Management Accounting - The 'Raw Material' cost as a 'Variable Cost' - Essay Example

Part The 'Raw Material' cost is a 'Variable Cost'. This is because this cost increases/decreases as and when a change occurs in the number of units produced by the company. The 'Building Rent' cost is a 'Fixed Cost' as it remains constant and does not change despite a change in production (level of activity).For 1,000 items, the unit costs are: Fixed Cost per Unit = 9,000 / 1,000 = $ 9.00 per unit Variable Cost per Unit = 650 / 1,000 = $ 0.65 per unit For 6,000 UnitsThe total annual costs are: Fixed Cost = $ 9,000 Variable Cost = $ 0.

65 x 6,000 = $ 3,900The unit costs are: Fixed Cost per Unit = 9,000 / 6,000 = $ 1.50 per unit Variable Cost per Unit = $ 0.65 per unit For 8,000 UnitsThe total annual costs are: Fixed Cost = $ 9,000 Variable Cost = $ 0.65 x 8,000 = $ 5,200The unit costs are: Fixed Cost per Unit = 9,000 / 8,000 = $ 1.125 per unit Variable Cost per Unit = $ 0.65 per unit Part 2Financial AccountingFinancial Accounting is concerned with development of financial statements of the company to be used by stakeholders like customers, management, employees, shareholders, regulatory agencies, creditors and debtors etc.

The scope of financial accounting is usually external to the organization where stakeholders analyze the financial health of the company through its financial statements like balance sheet, income statement, statement of retained earnings and cash flow statement (MIT Open Courseware, 2004). The job responsibilities of financial accountants is to ensure that all financial transactions are recorded into the books of accounts, are valued appropriately, and all transactions are reflected in the statements.

Generally Accepted Accounting Principles (GAAP) are used by financial accountants as a benchmark standard to develop financial statements (Wikipedia, 2007). Public companies are legally required to develop and publish financial statements.Managerial AccountingIn contrast, Managerial Accounting focuses on the internal issues which are required by management to make informed decisions about business processes. These also provide the management with an insight into business functions' efficiency and effectiveness and provide valuable information about operations of the system of internal controls.

The managerial accounting information is not required to be disclosed to public in contrast to the financial accounting reports; rather the reports produced by managerial accounting function are normally classified as 'confidential' and are for internal use only (Wikipedia, 2007). A few reports developed by managerial accounting function include inventory reports, product costing reports and schedules, materials costing reports, and variance analysis between standard and actual costs.ReferencesMIT Open Courseware. (2004). Overview and Introduction to Financial Statements.

Retrieved February 17, 2007 from the World Wide Web: http://ocw.mit.edu/NR/rdonlyres/Sloan-School-of-Management/15-511Summer2004/0570D7C5-94EF-4DD3-94B3-0849C75D9EE3/0/lec1.pdfWikipedia. (2007). Financial Accountancy. Retrieved February 17, 2007 from the World Wide Web: http://en.wikipedia.org/wiki/Financial_accountancyWikipedia. (2007). Management Accounting. Retrieved February 17, 2007 from the World Wide Web: http://en.wikipedia.org/wiki/Managerial_accounting