Essay about Management Accounting - 1236 Words

PROFORMA FOR WRITTEN PART 1. Direct material efficiency variance The firm was faced with limited storage space at their premises and were unable to relocate or rebuild their premises or use Just-In-Time inventory. Therefore storage costs increased; this increased the DMs costs since storage is part of in-transit costs, which are considered part of DMs cost. Thus, the Materials Efficiency Variance calculated as $800 unfavourable. DL efficiency variance Change in the layout of the manufacturing space should reduce the standard time per product in the long run. Besides, new materials are easier to work with in terms of both cutting and sewing, which means workers spend less time. This is reflected in a favourable calculation of LEV at†¦show more content†¦The fixed OH variance was reported as $338 unfavourable. An unfavourable fixed OH volume variance indicates that the firm spent more on fixed OH costs in actual fact than it had planned to spend for the period. This shows management’s observation that the fixed OH volume variance is favourable to be incorrect. Furthermore, management’s belief that a favourable variance means that â€Å"everything is ok† is not valid since a favourable or unfavourable variance is not an indicator of good or bad. Rather, variances are indicators of potential problems, which should be investigated. Consequences for the firm The consequences of having limited storage space are increased storage costs. As such, expanding existing space via purchasing or renting should be considered to hold all inventory produced. The firm should be particularly careful in not producing more than it can store. Another consequence of having limited storage space is the opportunity cost in not being able to meet customer demands. If customers demand more than the firm can store, the firm will miss out on potential sales. The firm should also be careful in producing only what is required to meet demand as because of the products’ short lifetime due to styles going out of fashion, the firm might not be able to sell all of its inventories in time and would consequently suffer a loss. 4. Activity Based Costing Discussion (maximum 2 fullShow MoreRelatedManagement Accounting1950 Words   |  8 PagesManagement in business and human organization activity, in simple terms means the act of getting people together to accomplish desired goals. Management comprises planning, organizing, -resourcing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. 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