Different techniques of costing in strategic management accounting discussed.
Marginal costing,budgetary control, standard costing,Activity based costing,responsibility costing.
2. Technique refers to the manner of ascertaining costs of a
product, job or activity.
These are strategies which can be adopted to ensure that
the cost of product is reduced.
The following are the techniques adopted by the strategic
management accountant.
3. Marginal costing
Budgetary control
Standard costing
Activity base costing
Responsibility accounting
4. Marginal cost – cost of producing an
additional unit or output or service
Marginal costing differentiates the
fixed and variable costs
Marginal cost is defined as the
amount at any given volume of
output by which aggregate costs are
changed if the volume of output is
increased or decreased by one unit.
5. Semi-variable costs are included in comparison of
cost
Only variable costs are considered
Fixed costs are written off
Prices are based on variable and marginal
contribution
7. Budget: Budget is a financial and /or
quantitative statement, prepared and
approved prior to a defined period of
time of the policy to be pursued
during that period for the purpose of
attaining a given objective.
8. Budgetary Control: A control technique whereby actual
results are compared with budgets.
A strategy to control the expenditure of a firm.
12. The word standard means a norm or criterion.
Standard cost is used to measure the efficiency with
which actual cost has been incurred.
13. Setting of standard costs for different elements of
costs.
Ascertaining actual costs.
Comparing standard with actual costs to determine
the differences between the two, known as
‘variances’.
Analyzing variances for ascertaining reasons thereof.
Reporting of these variances and analysis thereof to
management for appropriate action, where
necessary.
14. • Effective cost control : The most important
advantage of standard costing is that it facilitates the
control of costs.
• Help in planning : Establishing standards is a very
useful exercise in business planning with instills in
the management a habit of thinking in advance.
15. • The system may not be appropriate to the business.
• The staff may not be capable of operating the
system.
• These are expensive and unsuitable in job order
industries.
16. Activity based costing is that costing in which costs
are first traced to activities and then to products.
Activities become the focal points for cost
accumulation.
The factors which determine the costs of activities
are called Cost Drivers
17. Machine hours
Direct labor hours
Number of setups
Number of products
Number of purchase orders
Number of employees
Number of square feet
18. Unit-level activities. Activities performed for each unit of
production.
Batch-level activities. Activities performed for each of
batch of products.
Product-level activities. Activities performed in support
of an entire product line.
Facility-level activities. Activities required to sustain an
entire production process.
19. High amounts of overhead cost
Multiple products
Complex products
Complex production system
Significant variation in volume between high and low
volume products
Different products place different demands on resources
Problems with current cost allocations due to changes in
products or processes
Better cost information is needed
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20. Responsibility accounting is based on the
assumption that every cost incurred must be the
responsibility of one person somewhere in the
company.
21. The cost of rent can be assigned to the person who
negotiates and signs the lease, while the cost of an
employee’s salary is the responsibility of that person’s direct
manager.
This concept also applies to the cost of products, for each
component part has a standard cost (as listed in the item
master and bill of materials), which it is the responsibility of
the purchasing manager to obtain at the correct price.
Similarly, scrap costs incurred at a machine are the
responsibility of the shift manager.
By using this approach, cost reports can be tailored for each
recipient.