Question

il etisalat 18:28 ASMT2 ACC6207 Project 202020 KD @ 1%O A2 You have been considered for appointment as an Assistant Management Accountant by MKL 5050 LLC, a manufacturer of electronic items which is based in Abu Dhabi and one of your major task is to help review the costing techniques and methods in the company. In addition, you need to support management of MK 5050 LLC to apply and select the best inventory valuation methods and the best costing techniques suitable to the company to enable them meet the Accounting reporting standards in the UAE and to ensure that they are profitable. As part of your interview process, the HR Department of MKL 5050 LLC has outlined the following tasks for you to answer appropriately and enable them to decide whether you are the best candidate / applicant for the role of Assistant Management Accountant. The following tasks are outlined by the owner to enable her assess your competency to achieve your objectives as the new cost accountant for MKL 5050 LLC. Undertake further research and answer the tasks assigned to you appropriately. TASK 1

Answer 1

Cost accounting is used for decision making by management. It also aids to some extent to financial accounting as well e.g. Inventory valuation is very much needed in financial accounting and cost accounting can appropriately provide inventory valuation. Cost accounting can be most beneficial as a tool for management in budgeting and in setting up cost control programs, which can improve net margins for the company in the future.

There are following different type of method to account costs :

A - Standard Costing

Standard costing assigns "standard" costs to inventory and Cost of goods sold. The actual cost will be different and it is known as variance. The analysis of variance is very important aspect for management to understand the reason for variance and it will be helpful to management in deciding next year budget and also plan action

B - Marginal Costing

Under this method fixed and variable cost is identified first. Variable costs are assigned to product and fixed cost is treated as period cost.This method is very useful for management decision making but not useful for regular record keeping

C - Lean Accounting

This method provides feedback to management on efficiencies of various prcoess

D - Activity Based Costing

Under this method in various activities in a factory are identified and then costs are allocated to these activities. The costs of these activities are further allocated to the products and services based on the actual consumption by each product.

Based on diagram it seems that there are two process department through which product passes. Each department will have their own cost and cost drivers on base of which cost can be allocated of such department. e.g. the first department mainly does mechanical process then in such case the cost of this department can be allocated on machine hour usage basis.

In view of the above it is recommended management to adopt activity based costing.