Management Accounting For Cost And Control – The Role Of Panopticism

The Functions of Management Accounting

Discuss About The Management Accounting For Cost And Control.

Panopticism is referred as the social theory which is named after the “Panopticon” that was initially founded by Michael Foucault a French philosopher. The expression “Panopticism” is referred as the laboratory for experiment of power that assist in changing the behaviour as the mark of showcasing the society investigation.

The term Panopticism in respect of management accounting requires attention in the areas of management and accounting elements anti-corruption project. Panopticism helps in detailing the concepts of auditing and accounting with the objective of placing focus on detecting and preventing the corruption (Lanen, 2016). Panopticicms acts as the tool of implementing control on the accounting records and helps in acting as the tool for reformation that stresses on the financial controls as the anti-corruption. The concept of Panopticism is to reduce the conflict of interest between the management and control by applying strong auditing programs.

Panoticism helps in applying the transparency in data as this would help in promoting better synoptically system. Adopting the Panoptical approach would assist in durable application of control for private companies (Eldenburg et al., 2016). For instance, applying the concept of panoptical system in an organization would assist in defining the raw type of the data derived and would assist in side-lining the professional auditors.

Planning: Planning refers to the formulation of short and long term plans along with actions to achieve a particular end. A budget represents the financial planning that represents how the resources are to be obtained and used over a particular time period (Rajan et al., 2015). The functions of management accounting is closely woven in planning since it gives information relating to decision making. As a result of this the entire budget is revolves around accounting of related products.

Controlling: Controlling refers to the process of monitoring, measuring, evaluating and modifying the actual results to make sure that the goal of business enterprise is attained (Salako & Yusuf, 2016). Control is attained with the help of feedback. Management accounting assist the functions of control by generating performance reports and control reports that highlight variances among the anticipated and actual performance. The reports serve as the basis of taking necessary corrective actions to control operations.

Decision Making: Decision making as the too, of management accounting refers to the process of choosing from the competitive analysis. Decision making is inherited in the other functions of management accounting namely planning, organizing and controlling. A manager of an organization will not be able to plan without taking decision and has to choose from the competing elements to execute the selected purposes. 

Formula View

In the words of Schaltegger & Burritt, (2017), the routine and responsibilities have turned out to be a difficult element in the current world. This is because mistakes are virtually considered inevitable in the modern world. As stated by the Van Helen Rock Band, checklist is regarded as the most vital tool for implementing control. Checklist helps in careful composition and application of control. The rock band realised that checklist is regarded as the vital element of control since it helps in assuring that each person that are engaged in work are capable of understanding the aims and goals by adhering to the prescribed process.

As per the rock band they would gain advantage from the use of checklist since it is highly portable to carry around (Bennett & James, 2017). With the use of checklist, the rock band helps in ensuring that a thoroughness is maintained together with the supply of inventory consistency and are generally time saving by accounting for the required records among the other list of items. During the situation of complexity checklists not only serve as the tool for assistance but they are also required for gaining success.

A perpetual system of inventory continuously updates the company records on the circumstances when the raw materials or products are sold to the customers. Businesses that uses the perpetual system of inventory is required to introduce the accounting cycle of physical stock take in the day to day organization inventory account by comparing the quantity against the records of inventory (Taylor & Nyide, 2014). The system of physical stock take in this system would help in examining the differences in the inventory records to determine the reasons for incorrect quantities.

Overtime can be defined as the amount of overtime that is paid to each of the employee during the pay period. Overtime is computed based on the hourly rate of pay and overtime hours worked. Therefore, in context of the present question the overtime payment is considered as the indirect labour and it is considered in the overtime costs.

The system of costing are regarded as the system of information. The costing system usually needs specific information that is direct labour and the total quantity of units produced. The system of traditional costing helps in allocating the overhead under one single machine type application of overheads or rates for the operational department that is based on volume (Otley, 2016). The cost of overhead usually does not vary with the quantity. Hence, assigning the overhead costs based on the volume would result in distortion amid the costs that assigned to several lines of product.

Perpetual Inventory System

As stated by Chiwamit et al., (2017), the activity costs is stated as the refinement of the traditional costing system for allocating the manufacturing overhead in the number of units produced. Complying with the analysis, the traditional system of costing constantly uses the volume based measures such as direct labour hours and the machine hours to allocate the overhead costs for the goods produced. Conversely the ABC system of costing allocates the overhead costs to the product relating to the resources of each activities that are indulged in designing, producing and distributing specific products. This further accompanies by allocating the cost among the cost pools constituting the specified activities and distributing the costs by using the correct drivers of costs of the products.

Arguably an assertion can be bought forward by stating that ABC costing method is more focus based costing and undertakes detailed approach instead of using department or machinery level for accumulating costs (Maas et al., 2016). The activity based costing provides the managers with the adequate information of products leading to improved profits with strong strategic planning in the areas of price, customers, and market and capital expenses. The ABC costing methods offers managers with the easy access to necessary costs for making decision and maintaining competitive position in market.

In spite of the benefits certain arguments against the ABC method of costing has been bought forward relating to cost allocation (Taylor & Nyide, 2014). There are certain costs that is required to be allocated in departments and product allocation to decide volume of particular activity. As a result of this, there are certain costs which may not on some occasion be regarded as feasible.

The development and application of ABC costing system is regarded as time consuming and generally needs a year time for implementing the system. Since the ABC costing system generates large quantity of information and there is some information that gives misleading results to the management and might compel managers in concentrating on the incorrect data (Schaltegger & Burritt, 2017). Despite facing criticism ABC method of costing is regarded as more product concerned and offers managers with ease in the identification of business costs for making decision to remain competitive. Therefore, the ABC costing method is regarded as the improvement over the traditional costing system.

Total Cost of S1 Department (x) = Direct Centre Cost of S1 + [20% * Total Cost of S2 (y) ]

Or, x = $20000 + (20% X y)

1. b) Total Cost of S2 Department (y) = Direct Centre Cost of S2 + [ 15% * Total Cost of S1 (x)]

Or, y = $25000 + (15% X x)

Or, y= $25000 + [15% x ($20000 + 20%y)]

Or, y= $25000 + $3000 + 3%y

Or, y-0.03y = $28000

Or, 0.97y = $28000

Or, y = $28000/0.97 = $28868

x = $20000 + 20%y

Or, x = $20000 + (20% x $28868)

Or. x = $20000 + $5773 = $25773

Reference List: 

Bennett, M., & James, P. (Eds.). (2017). The Green bottom line: environmental accounting for management: current practice and future trends. Routledge.

Chiwamit, P., Modell, S., & Scapens, R. W. (2017). Regulation and adaptation of management accounting innovations: The case of economic value added in Thai state-owned enterprises. Management Accounting Research, 37, 30-48.       

Eldenburg, L. G., Wolcott, S. K., Chen, L. H., & Cook, G. (2016). Cost management: Measuring, monitoring, and motivating performance. Wiley Global Education.

Lanen, W. (2016). Fundamentals of cost accounting. McGraw-Hill Higher Education.

Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, 237-248.

Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.

Rajan, M. V., Datar, S. M., & Horngren, C. T. (2015). Cost Accounting: A Managerial Emphasis. Pearson Education, Inc.

Salako, M. A., & Yusuf, S. A. (2016). Cost accounting: A pivotal factor of entrepreneurial success.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.

Taylor, P. A., & Nyide, C. J. (2014). Cost Accounting II Module 11.

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