the input will be adjusted but also the output & the process are monitored. Take the work safety training as example again, to achieve feedforward control, a written test is conducted for all trainees immediately after the training, so as to ensure they have acquired the knowledge such as toxic chemical handling & emergency retreating procedures (ERP). The test result is then compared to the standard. If the pre-set standard is not met then adjustment can be done on both the input & the process such as adding real life examples of other laboratory accident & practicing the ERP by simulation. The feedforward control is also continuous such as employees may be periodically assigned to sit for the test & may be required to attend the training again in case of failing the test.

One of the important points not mentioned in the literature is that who should be held responsible for the control system? There is a common misconception that it is the auditors' responsibility to suggest & implement management controls. However, referring to the above paragraphs, it is the responsibility of every department manager to set up & maintain an adequate system of internal controls. Senior management may set the right tone but it is every department manager who is accountable for providing policies, guidance & oversight to the control system. The auditors’ purpose is to independently evaluate the adequacy & effectiveness of existing control systems by analyzing & testing controls & then making recommendations to management on how to improve controls. Besides, all employees should be aware of their responsibility to contribute to the management controls such as to communicate upward about problems in operations & non-compliance with policy.


Once we have a comprehensive control system to ensure the resources deployed are effectively used in the activity, it is also important to look at how much resources: & i.e. the cost of making this activity happens. Undoubtedly the cost of an activity, often expressed in dollar value, is one of the most important criteria for organization to make decisions. Very often the attention of management accounting, or costing accounting would be directed towards the manufacturing industry, especially in the classification of the cost such as fixed vs variable [8]; since the cost of a product or service provided by the company is crucial in various decision making such as pricing or stock valuation [9]. However, it should be remembered that the main theme of management accounting is to provide information for decision making & thus these costing methods should convey message more than classification but also to justify the activity per se.

According to Broadbent & Cullen [11], the term “cost center” refer to managers assume responsibility for cost. It is true that the HR department does not directly generate revenue for the company but providing services to all employees. Whether the cost should be, or how should it be, absorbed by other departments is opened to debate. However, to assist user departments to truly review their operation cost & to imply effective control in the cost spent, appropriate cost apportionment should be done. As Cave & Mills [12] stated that costs that cannot be directly assigned are called common cost & should be shared out in an equitable manner on the basis of the estimated benefits received by the cost centers. Although cost apportionment is a subjective exercise, using a relevant & consistent apportioning basis can largely assist the process. Take the “work safety training” as example again, the major cost involved are the training materials & the cost of the trainer. The cost can be apportioned to individual department according to the number of attending employees of that department since all attending employees are assumed to receive the same benefits from the training lesson.

Besides, when appropriate cost apportionment is done, user department tends to become more concern about the efficiency & effectiveness of these “service-to-all” activities. For example when no cost is charged to the departments, they will simply ask the employees to attending the training again in case their employees fail the test. However, if such training lesson is presented in dollar amount, failure the test means that a certain amount of dollar is wasted & another amount of dollar have to be spent again. In return the training lesson receive more focus & more serious attention. It can remind the department that should they take up the accountability of the cost & thus impose tighter measure to ensure their employees achieve the objectives of the training.


Whereas financial accounting looks backwards & inwards, management accounting reflects the direction of manager’s vision & the main tools to look forwards & outwards is budgetary control [13]. As mentioned in previous paragraph, a budget is the “financial picture” or a translation of business plan into "numbers." In its simplest form, a budget is a detailed plan of future receipts & expenditures - a projected profit and loss statement by estimating the cost of the activities & when will such cost incurred; so as to prevent unexpected surprises that may lead to financial problems.

The budget is one of the most effective management tools for control but as Jones [14] stated that too often control has become constraint. During the budgeting process, too much attention has been focused on the numbers, instead of the direction or strategies of the company. The budgeting process per se is forecasting & estimating, i.e. if without accurate information, budgeting is not far away from wild guessing. As described by Newing [15], the traditional budgeting process is done on the basis of an extrapolation of last year’s costs & year to date actual’s “plus a bit”; & then reduced by across-the-board management cuts. Instead of looking at the strategic direction of the company, budget allocation depends on the budget holder’s negotiating skills.

