Structure and Sticky Costs Accounting Research MyAssignmenthelp.com

Question: Discuss about the Structure and Sticky Costs Accounting Research. Answer: Introduction: Analysis and classification of cost involves the grouping of the overall cost into different logical groups based on a suitable approach. Classification of cost to Ocha Limited is crucial for controlling the cost and the purpose of decision-making. Cost can be classified into mixed, variable and fixed. The variable costs are those that varied with the amount of production or activity (Duan, Jing Lu, 2014). For example, the organic tea, spices and chemical products used by Ocha Limited for producing tea-flavoured ice cream, lollipop will increase with the increase in production. The fixed costs are those costs that do not change with the change in production level. For example, the cost incurred by Ocha Limited for the sales force and marketing team staff will not change with the change in production level. On the other hand, the mixed cost involves the elements of fixed as well as the variable costs. The utility bill that has to be paid for the production of various products of the company is recognised under the mixed cost. The cost for mixing process will be higher if more items put into the the mixing process (Persello et al., 2014). Understanding the behaviour of cost assists the management in various ways. For instance, Mr. Tomohiro can prepare the budget to forecast the costs and the measure the profits and then compare the actual amount with the budgeted one. Understanding the costs types that he is is incurring for his business will assist him to develop the proper mix for and the product volume that shall be manufactured to generate high level of profits for the company (Patil, Sherekar, 2013). This method is known as Cost-Volume-Profit analysis. Further the information of classification of cost will help Mr. Tomohiro for the calculating how many items he will have to produce for the break-even and cover the costs. Further, it is crucial to differentiate the costs into indirect and direct while making decisions regarding whether to purchase or make a specific product. Direct costs can be attributed to the production of a product, particular department or project. On the other hand, the costs those are expensed by the company but cannot be identified to the production of a particular item. For instance, the salary paid to the managerial staffs cannot be charged against one particular item. Understanding the behaviour of cost assist in calculating the overall cost of a product or project at projected volume; therefore, while making decisions regarding the cost, classification of cost plays an important role (Lo, Lin Wang, 2014). Usage of costing technique With the given scenario of Mr. Tomohiro for his company Ocha Limited, activity based costing (ABC) will be suitable for their business as they deal with various products for which they have to use various raw materials and various other overheads are involved in the process of the items like ice cream and lollipop (Balakrishnan, Labro Soderstrom, 2014). ABC system is the accounting system that recognizes the activities that an organization performs and then allocates the indirect costs to the products. The indirect costs like salaries to office staffs and management staffs are sometime tough to allocate to a particular product. ABC analysis is business term that is used to define the categorization technique for the management of material. This method is also known as the selective inventory control. The policy control under the ABC analysis provides accurate records and tight control on the items that are classified as A and good records and less control on the items that are classified as B. ABC system uses various cost drivers while allocating the overheads to the products. The multi-objective approach is also also implemented to offer better description for the trade-offs involved under the cost driver selection process. The cost driver under the ABC system led to the alteration in the cost of the activities. Cost driver is the factor that causes change in the activity cost. ABC systems focus on the attention of the management on the reasonable costs of the asset. It presupposes that the consumption of the resources leads to costs and the products incur the costs through the activities that are required for designing, marketing, invoicing and deliveries. The ABC costing system is beneficial in the following ways: Accurate cost of the product ABC assist in reliable and accurate determination of cost through focussing on the effect and cause relationship in the cost system. It identifies that it is the activities that leads to incurring of costs. In the circumstances of advanced manufacturing technology where the support functions and the overheads that constitute the large share for the total costs, the ABC offers more realistic costs for the product. Information regarding the behaviour of cost ABC recognizes the actual nature of the cost and assists in reducing the cost of the identified activities that are not attributed to the product value. With the ABC approach managers will be able to control the fixed overheads costs through exercise of more control on the activities that will fix the overhead cost. Recognition of overhead cost through ABC systems the overhead costs like manufacturing processes, customer related overheads, marketing overheads and allocation of overheads in appropriate manner (Kaplan Atkinson, 2015). Management of cost ABC offers rate of cost drivers and information related to the transaction volumes that are very crucial to the management for managing the costs and for the purpose of responsibility centres appraisal. The rate of cost driver can be advantageously used for the designing of new products or improve the existing products. Usefulness of ABC systems to Ocha Limited ABC system can offer better information system related to the costs nd assist the management to manage the business effectively and get better perceptive of the companys competitive advantages, weaknesses and strengths. It is obvious that Mr. Tomohiro, CEO of Ocha Limited will search for better costing system like ABC if they experience increase of lost sales due to the incorrect pricing that may results from the inaccurate costing of data. The ABC system is more effective with the firms dealing with various products, for instance, as Och Limited is dealing with various products like ready-to-drink beverages, tea flavour chillers, tea flavoured ice cream and lollipops. Moreover, though the sales level of Ocha limited has been increased between 2011 and 2016, they face huge competition from domestic as well as international competitors. The competitors offer faster delivery and lower prices for shelf space that cannot be offered by Ocha Limited at these moments. Therefore, through app lication of ABC, the CEO can have an idea for selling of which product will increase the profits and in which area the costs can be reduced to maximise the profits. Further, production of their products includes various overheads related to mixing process, sales mix and marketing mix. Therefore, through ABC, the overheads can be allocated on suitable manner to increase the profitability (Kaplan Anderson, 2013). Reference Balakrishnan, R., Labro, E., Soderstrom, N. S. (2014). Cost structure and sticky costs.Journal of management accounting research,26(2), 91-116. Duan, W., Jing, L., Lu, X. Y. (2014). Imbalanced data classification using cost-sensitive support vector machine based on information entropy. InAdvanced Materials Research(Vol. 989, pp. 1756-1761). Trans Tech Publications. Kaplan, R. S., Atkinson, A. A. (2015).Advanced management accounting. PHI Learning. Kaplan, R., Anderson, S. R. (2013).Time-driven activity-based costing: a simpler and more powerful path to higher profits. Harvard business press. Lo, H. Y., Lin, S. D., Wang, H. M. (2014). Generalized k-labelsets ensemble for multi-label and cost-sensitive classification.IEEE Transactions on Knowledge and Data Engineering,26(7), 1679-1691. Patil, T. R., Sherekar, S. S. (2013). Performance analysis of Naive Bayes and J48 classification algorithm for data classification.International Journal of Computer Science and Applications,6(2), 256-261. Persello, C., Boularias, A., Dalponte, M., Gobakken, T., Naesset, E., Schoelkopf, B. (2014). Cost-sensitive active learning with lookahead: Optimizing field surveys for remote sensing data classification.IEEE Transactions on Geoscience and Remote Sensing,52(10), 6652-6664.