Management Accounting Decision Making and Cost Control

Management Accounting Decision Making and Cost Control Management Accounting is a scientific discipline that aims to provide financial and non-financial information that is relevant to management in making decisions and controlling costs. Management accounting aims to assist managers in making good decisions and managing company resources effectively. Financial information generated from management accounting can assist managers in understanding how costs are assigned to products or services offered, so they can determine the right price for the product or service. In addition, this information also helps managers monitor costs and budgets, and determine corrective actions if needed. Management accounting includes techniques and tools such as forecasting, cost-volume-profit analysis, break-even analysis, cost control, performance measurement and investment analysis. These techniques assist managers in making the right and effective decisions in managing company resources. Forecasting assists managers in predicting future operating results, so they can make good decisions in allocating company resources. Cost-volume-profit analysis helps managers understand the relationship between costs, production volume, and profits, so they can determine the break-even point and optimize company profits. Cost control assists managers in monitoring costs and taking corrective action if discrepancies occur between budget and actual costs. Performance measurement helps managers understand how effective the company is in managing resources, while investment analysis helps managers choose the most profitable projects for the company. With the right information from management accounting, managers can make appropriate and effective decisions, optimize company resources, and achieve company goals more efficiently. Problems example: PT X produces two types of products, namely products A and B. The fixed cost of production per month is IDR 20,000,000.-. The variable cost for product A is IDR 200 per unit and for product B it is IDR 300 per unit. The selling price for product A is IDR 500 per unit and for product B it is IDR 700 per unit. PT X wants to know the number of products A and B that must be produced to reach the break even point. Discussion: The break even point is the point where total revenue equals total cost or profit equals zero. To reach the break even point, PT X must know how many products A and B must produce. The formula for finding the break even point is: Break even point = Fixed Cost / (Selling Price per unit - Variable Cost per unit) For product A, the Variable Cost per unit is IDR 200 and the selling price per unit is IDR 500 so: Break even point A = IDR 20,000,000 / (IDR 500 - IDR 200) = 66,667 units For product B, the Variable Cost per unit is IDR 300 and the selling price per unit is IDR 700 so: Break even point B = IDR 20,000,000 / (IDR 700 - IDR 300) = 50,000 units So, PT X must produce a minimum of 66,667 units of product A and 50,000 units of product B to reach the break even point. Example Problem 2: PT Y produces products A and B. The production cost for product A is IDR 100,000 and for product B is IDR 150,000. PT Y wants to know what products should be produced to get the maximum profit. The selling price of product A is IDR 300,000 and product B is IDR 400,000. Discussion: In order to find out what products to produce in order to get the maximum profit, PT Y must know the contribution margin of each product. Margin contribution is the difference between the selling price and the variable cost per unit. The formula for finding the contribution margin is: Contribution Margin = Selling Price per unit - Variable Cost per unit For product A, the Contribution Margin is: Contribution Margin A = IDR 300,000 - IDR 100,000 = IDR 200,000 For product B, the Contribution Margin is: Contribution Margin B = IDR 400,000 - IDR 150,000 = IDR 250,000 Thus, product B contributes a higher margin than product A. Therefore, PT Y should produce more product B to get maximum profit.