The current budgeting process of my department falls into the above category. Inevitably last year's expense is a good reference point but it should not be the only reliable factor. Other areas like changes in labor markets, salary index & compensation benefits trends should also be under considered so as to make sure that all the planned goals & activities are addressed. Another useful information could be consolidated into the budgeting process is the manpower forecast. Since HR department is providing services to employees, the number of employees forecasted in the next year should be one of the best cost-driver in determining the level of spending.

Besides, the budget can only achieve its control property if periodic feedback & variance analysis is enforced. Actual results should be compared to the budget on a regular basis & it is this “measurable” property that makes the budget an important tool of management control. Although theoretically any variance from the budget should be closely analyzed & then be explained like change of market & technologies [16], whether the company accept such variance, especially when “over-budget”, is largely depending on the company culture & management philosophy.

For example in my company, very often “over-budget” is being translated into “poor planning” or “spending more than you should”, only two but both are undesirable outcomes are resulted: the managers only perform activities that are budgeted, or purposely prepare the budget amount more than it requires. To be frank it makes our lives easier to budget in this way but to contribute to the overall success of the company, managers should prepare budget to the closet of the reality & take up the accountability to explain any variance from actual spending. Only carrying this attitude that can make budgeting a management tool of control instead of a set of constraints in numbers.

Conclusion & Recommendations

The main components of management control should integrate objectives setting, management accountability systems, & performance measurements. In this way, a performance framework ensures that an organization clearly communicates what it wants to accomplish, keeps it on track, & determines the extent to which it is reaching its goals.

The control objectives are the foundation of a management control system by stating both the positive effect management wants to attain & the adverse effects that management wants to avoid. The management accountability systems concentrate in the control procedures, i.e. the specific steps which management has established to provide reasonable assurance of achieving control objectives. The major contribution of performance contribution is its focus on achieving results by reminding us that being busy is not the same as producing results & it redirects the efforts away from busyness toward effectiveness.

Moreover, the performance measurement system also justifies the control objectives & procedures since both results & accomplishments cannot be focused or managed unless we know that where we want to go (objectives) & by what means we are going there (procedures).


1. Wood, F., Business Accounting 2, Longman, International Student Edition, 1985, p. 321.

2. Broadbent M. & Cullen J., Managing Financial Resources, Second Edition, Butterworth-Heinemann, 1999, p.120.

3. Brooks M.J., “Financial Accounting Principles & Management Accounting Practice”, Management Accounting, October 1988, p.20.

4. Bromwich M., “Managerial Accounting Definition & Scope – From a Managerial View”, Management Accounting, September 1988, p.27.

5. Jeans M. & Morrow M., “The Practicalities of Using Activity-Based Costing”, Management Accounting, November 1989.

6. Murphy J.C. & Braund S.L., “Management Accounting & New Manufacturing Technology”, Management Accounting, February 1990.

7. Clark A. & Baxter A., “ABC + ABM = Action, Let’s Get Down to Business”, Management Accounting, June 1992.

8. Kennedy A., “Activity-Based Management & Short-Term Relevant Cost: Clash or Complement?”, Management Accounting, June 1995.

9. Robert G., “Fixed Costs & Sunk Costs in Decision-Making” Management Accounting, January 1992.

10. Broadbent M. & Cullen J., Managing Financial Resources, Second Edition, Butterworth-Heinemann, 1999, p.121.

11. Mills R. & Cave M., “Overhead Cost Allocation in Service Organizations”, Management Accounting, June 1990.

12. Claret J., “Budgeting with Flexibility”, Certified Accountant, November 1988, p.36.

13. Jones R.B., “Budgeting & Cost Management: A Route to Continuous Improvement”, Management Accounting, February 1992, p.36.

14. Newing R., “Out with the Old, In with the New”, Accountancy, July, 1994, p.49.

15. Hopwood A.G., “Accounting & Organization Change”, Journal of Accounting & Public Policy, Vol. 8, No. 3, Fall 1989.

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Part A
The position that cans felid by management accountant: by (Hilton 1999)
1. Corporate treasurer: is the job summit that management accounts aspire to. The financial responsibilities within a firm, managing liquidity risk, issuing debt, interest rate risk and managing capital .he sits on the board of director managing finance committee.

2. Chief financial officer (CFO): managing all finance function on a day ‘ to- day. He is monitoring of company’s assets to sure that in lowest risk. He want to run an effective and efficient finance operation within the organization.

3. Corporate controller: collect and correct finance information, prepare financial statement, budget reports, and cost ‘analyses report. He must sure that financial statement are prepared accurately and documented and collect the bills for the firms expenses will paid .

