Cost behavior and cost driver activities for flexible budgeting

Capital Budgeting Techniques Activity-Based vs Traditional Costing Assume the Busy Ball Company makes two types of bouncing balls; one has a hollow center and the other has a solid center. The same equipment is used to produce the balls in different runs. Between batches, the equipment is cleaned, maintained, and set up in the proper configuration for the next batch. The hollow center balls are packaged with two balls per package, and the solid center balls are packaged one per package.

Cost behavior and cost driver activities for flexible budgeting

Managerial accounting is associated with higher value, more predictive information. From this, data and estimates emerge. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately be used to guide decision-making.

Strategic management — advancing the role of the management accountant as a strategic partner in the organization Performance management — developing the practice of business decision-making and managing the performance of the organization Risk management — contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization The Institute of Certified Management Accountants CMA states, "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking".

Management accountants are seen as the "value-creators" amongst the accountants. They are more concerned with forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance score keeping aspects of the profession.

Management accounting knowledge and experience can be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing and logistics.

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March Learn how and when to remove this template message Management accounting information differs from financial accountancy information in several ways: Financial accounting focuses on the company as a whole. Management accounting provides detailed and disaggregated information about products, individual activities, divisions, plants, operations and tasks.

Traditional versus innovative practices[ edit ] Managerial costing time line [7] Used with permission by the author A. The distinction between traditional and innovative accounting practices is illustrated with the visual timeline see sidebar of managerial costing approaches presented at the Institute of Management Accountants Annual Conference.

Traditional standard costing TSCused in cost accountingdates back to the s and is a central method in management accounting practiced today because it is used for financial statement reporting for the valuation of income statement and balance sheet line items such as cost of goods sold COGS and inventory valuation.

Traditional standard costing must comply with generally accepted accounting principles GAAP US and actually aligns itself more with answering financial accounting requirements rather than providing solutions for management accountants.

Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume.

In the late s, accounting practitioners and educators were heavily criticized on the grounds that management accounting practices and, even more so, the curriculum taught to accounting students had changed little over the preceding 60 years, despite radical changes in the business environment.

Inthe Accounting Education Change Commission Statement Number 4 [8] calls for faculty members to expand their knowledge about the actual practice of accounting in the workplace. Variance analysis is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labour used during a production period.

While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as life cycle cost analysis and activity-based costing, which are designed with specific aspects of the modern business environment in mind.

Life-cycle costing recognizes that managers' ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product life-cycle i.

Activity-based costing ABC recognizes that, in modern factories, most manufacturing costs are determined by the amount of 'activities' e. Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events such as machine breakdowns and quality control failures is of far greater importance than for example reducing the costs of raw materials.

Activity-based costing also de-emphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, as the provision of a service or the production of a product component. Although it has been in practiced in Europe for more than 50 years, neither GPK nor the proper treatment of 'unused capacity' is widely practiced in the U.

RCA has been recognized by the International Federation of Accountants IFAC as a "sophisticated approach at the upper levels of the continuum of costing techniques" [11] The approach provides the ability to derive costs directly from operational resource data or to isolate and measure unused capacity costs.

RCA was derived by taking costing characteristics of GPK, and combining the use of activity-based drivers when needed, such as those used in activity-based costing.

Role within a corporation[ edit ] Consistent with other roles in modern corporations, management accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, management accountants are responsible for managing the business team and at the same time having to report relationships and responsibilities to the corporation's finance organization and finance of an organization.It’s doable.

Efficient, flexible, individualized, and supportive, WGU puts you in the driver’s seat—allowing you to advance as quickly as you're able. A confluence of forces, driven by technology, is changing the landscape in healthcare and the pharmaceutical industry’s role within it.

This intersection is creating unprecedented challenges and . Understanding Risk. If you ask some people to define risk, you will often hear the answer 'risk is the chance that something bad will happen.' While that is a common answer, it is not entirely.

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Cost behavior and cost driver activities for flexible budgeting

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Cost Behavior and Drivers

May 04,  · PURCHASING AND SUPPLY CHAIN MANAGEMENT. DEFINITIONS AND CLARIFICATION. PURCHASING. Purchasing is the act of buying the goods and services that a company needs to operate and/or manufacture products. Cost Driver in Accounting: Definition, Analysis & Example.

a cost driver is a unit of activity that causes a business to endure costs. So, your business was incurring costs .

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