Management Accounting Essay Example | Topics and Well Written Essays - 1500 words - 5

Management Accounting - Essay ExampleThe method emphasizes on the gibe costs incurred and the cost volume profits of the relationship are not considered. As further as the decision provided by the accountant, it is solely base on absorption costing. It is imperative to note that a major part of the costs of the two products are due to repair overheads and administrative expenses. Moreover, these expenses are incurred take down if the take of these two products is dropped. Hence a better costing method has to be adopted to in effect allocate the overheads. The two methods suited for Rothfield Plc are activity based costing and marginal costing.Activity establish Costing ABC is a modern accounting system in which the expenses and overheads are segregated based on the functions of the organisation, which is followed by allocation of the costs to each of the items in respect to the volume of the activity (Kaplan & Anderson, 2007). The usage of ABC costing allows the company to acc urately assign the costs for all the activities of each of the product or service (Drury, 2005). Rothfield Plc can allocate the fixed overheads based on the usage of these resources by the various production processes.Marginal Costing or Variable Costing Marginal Costing provides a clear definition of the impact of changes in volume of output on the profits and the changes on the profits. There is also a clear differentiation between the fixed and variable costs as well. As explained by Dyson (2007), the fixed costs are never charged to the production and instead the fixed costs are hardened as period charges. Hence Rothfield Plc can adopt this method to estimate the potential profits effectively.The total labor hours required to meet the estimated production trains are slightly higher (by 333 hours). Hence, it is evident that some of level of production of either one or some of the products has to be reduced.It is essential that whatever the production combination, the contribut ions from the gross sales are significant