Essay Sample on Management Accounting Costing Methods

Introduction

As the logistics manager for Dweeble Brothers Ltd, it is crucial to note that there are a series of management costing methods that need to be considered for the expansion of the distribution operation to succeed. This management accounting costing methods are essential since they help in the determination of the prices of the products by Dweeble Brothers Ltd. One of the costing methods that are to be used is marginal costing. The relevance of marginal coasting is that it allows variable cost to be considered. In the process of expanding the distribution operation, there are variable costs that will increase and that is the case since the materials that will be used in production processes are bound to increase (Guajardo and Ronnqvist, 2016, p.374). As a result, it is fair and necessary that the extra costs to be considered so that they can be incorporated in the cost of the goods that are to be distributed by Dweeble Brothers Ltd. More specifically, the distribution operation will be expanded with an increase in the number of the fleet as well as the warehouses used for storage purposes. Accounting for these extra costs makes it possible to enhance profitability and overlook the extra charges incurred in the process of expanding. Standard costing is the second technique, that is to be used. With this technique, the charges for the products are pre-determined based on assumptions as well as historical data that exist (Chenhall and Moers, 2015, p.11). In other terms, the prices for the products by Dweeble Brothers Ltd are already determined using a set of factors that guarantees higher income to the institution. Of the two methods, marginal costing is the best approach for the company. As a management accounting costing method, it creates room for extra costs to be incorporated to the final products making it possible to guarantee income targets in terms of revenue.

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Investment Appraisal Method

Investment appraisal methods refer to the techniques which are used in assessing the value as well as the quality of any given investment. In the case of Dweeble Brothers Ltd, the venture that is to be made is the purchase of another warehouse that is based in Manchester. In addition to this, these methods help to ascertain whether a venture is viable in addition to being profitable. The payback period is the basic yet the most practical technique that can be used to determine if the decision to purchase the warehouse in Manchester, earning PS10 per pallet per week is viable and profitable (Hacker and Ernst, 2017, p.345). According to the payback period method, a viable project is one that can be able to generate sufficient cash-flow. In addition to this, the strategy also argues that the cost of any given project should be covered as soon as possible. For the case of the warehouse in Manchester, earning PS10 per pallet per week is quite profitable (Konstantin and Konstantin, 2018, p.40). For the whole year, the income will be PS 480. A warehouse in the region is estimated to cost PS 60,000. Thus, yearly income from the warehouse will take an approximated 100 years. Going by this notion, purchasing the house is a dead investment as it will take a lot of years before the initial cost used to purchase the warehouse is recovered. On that note, the payback period discredits this move as it does not have financial viability to the company. Had the warehouse generated income that would allow the initial cost to be collected in 2-3 years, then it would have been a profitable option. Thus, the best option for Dweeble Brothers Ltd would be to lease the warehouse instead of purchasing it. In doing so, it can be easier to expand the distribution operation as well as allowing room for profit to be garnered with limited expenses.

References

Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, organizations and society, 47, pp.1-13.

Guajardo, M. and Ronnqvist, M., 2016. A review on cost allocation methods in collaborative transportation. International transactions in operational research, 23(3), pp.371-392.

Hacker, J. and Ernst, D., 2017. Investment Appraisal. In Financial Modeling (pp. 343-384). Palgrave Macmillan, London.

Konstantin, P. and Konstantin, M., 2018. Investment appraisal methods. In Power and energy systems engineering economics (pp. 39-64). Springer, Cham.