Management Information and Costing

Introduction

The report is based on understanding its nature and its objective for a bike manufacturing company named Brompton. Management of any organization necessitates complete, reliable information to solve any issue and implement efficient control by deciding on the time. Complete and dependable information is obtained by appropriate collection, management, and giving relevant information to the right person at the right moment. Proper management of information not only minimizes the risk of making a wrong decision but also performs as an efficient control method. Managers at every level necessitate important information with rapidity, brevity, and clarity to function efficiently. Various accounting methods give information to the management. These methods are discussed in the report.

Nature, Source and Purpose of Management Information

Management information is a planned, structured, and systematic collection of appropriate, precise, precise, and timely information appropriately processed and provided to necessary persons to accomplish organizational goals. Management information is concerned with processing data into information. It empowers organizations to give solutions to the managers in search of knowledge. Management information does this by combining basic information regarding organizational performance. Management information is observed as a transformation method utilized as information in decision-making procedures (Rupsa, 2019).

Owing to the complicacy of business and industrial functions, management information gets much significance. Government regulations have also generated the requirement to provide reliable information precisely within a short period. The primary objective of management information in Brompton is to support the managers in making timely and informed decisions in their fields of duty. Information is obtained from different sources like a book of records and computer system and is identified for relevant information and provides to the managers to be utilized for decision making and problem-solving. Through management information, the managers at all levels in Brompton can obtain the current news. It will avoid duplication of work for the company. Many activities of Brompton are computerized, and procedures are simplified. In this context, the management of information minimizes unnecessary positions for the company and saves time. It can establish a uniform system in Brompton. The constant process will certify appropriate movement of information movement. Data require to be supplied directly after the execution of work (NCERT, 2016). Therefore, the concerned department has to give data. In this way, managing information fixes responsibility in Brompton.

Wide Range of Management Accounting techniques

Management accounting evaluates and reports information regarding financial function within an organization for utilization by the managers in planning, performance assessment, and operational control. Management accounting is typically based on economic accounting structure. Various management accounting techniques can be used by Brompton (Caplan, 2006).

Historical cost accounting: Historical cost accounting can give Brompton historical information, associating with the cost of every job, procedure, and department to assess with everyday expenses. Such assessment can be helpful for Brompton for controlling the costs and for future planning.

Standard costing: Standard costing is prearranged expense. It gives yardsticks for evaluating the actual performance of Brompton. It is utilized for detecting the causes for deviances, if any. Standard costing is the creation of everyday expenditures within most effective operating situations, assessment of actual with standard, computation, and evaluation of variance for understanding the causes and to highlight the responsibility and to take remedial action so that negative things are avoided. This aspect of costing is vital for controlling the expenses in Brompton.

Budgetary control: In the fiscal control method, future financial requirements are forecasted and organized on an arranged basis. It is utilized to manage the financial performance of Brompton, and business activities are directed towards a preferred direction. The accountant in Brompton can use the budgetary control technique for planning and controlling different functions of the business. A robust method of directing business functions in the desired direction, i.e., accomplishes an acceptable return on investment.

Marginal costing: Marginal costing is a management costing technique where marginal cost, i.e., variable cost, is applied to a unit of expense, and fixed price for a specific period is wholly written off against contribution. The wo0rd marginal cost implies extra cost involved in generating additional units of production. Brompton can utilize marginal costing for cost control, decision making, and profit maximization.

Absorption costing: Absorption costing is an essential managerial accounting technique for capturing every expense relayed with production. The direct and indirect costs, for example, natural raw materials, labor charges, rental charges, and insurance, are computed by using this method. It allocates fixed overhead expenses to every production unit in a specific period, whether it is sold or not sold. This costing indicates that more payment is included in the ending stock, which is forwarded into the next period as an asset in the balance sheet. Since more expenditures are involved, spending in the income statement becomes low in this technique.