4. Accounting manager: prepped budget reports for internal management and prepare statements, stakeholder reports .developed master budget in order to make recommendations to top manager.

5. Financial analyst: help to prepare budget, monitor tasks performance, keep track of actual cost and analyses different kind of variances.

6. Cost accountant: accumulate accurate data about the cost of RM, work-in-process, finished goods labor, overhead and set cost standards.

7. Budget analyst: prepare and managing the master budget with making comprising between actual and planning performance .he needs become familiar with all operations at corporation.

8. Fixed ‘ assets accountant: responsible for keeping records related to a firms property, plant, equipment and building .to verify accuracy of the books.

9. Cash ‘ management accountant: responsible for cash ‘related financial operation .making transfers between accounts, monitoring deposit and payments, and reconciling cash balance.

10. Internal audit: ensure that various procedure, like control over cash and assets. And look for waste material of industries.

Q2- roles that managerial accountants play such as
planning process in long term and short term that helps establish future plans when providing accounting information used in the decision making process, about which product should be sold in which market and at which price . Provide historical data as a model for future performance.

Controlling make a comparison between achieved and planned performance so when we do that can be identified pans and corrected. When he draws up performance report that compare the actual to budgeted revenue for each center of responsibility .manager are warned about specific activates that are not according to the plan in addition assist the control function providing immediate action measures and identifying problems.

Organizing establishes the internal company’s in which the required activities must be carried out and designates who will perform them. managerial accountant identifying the element of an organization structure more relevant and essential for proper functioning of the management accounting system allows the preparation of an internal reporting system for this structure where is dealing with authority to ensure actual performance .

Communicating involves decentralization and department are linked in a hierarchy of formal communication and maintenance of an efficient communication reporting system. That report prepared by accountant communicates information to a manager include activities and highlighting issues that may be required.

Motivating that influencing individual’s behavior so that participant can identify those, self’s with the aims of the firm.
The budgets (planning) and performance reports have influence in motivating company staff. The budgets are targets intending to motivate managers to achieve organizational objectives. (Jayne2009)

Managerial vs. Financial Accounting
Managerial accounting differs greatly from financial accounting. The financial information recorded by managerial accountants is primarily for internal use, while financial accountants record information used by external parties. In contrast to financial accounting, managerial accounting does not follow generally accepted accounting principles. The reports created by managerial accountants include performance, budget and cost reports. The reports often focus on a particular segment within the organization, such as product lines or departments. Financial accountants record information for the creation of financial statements. The primary purpose of financial statements is to show the financial health of the company as a whole.
Managers must often make decisions that require choosing between alternate products. For example, a manager of a manufacturing company may need to determine the best product to manufacture to remain profitable and the price to charge customers for the product. A major factor in determining the price of a product is the cost related to manufacturing the product. Managerial accountants often perform cost analysis for certain products and divisions, which include variable and fixed costs. The production decisions made by managers are a direct result of information received from managerial accountants.

Forecasting and Planning
The information presented by managerial accountants is often used by managers to forecast and plan. Managers want to know what products are best to manufacture now, but also desire to know where they should focus their efforts in the future. Managers use the information to develop specific goals and strategies for the future. Planning requires that managers align the company’s objectives with its available resources. A manager’s ability to forecast and plan depends on the budgets developed by accountants.
Preparing budgets is a basic activity for managerial accountants. Budgets express the company’s plan of action using quantitative figures. The budgeting process allows managers to allocate resources to the most financially needy departments, and eliminate programs and departments that are not effectively using the resources. The disadvantage of the budgeting process is that it can cause animosity between departments vying for resources. The particular budgets produced by managerial accountants depend on the needs of the organization. Common budgets prepared include the master, sales, production, material, labor and cash budgets.

The skills, which are important for management accountant

1. He must have financial and managerial knowledge ,ability analytical and verbal and written skills .

2. The ability work in a team.

3. He must have experience about business functions.
Those important skills help managerial accountant to understand what company’s needs (Siegel (1999).

