Managerial Accounting

Response for the email from Andrew

Control systems are imperative for the successful implementation of organization objectives. According to Drury (2005), management accounting control system are a significant part of an organizations overall control system. To develop effective accounting control system top management must create responsibility centres. Primarily there are four responsibility centres including cost/expenses, revenue, profit and investment.

Management of the South East division should establish expense/cost control responsibility centres in the company which will aid in increasing accountability in the over costs and expenses incurred during manufacture of the customized electrical components. Andrew should begin by establishing standard and discretionary cost centres in the division. Standard costs are basically are expenses which can be traced to the final product and are measurable (Finkler, Ward & Baker, 2007). On the other hand, discretionary costs have no direct relationship with final product and cannot be measured financially. Control of discretionally cost is a complex task for management.

To control costs, management of the South East division should then create bench marks for standard costs which include the fixed and variable costs of manufacturing the electrical components. After every accounting period the bench marks should be compared to the actual costs and variances identified. Variance analysis will enable management of the South East division to control, monitor and forecast standard costs. To control the discretionary costs management should create budget estimates for each cost centre for expenses such as insurance, rent, management cost, administrative expenses and utilities. In addition, discretionary costs also encompass research and, development and marketing. Budgeting controls will help the South East division to monitor, forecast and control discretionary cost incurred during production of the electrical components.

Response for the email from Brenda

Capital investment decisions are complex and need to be backed by information on pay back period, risk capacity, expected return, asset class preference and tax status (Drury, 2006). Brenda should start by evaluating the return on investment that the company will accrue after purchasing the offset press for printing manuals. For instance, by comparing the cost incurred while printing the manuals at the local print shops against the fixed and variable costs associated with purchase of the offset press. Brenda should also obtain information on the opportunity cost of the investment before making the decision to or not to invest in the offset press for printing manuals. In addition, the production manager must obtain information on the risks involved in the investment.

Information on risks associated with investment in the offset press for printing manuals will help also help in assessment of the viability of the investment. For instance, if the risks of acquiring the offset press for printing manuals are higher than the benefits the production manager should fore go the investment. According to Drury (2005), it is also critical to obtain information pertaining to the pay back period of the investment before making capital expenditure decisions. The production manager must know when the company will be able recoup the investment. For instance, the product life of the offset press for printing manuals is only six months thus the company should be able to have recouped its investment by that time otherwise the investment is not viable. For tax purposes different asset are categorized into varying groups. The different asset groups receive different tax treatment. Obtaining information on asset class preference will help in establishing the tax status of the offset press for printing manuals.

References

Drury, C. (2006). Cost And Management Accounting: An Introduction. New York: Cengage Learning EMEA

Drury, C. (2005). Management Accounting For Business. New York: Cengage Learning EMEA

Finkler, S. A., Ward, D. M. & Baker, J. J. (2007). Essentials of Cost Accounting for Health Care Organizations. USA: Jones & Bartlett Learning