Management Accounting for National Motor Company -myassignmenthelp

Question: Discuss about theManagement Accounting for National Motor Company. Answer: Introduction The issue that has been presented in the report is that the National Motor Company has been a manufacturer firm that deals in cars, which are predominantly sold in the North American market. The firm, for the purpose of capturing a completely different segment in the automobile market had taken up the decision of acquiring a smaller niche automaker. The operation of the National Motor Company since then have been divided into two separate divisions of Classic and New Wave division. It must be noted here that the New Wave division has had good level of sales but there has been a particular degree of concern in regards to the focus of innovation and quality which is assumed not to be cost effective. Problem Statement The problem statement that has been developed in respect to this particular study is that the management of the National Motor Company has been concerned about the current cost allocation process of the company and requires the evaluation of the cost allocation technique adopted by the company (Andersn Samuelsson, 2016). To be precise the problem statement that particularly can be stated in regards to this particular case study is as follows: What is the current cost allocation technique that can be adopted by National Motor Company for the purpose of developing a manufacturing philosophy for ensuring further improvement of business? Analysis The inferences that can be drawn from the study lays down the following analyses: The management of the National Motor Company is of the perspective that the corporate entity has a good handling technique on the direct costs. The two divisions make use of the different input materials that are tracked on the basis of division rather than getting allocated. The particular issue that has been highlighted in the case study is that the direct labor is usually allocated on the basis of manufacturing labor hours. However, the particular fact that the particular division of New Wave focuses on the quality rather than on the quantity of production. Therefore, the particular cost allocation technique utilized by the New Wave division appears to be faulty. This is because the allocation of the cost on the basis of the labor hours will unnecessarily lead to the elevation in the price of the product. Moreover, the decision to focus on the quality of the product makes the technique relatively more labor or less capital intensive than Classic. Therefore, a particular cost alloc ation technique should be developed on the basis of the approach that the firm adopts in regards to production (Andersn Samuelsson, 2016). The second issue that has been reflected in this particular case study is that the expenses or the direct costs like storage space rental and insurance are recorded via the means of third party billing. On the other hand, the direct costs like spoilage and obsolescence are determined with the help of the respective managers of the divisions. This is again another faulty decision. This is due to the fact that the recording of the different components of the direct costs should be handled by the executive personnel within the organization. This practice will essentially eliminate the chances of particular occurrence of fraud or embezzlement that might be carried out in the organization. Therefore, the first two items that have been stated in the case study to have been recorded by the third party billing service should be instantly delegated to the division managers in order to construct a proper costing system (Andersn Samuelsson, 2016). Moreover, the allocation of all the variable costs on the basis of Manufacturing labor hour might result in the development of an improper cost allocation technique. This means that the variable overhead costs should be calculated on the basis of the potential cost drivers that might have to be developed by evaluating the processes that are involved in the production method of the firm (Dekker, 2016). The allocation of the costs on the basis of the particular assumption that the two divisions take up relatively the similar amount of plant space is a very wrong practice. It must be noted here that the manager belonging to the division of Classic has suggested this particular method. However, the allocation of the costs on a fifty-fifty basis in regards to the assumption that the two divisions utilizes the similar amount of plant space is a fault cost allocation technique. Therefore, the allocation method should be based upon the input that is provided by the two different managers of the two divisions (Dekker, 2016). The allocation method of fixing the costs on the basis of defective products per 1000 units produced per division is another major mistake that is committed by the management of the National Motor Company. This is due to the fact that the development of a cost allocation technique on the basis of the assumption of a defective products will result in the increase in the number of defective products which will further decrease the acquired profit by the company (Dekker, 2016). Another major reason for concern that has been mentioned in the provided case study is that the particular corporate firm treats the costs that are not related to the particular process of production or manufacture as the period costs. These costs are not allocated to the two divisions. Moreover, these costs constitute of the development and the marketing costs, which necessarily include the salaries of the marketing staff and other expenses in regards to the advertisement expenses. This is another major blunder that is overlooked by the management of the National Motor Company. This is because the salaries of the marketing staff and other personnel of the organization cannot necessarily be a periodical cost. This is because a periodical cost refers to the cost that has been incurred on regular intervals or periodically. Therefore, the salaries of the marketing personnel or the other staff cannot be included under the head of the periodic costs. The marketing personnel salaries will necessarily be a direct cost as it is not variable and does not depend on any factor of change (Cooper, Ezzamel Qu, 2017). Lastly, the bonuses that are received by the divisional managers are based on the amount of Return on Investment. This means that the particular returns that have been acquired from gross margins have been calculated on the basis of the allocation rules that have been stated in the case study earlier. However, it must be noted here that majority of the allocation rules that have been mentioned in the case study have been frames to be faulty in nature. Thus, it can be clearly stated that a new allocation technique should be developed (Cooper, Ezzamel Qu, 2017). List of alternatives The list of alternatives that might be adopted by the firm are as follows: The firm might reduce the degree of dependency between the two divisions. The two managers of the individual divisions should provide less suggestion to each other in regards to the particular division that they are managing. The particular cost allocation technique that is currently utilized by the firm should be changed to another potential method of costing that is the activity based costing. Moreover, such a particular process of costing has been adopted by the reputed firms of Canada like the Linamar Corporation of Canada. This particular well known corporation of Canada has been utilizing the particular technique of activity based costing. Recommendation The particular recommendation that is applicable to the situation faced by the National Motor Company is that the management of the firm should consider adopting the particular costing technique of activity based costing. This is because the utilization of this particular cost allocation technique will aim to remove the discrepancies in the current costing system of the corporate firm. References Andersn, J., Samuelsson, J. (2016). Resource organization and firm performance: How entrepreneurial orientation and management accounting influence the profitability of growing and non-growing SMEs.International Journal of Entrepreneurial Behavior Research,22(4), 466-484. Bromwich, M., Scapens, R. W. (2016). Management accounting research: 25 years on.Management Accounting Research,31, 1-9. Coad, A., Jack, L., Kholeif, A. O. R. (2015). Structuration theory: reflections on its further potential for management accounting research.Qualitative Research in Accounting Management,12(2), 153-171. Cooper, D. J., Ezzamel, M., Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard.Contemporary Accounting Research,34(2), 991-1025. Dekker, H. C. (2016). On the boundaries between intrafirm and interfirm management accounting research.Management Accounting Research,31, 86-99. Fullerton, R. R., Kennedy, F. A., Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices.Journal of Operations Management,32(7-8), 414-428. Hopper, T., Bui, B. (2016). Has management accounting research been critical?.Management Accounting Research,31, 10-30. Maas, K., Schaltegger, S., Crutzen, N. (2016). Integrating corporate sustainability assessment, management accounting, control, and reporting.Journal of Cleaner Production,136, 237-248. Messner, M. (2016). Does industry matter? How industry context shapes management accounting practice.Management Accounting Research,31, 103-111. Soltani, S., Nayebzadeh, S., Moeinaddin, M. (2014). The Impact Examination of the Techniques of Management Accounting on the Performance of Tile Companies of Yazd.International Journal of Academic Research in Accounting, Finance and Management Sciences,4(1), 382-389.