The concept of strategic management accounting

Strategic means a group of actions aimed and supporting the competitive position of the organization and create competitive advantages (David 1993). That means not only the concept of strategy mean long-term plan, but consists of behavior to be on the company to do to find a better competitive.
Strategic management accounting emerged from management accounting, which explain the objectives and strategies of senior management in the management accounting in external environment , when use Financial information is used to develop strategies as a means to support competitive advantage of the enterprise , The basic character of strategic management accounting is the interaction with marketing department , To represent an effective mix between the concept of marketing and accounting management aims to achieve sustainable competitive advantage for the company.(Wilson,1995).
issues emphasized by (Ansari,et,al.2009 ) that it should be on the companies that want to continue in modern manufacturing environment, The severe competition, that are working hard on the unification of three dimensions of the strategy, which are the foundations of strategic triangle ( QTC Triangle ) which means the quality of the credibility of the components of the product, according to expectations of the customer, and the cost, as measured by the extent of the ability of the customer to pay to purchase the product, and the time, which means the speed of access to the market through a reduction in the time product production floor, in addition to the pace of delivery consumer product when you need it.
Information management accounting must be appropriate to take strategic decisions, must be continuously developed, and is taken from the work of the integrated sections of all disciplines, and must update information on quality, cost-time, in addition to changing the behavior of individuals to fulfill the strategic goals of the company, where the characteristics of information the crisis to take decisions which defined strategy (Ansari, et,al.,2009) :
1- Technical side: the availability of quality and relevance of this information to make decisions.

2- . The behavior side: the ability of the information on the events of good impact in the behavior of individuals to fulfill the strategic goals of the company.

3- Cultural side: the extent of the contribution of management accounting in strengthening the partnership between the company and the community in cultural values and beliefs.

Previously, we note that the most important concerns and issues of complementarity between each of the strategic triangle and triangle information for the company to safety and to go on globalization and competition in the market.
Part b
Cost Item Your Answer
Variable cost
Fixed cost
Selling or administrative cost
Product cost
Manufacturing overhead cost
Sunk cost
Opportunity cost
Differential cost (between the alternatives of producing or not producing surfboard)

