LO2 Apply a range of management accounting techniques.

1. Calculate costs using appropriate techniques of cost analysis to prepare income statement using marginal and absorption costs.
2. Accurately apply a range of management accounting techniques and produce appropriate financial reporting documents.
3. Produce financial reports that accurately apply and interpret data for a range of business activities

Case Study 2 - Graphics Systems Limited

It was discovered that Graphics Systems Limited uses Standard Costing and Absorption Technique in its costing activities. It was also found out that the company was fulfilling its objectives since there the profits of the firm were increasing, sales were increasing, customers had increased and due to the fact that brand loyalty had been achieved. It was lastly found out that there is a strong significant relationship between Costing Techniques and the firm's effectiveness since there was increased revenue, increased profitability, increased customer base, proper inventory management and improved corporate responsibility.

It was concluded that Graphics Systems Limited uses Standard Costing and Absorption Technique in its costing activities and therefore there was increased revenue, increased profitability, increased customer base, proper inventory management and improved corporate responsibility which validated a strong significant relationship between Costing Techniques and the firm's effectiveness.

It is recommended that Graphics Systems Limited should try out some more costing techniques such as direct costing and Marginal Costing. The researcher recommended that firms should manage company resources through the use of costing activities because it can help to bring about accountability and transparency through increased corporate responsibility. This can help to improve on the effectiveness of Graphics Systems Limited and other related organizations world over. Studies recommended that Graphics Systems Limited should increase on number of staff with relevant knowledge on costing activities since it was seen that the nature of costing determines the firm's performance.

Costing techniques are methods for ascertaining cost control and decision-making purposes, (CIMA, 2009). They can be applied to make-or-buy decisions, negotiation, price appraisal and assessing purchasing performance. They include; Marginal Costing; a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, e.g., materials, labor, direct expenses and variable overheads. Fixed overheads areexcluded in cases where production varies because it may give misleading results. The technique is useful in manufacturing industries with varying levels of output. Direct Costing; the practice of charging all direct costs to operations, processes or products and leaving all indirect costs to be written off against profits in the period in which they arise is termed as direct costing. The technique differs from marginal costing because some fixed costs can be considered as direct costs in appropriate circumstances. Absorption or Full Costing; the practice of charging all costs both variable and fixed to operations, products or processes is termed as absorption costing.

Focus on:

Prepare an income statement that depicts the changes in profit values & individual cost lines for company in case by calculating costs applying absorption costing and marginal costing scenarios. Do you believe that costing plays an important role in managing sales & eventual profitability, if so, use a range of accurate management accounting techniques in producing appropriate financial statements? Produce a range of financial reports that interpret data accurately for a range of business activities in the organization by recommending effective costing techniques are used at Graphics Systems Ltd? Critically evaluate the relationship between costing techniques and the effectiveness of graphics systems limited?

Use the scenario below for calculations:

Selling price per unit: 10.00

Direct (variable) materials per unit: 3.00

Direct (variable) labour per unit: 3.00

Fixed manufacturing cost per period: 300,000

Non-manufacturing costs per period: 100,000

The company makes one product. Budgeted activity is for 150,000 items to be made each period. There were no opening inventories at the start of Period 1, and all production is finished within each period.

Assume actual manufacturing fixed costs are 300,000 for each period.

Here is a schedule of production and sales for each period 1-6 inclusive.

The company makes one product.Budgeted activity is for 150,000 items to be

made each period.

There were no opening inventories at the start of Period 1,

and all production is finished within each period.

Assume actual manufacturing fixed costs are 300,000 for each period

The company makes one product.Budgeted activity is for 150,000 items to be made each period.There were no opening inventories at the start of Period 1, and all production is finished within each period.

Assume actual manufacturing fixed costs are 300,000 for each period

Here is a schedule of production and sales for each period 1-6 inclusive.

Period Sales Production

1 150 150

2 120 150

3 180 150

4 150 150

5 140 170

6 160 140

(Answers will be graded for application within the company's context)