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Tag Archives: Management Accounting

Importance Of Separation Of Fixed And Variable Expenses

It is necessary for an organization to segregate and focus on its Fixed and Variable expenses. If this task or action is taken lightly then the organization has to suffer from many decision making problems like Break-even Analysis (Cost-Volume-Profit Analysis), Gross Margin Analysis or Contribution Margin Analysis. Although above three terms are interrelated, they have their different uses in different business decision making situations. But if Fixed and Variable expenses are not identified or separated in the organization, solution to these interrelated terms will be impossible. Do we know how …

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Accounting For Materials: Calculate Materials Acquisition Cost

calculate Materials Acquisition Cost

Applied Materials Acquisition (M&A) Costs: If it is decided that materials Acquisition cost should be the net price paid the vendor plus incoming freight charges plus other acquisition costs, such as those of the purchasing department, receiving department, testing, insurance, and applicable accounting functions, an applied rate might be added to each invoice and to each item. How to calculate Materials Acquisition Costs : When this procedure is impractical, a single amount can be added to the total materials Acquisition cost for a given lot, order, or department. A single …

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The First Step In A Responsibility Reporting System

The First Step In A Responsibility Reporting System

The pyramid structure or the Responsibility Reporting system for responsibility accounting. The first system is employed in a manufacturing concern while the second system is employed in a bank. The first step in a responsibility reporting system is the establishment of lines of responsibility and responsibility areas. Each block in a company’s organization chart represents a segment (cost center, division, department, etc.) that is reported upon and that receives reports on the functions responsible to it. Any report prepared according to this concept easily fits into one of these blocks …

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The Impact Of Cost Control On Manufacturing Industries

Cost Control on Manufacturing Industries

Impact of Cost Control on Manufacturing Industries : Attention must be called to the fact that in the long run all costs are controllable. Variable costs are generally controllable over short time periods. Some fixed costs, such as supervisory labor or equipment rental, can also be terminated on short notice while other fixed costs, depreciation of fixed assets or a long-term lease agreement, involve a fixed commitment over a longer period of time. Under the scheme of Cost Control On Manufacturing Industries, some costs possess a dual short and long-run …

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Impact of Preventive Maintenance in Manufacturing Industry

Impact of Preventive Maintenance

Preventive Maintenance is a plan for the cost determination and the cost control responsibility of maintenance is both needed and possible. To discuss Impact of this maintenance issue, I should say that Preventive Maintenance reduces operating losses significantly due to machine breakdowns. The two considerations regarding this issue are: 1. If you do Preventive Maintenance (PM) too frequently, quantity will go down and cost will go up unnecessarily. 2. If you do PM too infrequently, quality and quantity go down and cost goes up unnecessarily. It is suggested that management, …

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How Much Maintenance Work Or Repair Do You Need

maintenance work

Maintenance work supervisors and service department foremen are apprised of the budgeted service or maintenance allowance by individual recipient cost centers while the distribution or scheduling of the work itself is left to their discretion. One major problem, however, rests with the question of how much maintenance work or repair work is needed in a department. The answer thereto may reach the executive management group for either a decision or perhaps even the original responsibility for the type and amount of maintenance work required. For at the time the factory …

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Maintenance Costs Versus Responsibility Accounting

green insurance

Maintenance Costs and Responsibility Accounting. Maintenance expenses like any other indirect factory cost must find their way into the producing departments to be included in the total departmental cost for the calculation of overhead rates for product costing purposes. Still unsolved is the problem of cost responsibility. The maintenance engineer often believes that his department really incurs no cost at all, for any cost incurrence is for the benefit and at the request of other departments. The factory foreman, on the other hand, may argue that he has no influence …

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Calculation Of Manufacturing Overhead Rate

manufacturing overhead rate | net defined benefit liability

The determination of the manufacturing overhead rate follows the procedures discussed in the previous manufacturing   overhead rate discussion. The overhead rate based on machine hours or costs assumes that overhead costs are proportional to machine hours. Now we are going to learn some basic steps in determining the manufacturing overhead rate: 1. Costs of any service or maintenance department are estimated or budgeted according to their nature (supervision, supplies, electricity, etc.). 2. Costs are classified as fixed or variable. This classification often leads to the realization that many service departmental …

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How Is Overhead Cost Charged To Departments

overhead cost units of production basis

Responsibility for Manufacturing Overhead Cost: As the preceding overhead cost topic indicate, many overhead items are directly chargeable to a given department and become the direct responsibility of the departmental supervisor. Allocated or distributed overhead cost causes problems in assigning cost responsibility. To calculate a departmental factory overhead rate, these costs must be allocated so that all costs can be charged to the job or product. The allocation procedure is not necessary for cost control; that is, for responsibility accounting. If allocated overhead cost charges are to be shown on …

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Prerequisites Of Responsibility Accounting

prerequisites of responsibility accounting | wrongful termination benefits

Prerequisites of responsibility accounting: Personal Factors in Responsibility Accounting says a program to develop for management accounting controls which must be considered as a prime responsibility of top management with the accounting department in providing the technical assistance. To assure the follow-through and therewith the ultimate success of the program, management must provide a complete clarification of the objectives and responsibilities of all levels of the organization. This prerequisites of responsibility accounting requires an understanding by middle and operating management of executive management’s goals. The acceptance of responsibility for certain …

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