B Every decision involves a choice from among at least two alternatives. The costs and benefits of the alternatives should be compared when making the decision.
1. Identifying relevant costs. A relevant cost or benefit is a cost or benefit that differs between alternatives. Differential costs are relevant costs. Any cost or benefit that does not differ between alternatives is irrelevant and can be ignored in a decision. This is a tremendously powerful concept that allows us to ignore mounds of data when making decisions since most things are not affected by any given decision.
a. All sunk costs (i.e., costs already irrevocably incurred) are irrelevant since they will be the same for any alternative. All future costs that do not differ between alternatives are irrelevant.
b. Any cost that is avoidable is potentially relevant. An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another.
c.When making a decision, eliminate all irrelevant costs. Make the decision based on the remaining, relevant costs.
2. Different costs for different purposes. Costs that are relevant in one decision situation are not necessarily relevant in another. In each situation the manager must examine the data and isolate the relevant costs.
3. Human frailties. Many (most?) people have a great deal of difficulty ignoring irrelevant costs when making decisions. People are especially reluctant to discard sunk costs in decision-making when the sunk costs are a consequence of a past decision that in retrospect was unwise. People have a tendency to become committed to courses of action that have not worked out. Taking a loss on an asset is an admission of failure.
B. Adding or Dropping a Segment. Decisions relating to dropping old products (or segments) and adding new products (or segments) are among the most difficult that a manager makes. Two basic approaches can be used to analyze data in this type of decision.
1. Compare contribution margins and fixed costs. A segment should be added only if the increase in total contribution margin is greater than the increase in fixed cost. A segment should be dropped only if the decrease in total contribution margin is less than the decrease in fixed cost.
2. Compare net incomes. A second approach is to calculate the total net income under each alternative. The alternative with the highest net income is preferred. This approach requires more information than the first approach since costs and revenues that don’t differ between the alternatives must be included in the analysis when the net incomes are compared.
3. Beware of allocated common costs. Allocated common costs can make a segment look unprofitable even though dropping the segment might result in a decrease in overall company net operating income. Allocated costs that would not be affected by a decision are irrelevant and should be ignored in a decision relating to adding or dropping a segment.
C. The Make or Buy Decision. A make or buy decision is concerned with whether an item should be made internally or purchased from an external supplier.
1. Advantages of making an item internally.
a. Producing a part internally reduces dependence on suppliers and may ensure a smoother flow of parts and material for production.
b. Quality control may be easier when parts are produced internally.
c. Profits can be realized on the parts and materials.
2. Advantages of buying an item from an external supplier.
a. By pooling the requirements of a number of users, a supplier can realize economies of scale and may be able to move more quickly up the learning curve.
b. A specialized supplier may be able to respond more quickly and at less cost to changing future needs.
c. Changing technology may make producing one’s own parts riskier than purchasing from the outside.
3. Opportunity Cost. Opportunity costs should be considered in decisions. There is no opportunity cost involved in using a resource that has excess capacity. However, if the resource is a constraint (i.e., there is no excess capacity) then there is an opportunity cost. The opportunity costs may be far more important than the costs typically recorded in accounting systems.
D. Special Order. Special orders are one-time orders that do not affect a company’s normal sales. The profit from a special order equals the incremental revenue less the incremental costs. As long as the incremental revenue exceeds the incremental costs, the order should be accepted. If there is no idle capacity, opportunity costs should be included as part of the incremental costs.
E. Utilization of a Constrained Resource. A constraint is whatever prevents an individual or organization from getting more of what it wants. There is always a constraint as long as desires are unsatisfied. The chapter focuses on one particular kind of constraint-a production constraint. A production constraint can be a raw material, a part, a machine, or a workstation. If the constraint is a machine or workstation, it is called a bottleneck.
1. Contribution Margin Per Unit of the Constrained Resource. Whenever demand exceeds productive capacity, there is a production constraint. This means that the company is unable to fill all orders and some choices have to be made concerning which orders are filled and which are not filled. The problem is how to most effectively use the constrained resource.
a. Whether this order or that order is filled, the fixed costs will usually be the same. Therefore, maximizing the total contribution margin will also maximize profit.
b. The total contribution margin is maximized by emphasizing those products or accepting those orders with the highest contribution margin per unit of the constrained resource.
c. In general, the correct way to rank the profitability of products or orders (or anything else for that matter) is in terms of their contribution margins per unit of the constrained resource.
2. Managing constraints. Ordinarily, there is only one constraint in any system. The capacity of an entire factory or of an entire service organization is determined by the capacity at the constraint, which could be a single machine or work center. In addition to making sure that the best product mix is chosen by ranking products based on the contribution margin per unit of the constrained resource, managers should seek ways to increase the effective capacity of the constraint.
a. Increasing the capacity of the constraint or bottleneck is called “relaxing the constraint” or “elevating the constraint.” Conceptually, there are two ways one can go about increasing the effective capacity of the bottleneck: increase the rate of output at the bottleneck or increase the time available at the bottleneck. Some specific examples of ways to elevate the constraint follow:
‘ Pay workers overtime to keep the bottleneck running after normal working hours. As discussed below, the potential payoff from taking such an action is often well worth the additional expense. In contrast, paying workers overtime to keep non-bottleneck processes running after normal working hours is a total waste of money.
‘ Shift workers from non-bottleneck areas to the bottleneck.
‘ Hire more workers or acquire more machines specifically to augment the bottleneck.
‘ Subcontract some of the production that would use the bottleneck. If an unimportant part requires a lot of time on the bottleneck and can be purchased cheaply from an external supplier, this is a great way to increase profits. The bottleneck can be shifted to more profitable uses.
‘ Streamline the production process at the bottleneck to eliminate wasted time. Improvement programs such as TQM and Business Process Re-engineering should be focused on the bottlenecks. A decrease in processing time at the bottleneck can have an immediate and dramatic effect on profits because of the increased rate of output that is possible. A decrease in processing time at a non-bottleneck is likely to have no immediate impact on profits; it just creates more excess capacity.
‘ Reduce defects. A part that is processed on the bottleneck and later rejected because it is defective uses valuable bottleneck processing time.
b. The benefits from effectively managing constraints (i.e., bottlenecks) can be enormous. Managers should be given information that conveys to them this potential. Decide how additional processing capacity at the bottleneck would be used if it were available. In other words, what product or order would be produced that otherwise could not be produced? This is the marginal job. The contribution margin per unit of the constrained resource for this marginal job is the value of elevating the constraint by one unit. (It is also the opportunity cost of using the constrained resource.) Quite often these calculations reveal that the value of additional time is so valuable that some decisions can be made very easily-such as adding a shift on the bottleneck.
F. Joint Product Costs and the Contribution Approach. In some manufacturing processes, several end products are produced from a single input. Such end products are known as joint products. The costs associated with making these products up to the point where they can be recognized as separate products (the split-off point) are called joint product costs.
1. The pitfalls of allocation. Joint product costs are really common costs that are incurred to simultaneously produce a variety of end products. Unfortunately, these common costs are routinely allocated to the joint products. Allocated joint product costs are often misinterpreted as costs that could be avoided by producing less of one of the joint products. However, joint product costs can only be avoided by producing less of all of the joint products simultaneously. If any of the joint products is made, then all of the joint product costs up to the split-off point will have to be incurred.
2. Sell or process further decisions. A decision often must be made about selling a joint product as is or processing it further.
a. It is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from such processing exceeds the incremental processing costs.
b. In such decisions, the joint product costs incurred before the split-off point are not relevant. They would be relevant in a decision to shut down the joint process altogether, but they are irrelevant in any decision about what to do with the joint products once they have reached the split-off point.
G. Activity-Based Costing and Relevant Costs. Activity-based costing is a resource consumption model, not a spending model. Activity-based costing gives an idea of the magnitude of resources involved in carrying out activities, but it should be used with a great deal of caution in making particular decisions. The costs assigned to products and other cost objects are only potentially relevant costs. Whether they are relevant or not in any particular situation should be carefully considered.
For example, in most activity-based costing systems the fixed depreciation costs of a sophisticated milling machine would be allocated to products based upon their usage of that resource. Suppose you are trying to decide whether to drop a product that uses the milling machine. The fact that the product uses the milling machine is relevant only if the milling machine is a bottleneck (and opportunity costs are involved in its use) or somehow future cash flows associated with the machine will be affected by how much it is used. If the machine is not a bottleneck and using some of its excess capacity has no effect on future spending, then there really is no cost associated with using the machine. In this case, the costs assigned by the activity-based costing system to the product would not be relevant.

