Startegic Management Accounting

Tables of content Page No

Introduction 03

Models and concepts affecting the pricing decision 03

Approaches to pricing 04

i. Cost–volume–profit analysis 05

ii. Cost plus mark-up pricing 07

iii. Target rate of return pricing 07

Standard costing and Variance analysis 08

The role of standard costing and variance analysis 12

Limitations of Standard Costing and variance analysis 12

Evaluation of Activity Based Costing system 13

Advantages of ABC system 17

Limitations of ABC system 17

References 18

Introduction

This report is mainly focusing to understand and analyse the issues involved in Manac plc where by the company is not meeting target budgeted profit. This is a critical situation where management of Manac plc should understand and evaluate the key strategic management accounting models and concepts which may affect to decisions made with regard to products' cost and price.

Manac plc presently uses traditional management accounting concepts such as standard costing and absorption costing methods as a part of its approach to strategic management accounting. The reasons for the company not to achieve target budgeted profit may be that products have not been priced accurately as well as the variances with regard to sales, material cost, labour cost, other variable cost and fixed over head cost have been occurred. Absorption costing method may also have a significant effect on price of the products where by the company may have reached to a lower profit than expected. Since exact reasons for this situation are more complex, we should critically understand and evaluate the company's strategic management approach with a range of strategic management accounting models and concepts. Thus, this report covers following areas which the issues of Manac plc are related to.

1. An analysis of models and concepts affecting the pricing decision taken by the company.

2. The role of standard costing and variance analysis in management accounting and its values and limitations.

3. Evaluation as to the introduction of Activity Based Costing system by replacing current Absorption Costing system.

1. Models and concepts affecting