Management Accounting Essay

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Lecture 5 Week 4 Managing Cost of Resources – Allocation & absorption of overheads Dr Ann-Christine Frandsen BE111 Management Accounting I (Seal et al, Ch.3 – App. 3A) 1 Agenda Summarising points so far Overhead Costs Managerial aspects of overheads Allocation and absorption of overheads  Direct Method  Step Method Predetermined rates vs actual costs 2 how to run modern U- & M-form businesses You need  Line/staff STRUCTURES  Accounting and statistical information PROCESSES MA processes distributed across a whole organizational structure 3 Classic Management Structure 1 The ‘Unitary’ or U-form Firm PRESIDENT (General Manager) Staff Manufacturing Manager Marketing Manager Staff Staff Manager Plant 1 Manager Plant 2 Manager Plant 3 Manager Product A Manager Product B Manager Product C Multidivisional or M-Form CEO Planning Office Manager Division X Manager Division Y Manager Division Z Staff Manager Plant 1 Manager Product A Staff Manager Plant 2 Manager Product B Staff Manager Plant 3 Manager Product C you need You need ‘administrative coordination’ (the staff function essential) for     Planning, control decision-making Co-ordination Which will  Enabling ‘managers to manage other managers’  And firms to gain ‘economies of scale and scope’ 6 Constant tracking, monitoring, and evaluating distributed across a whole organizational structure Bus drivers actual work hours Lost Miles Useful key costs and cost definitions • Costs of services or products • Costs of operating line departments • Costs of coordination (the staff function) • Useful cost definitions and techniques e.g. 1. Standard costing (and managing variances) 2. Fixed vs variable cost distinction used for decisionmaking You need ‘providing information to people within an

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