Management accountant Assignment Example | Topics and Well Written Essays - 2000 words

Management accountant - Assignment Example They are only recognized as expenses when they are sold and at that time they are recognized as cost of goods sold (Drury, 2008). According to the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) it is essential that a firm uses absorption costing to record the value of inventory in the books of accounts (Accounting Tools, 2014). The main components of this type of costing methods are: It is however possible to allocate expenses with the help of activity based costing method. But it is considered to be a more elaborate method and therefore more time consuming and costly. The costs allocated under the method of overhead absorption costing method may be over absorbed or under absorbed. The costs are allocated on the basis of rates of overhead. It may be seen that the actual expenses incurred and that which is recorded might not be the same. Also there might be costs that cannot be directly be traced to the products as they might not fall under the overheads. Under such circumstances direct costing is more helpful as it does not require any allocation. Absorption costing is also referred to as full costing or full absorption (Izhar and Hontoir, 2001). Overhead Costs- The next step is to calculate the over head costs of each department. This is done by multiplying overhead rate with the hours per unit. The obtained figure is again multiplied with the units produced of each product (Lucey, 2007). Rates per unit calculation- Under ABC costing, the first step is to calculate the rate per activity. As per the given problem, it is known that there are five activities. The total units in terms of each activity are known. The total cost is also known. Therefore it is possible to calculate the rate per unit. They are calculated by dividing cost pools by cost drivers given in the problem (Jain and Khan, 2006) Total Cost for each activity- Now that the rates are known