Readings in Accounting for Management Control

Question: Discuss about the Readings in Accounting for Management Control. Answer: Introduction: One of the popular and effective overhead calculation method is the Activity Based Costing. This system of costing works best in the complex environments. The manufacturing overhead is allocated to different product lines in a manner which is more logical. Costs are classified under the various specific activities and then the costs are allocated to the products in proportion to the activities with which the products are connected (Otley and Emmanuel 2013). Benefits of Activity Based costing system: Accurate product cost- the determination of the product cost comes with the accuracy and reliability using this system. More realistic products cost are provided as the system recognizes the activities causing the cost and does not consider the product which consumes activities (Kaplan and Atkinson 2015). Selling price properly computed- the selling price is very difficult to be determined in the event of multi-products because there are many common overhead cost present. ABC system makes the allocation of such overhead costs easily in accurate proportions and assist in the computation of selling price. Better decision making- Since the system uses more reliable data of the product costs; the decision making of the manager is improved. Cost reduction and use of excess capacity- ABC involves the process of collecting of the activity costs and the cost component are also identified. It involves the recognition of the spare capacity and fosters the cost reduction by making comparison with the resources available. This helps in the development of the activity based budgeting, where the resource relationship are identified for projecting the resource requirement of the future projects. Reference: Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning. Otley, D. and Emmanuel, K.M.C., 2013.Readings in accounting for management control. Springer.