Activity-based costing (ABC): ABC costing is another management accounting method that allocates overhead and indirect expenditures to associated products and services. This technique identifies a connection between expenses, overhead functions, and factory-made products, giving indirect costs to products less subjectively compared to historical costing. Nevertheless, specific indirect fees, for example, administration and office expenses, are hard to allocate. It can be used by Brompton because it improves the reliability of cost data, therefore generating actual fees and better categorizing the costs incurred by the organization throughout the production procedure.

Life cycle costing: Life cycle costing is termed as whole life costing, which intends to recognize the total cost related to possession of an asset. The decision made at the initial acquisition has the effect of locking in specific expenditures in the future. It is a technique extensively utilized by organizations and governments, which assesses the cost of an asset during its life cycle. The advantages of this costing comprise enhanced assessment of options, enhanced management consciousness regarding the decision outcomes, enhanced forecasting, and enhanced understanding of the trade-off between performance of an asset and its expenses. However, this costing method is challenging and time-consuming (Tabitha & et al., 2016). This costing method is applicable, where initial capital expenditures or acquisition of physical assets is enormous.

Target costing: Target costing is developed as a multidisciplinary strategy to managing expenses from the earliest phases and was complimented by methods, for example, process reengineering and total quality management. This costing technique involves setting a target expense by subtracting a chosen profit margin from the competitive market price. It primarily intends at supporting management to operate a business profitably in a competitive market.

Absorption Costing

Appendix 1 demonstrates absorption costing for the three bikes for Brompton.

ABC Costing

Appendix 2 demonstrates ABC costing for Brompton.

Following are total machine hours for production.

From the analysis, it can be observed that the total cost according to absorption costing is £1080800 and the full price according to ABC costing is £1017000.

Future Costing Strategy

In the future, Brompton can utilize throughput accounting. It is a method where the primary objective is to enhance the throughput while instantaneously maintaining or reducing inventory and operational expenditures. This type of accounting has a direct connection with decision-making and management of performance. It starts by concentrating on organizational objectives through enhancing the goal units. This type of accounting is based on the rate at which a team accomplishes its objectives. For Brompton, the purpose is profit. Throughput accounting is an essential development in contemporary accounting that permits managers to comprehend the contribution of controlled resources to overall profitability. It also refocuses from cost accounting’s dependence on effectiveness. This type of accounting can enhance the profit performance of Brompton through better analytical decisions based on three crucial financial variables, which are throughput, stock, and operating expenditures. It is at times mentioned as throughput contribution and is comparable to the thought of assistance, which is utilized in marginal costing technique.

Conclusion

From the report, it can be observed that various costing methods can be used by Brompton. The traditional cost accounting techniques comprise historical costing, marginal costing, and absorption costing. However, these methods are criticized for the low capacity to give relevant information in the contemporary business environment, i.e., characterized by advanced technology, intense competition, globalization, and customer satisfaction. There are modern cost accounting techniques like ABC costing, life cycle costing, and throughput costing, which has acclaimed benefit over the traditional costing methods. Organizations require utilizing cost accounting methods, which are much suitable for the atmosphere. Organizations should only adopt these methods that possess a practical foundation in business.

Continue your journey with our comprehensive guide to Management Accounting Practices and Budgetary Control.

References

Caplan, D., 2006. Management Accounting Concepts and Techniques. [Online] available at: https://scholarsarchive.library.albany.edu/cgi/viewcontent.cgi?article=1000&context=accounting_fac_books [Accessed 09 April 2021].

NCERT, 2016. Nature and Significance of Management. [Online] available at: https://ncert.nic.in/ncerts/l/lebs101.pdf [Accessed 09 April 2021].

Rupsa, M., 2019. What is Management Information System? [Online] available at: https://www.preservearticles.com/management/management-information-system/31130 [Accessed 09 April 2021].

Tabitha, N. & et. al., 2016. Cost Accounting Techniques Adopted by Manufacturing and Service Industry within the Last Decade. International Journal of Advances in Management and Economics, Vol. 5, No. 1, pp. 48-61.