Every decision involves a choice among altenatives . we study the cost and of the alternatives then make a comparision when make ing the decision .
When define relevant cost that differs between altenatives .differential costs are relevant cost so any cost dosent differ between alternative is irrelevant and must ignored in a decsions .
1. All sunk costs are irrelevant because it same result btween altenatves in the past and in the future .
2. Any cost is a avoidabll is potentially relevant .
I don’t agree with the statement bcause ther different cost for different aims : cost that are
****”??( (Kaplan 2007)

Part c
Cost ‘volume ‘ profit analysis (CVP) focus at the effect of the different ranges of activity on the financial result of a business .in any business, we would be able to make good business decision and maximize profit. So we need management accounting information to help manager to take important decision (how much do we need to sell in order to breakeven point? by breakeven we mean simply covering our costs without making profit. (Horngren (1999).

When I invited the persons mentioned at TMA to persuade about the importance of this analysis, what is the important information they can get it to help them in making decision.
1. Is an employee of an organization represents and explain the interest of her/his employees but who is also a labour union official. Who excusive the roles of labour of the company. So I will advise him to learn how calculate the contribution margin per unit required to make a profit which can help to know the many that can be paid to labour for each unit produced . (Kaplan (2004) .

2. Purchasing agent buy farm products for goods and serevice for firm .they try to make good deel at highest quality at the lowest cost . he can learn about the amount which it wii become unprofitable to buy raw material .(Hilton(1999)

3. In any company sales manager is one of the most importance function to reach the goals of company .who sponsor anew project he must have an information that effect of increase or decrease the income of company ,detriment the sales price in order to breakeven or make profit .(clear (1997) .

4. The pharmacenical industries intensive research in its laboratories to devise anew drugs than chemical effect of treat a particular disease .the cost of research millions of dollars to reach a useful combination of medicine ,R&D expenses is a FC exp ,when learning how to calculate the number of units required to breakeven that leads to expected how many unit be sold (colin(2000)

Reference list

E- Library
1. Stephen P. Walker, the Accounting Historians Journal, Published by: The Academy of Accounting Historians Vol. 32, No. 2 (December 2005), pp. 233-259.

2. Jayne Bisman, The Accounting Historians Journal, Published by: The Academy of Accounting Historians, Vol. 36, No. 1 (June 2009), pp. 135-162.

1. Kaplan, r.ands.anderson,(2007),”Time-Driven Activity-Based Costing”, Harvard business school press .
2. Horngren, c.ALNOOR,B.,Fooster,g.,and s.Datars,(1999),Management and costing accounting ,prentice hall Inc.
3. Atkinson A.,Kaplan,R.and M.young,(2004),

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