DEGREE: BSC (HONS) INTERNATIONAL BUSINESS AND MANAGEMENT
INTERNATIONAL ROUTE MODULE: MANAGERIAL ACCOUNTING
ASSIGNMENT TITLE: MANAGERIAL ACCOUNTING REPORT
ASSIGNMENT TYPE: WRITTEN ASSIGNMENT
Table of Contents
1. What product(s) does firm produce? 3
2. What costs are assigned to the product(s) produced? 3
3. For a particular product, what direct materials are used? 4
4. What percentage of total manufacturing costs is direct labour? Direct materials? Overhead? 4
5. How is overhead assigned to the products? 5
Q 1: What were the reasons offered for implementing ABC? 10
Q2: What implementation procedures were used? 11
Q3: How many activities were identified? 11
Q4: What types of benefits (results) were achieved by each company? 11
Q5: What problems were mentioned, if any? 12
This report highlights the two industries are of two different types, a manufacturing firm called Ford and a service provider called Netflix. The aim of this report is to determines different kinds of costs faced by both these companies, how they assign these costs, and how various techniques to estimate the cost such as Activity-Based Costing, high-low, scatterplot, and least squares can be applied to each company.
Ford Motor Company manufactures diverse products for the marketplace: sedans, trucks, SUVs, and commercial vehicles. It is represented by the best-selling Ford F-Series trucks, which are the iconic SUV, Ford Explorer, the best-selling Ford Mustang, and the newly launched Ford Bronco (Ford.com, 2025). In order to cater for increased demand, the company produced electric variants including the new model of Mustang Mach E and all-electric SUV and a plug-in hybrid F-150 Lightning Electric which is a new electric variation for the renowned truck. As they state “Sustainability, electrification, mobility transformation toward tomorrow is part of what drives all this at Ford”. Apart from vehicles, Ford has been producing a vast range of parts and accessories to support vehicle performance, safety, and aesthetics (Corporate.ford.com, 2025). Ford has also ventured into connected vehicle technologies and digital services that advance customer experience through rich vehicle functionality and seamless connectivity.
The cost areas in the manufacturing of Ford vehicles are as follows:
Direct materials: Raw materials in this regard include raw metals, plastics, glass, and electronics which form the base of vehicle making (Gupta and Singhal, 2022). These constitute a large proportion of Ford’s manufacturing costs.
Direct labour: Wages and benefits for employees directly emerged in assembly. It takes a lot of workers to assemble something as complex as the F-150 and Mustang Mach-E (Hansen, and Mowen, 2007).
Manufacturing overheads: Indirect costs that run from utilities through machinery depreciation facility rent and personnel salaries for superintendents whose contribution may not be assigned and tracked to vehicles.
Research and Development: R&D constitutes innovation in vehicle safety, and economy in fuel with the introduction of new technologies about electricity-powered vehicles’ autonomous units (Chen, 2022).
SG&A: Direct costs for advertising and sales, as well as corporate general and administrative expenses, all of which are necessary to sell Ford's vehicles.
Many direct materials are used in Ford's cars to assist in performance, safety, and durability: :
Metals: These are used in the car's frame, body panels, and structural elements, made of steel and aluminium (Trzepieciński and Najm, 2024). Though steel gives it strength, it reduces weight so that the vehicle is lighter, which makes it good for fuel efficiency.
Plastics: Used on interior parts such as dashboards, seats and outer parts like bumpers. Both are light and elastic.
Glass: Special glass is used for windshields, windows, and mirrors that would help obtain the safety requirements with good visibility.
Electronic Parts: There are sensors, microchips, and other infotainment systems provided for this technology of independent driving that connect further with the operations.
Figure 1: Total Manufacturing Cost
(Source: Inflowinventory.com, 2023)
Ford, like every automobile company, has the major direct materials, direct labour, and overhead as manufacturing cost distributions. The percentages may vary but are given generally as follows:
Direct Materials: About 40-60% of total manufacturing costs. Given that Ford will be incorporating more aluminium into the vehicle for increased fuel efficiency, the direct material costs should rise as well (Czerwinski, 2021).
Direct Labour: Typically, at 20-30 percent of the manufacturing cost. Such costs include workers' wages engaged in assembly, quality control and final check.
Overhead: Normally it constitutes 20-30% of the total cost. Overhead includes the following: rent, utilities, depreciation of equipment, and salaries for supervisory staff.
Costs help Ford maximize production efficiency, therefore helping in pricing adjustments. For example, when a vehicle model uses rarer materials or more complex processes, Ford will price out their models to ensure profitability.
Ford employs superior overhead cost allocations for its models of vehicles. One example is Activity-Based Costing (ABC), the technique by which overheads are assigned based on specific activities that drive those overheads (Pollari, 2021). For example, a vehicle model requiring more machine hours or labour hours will have a higher overhead assigned to it. This will enable Ford to estimate the actual cost of producing every vehicle. Thus, the pricing strategy and profitability analysis would become more precise.
Ford's production system has a few operational segments like assembly, painting, and quality control. Each of them adds up towards overhead costs and ABC helps Ford trace the same more accurately. This will enable the company to identify inefficiencies or areas for potential cost reduction (Mahzan and Lee, 2021). Furthermore, Ford counts for intersegment transactions, which occur in the event a production segment of the company builds vehicles for the other. There are transactions including reporting intersegment revenue where a producing segment charges the selling one for materials, labour, overhead, and add-ons for a mark-up of returns.
Choosing two different firms such as Toyota as a manufacturing industry and Netflix as a service industry.
As Toyota is a manufacturing company, this company’s cost behaviour includes raw materials. factory overheads and depreciation on machinery. Moreover, the Netflix is a service industry so this company’s cost behaviour includes content acquisition, server maintenance and marketing expenses
Table 1: Cost Behaviour
(Source: Self-Developed)
The managerial judgment in determining the cost behaviour include, managers have to determine which costs depend directly on production quantities which highlight the variable costs. As an example, the cost of labour would vary with production levels, whereas the deprecation across factory equipment is fixed regardless of production level. However, managers determine whether growth across the number of subscriptions will affect costs such as content licensing. As an example, a manager determines fixed costs such as infrastructure and servers. Mixed costs such as marketing will require that a manager ascertains whether a cost has some relation with the acquisition of a customer.
Table 2: High-low Calculation
(Source: Self-Developed)
The high-low method refers to highlighting the fixed and variable costs across a given data set which lead to highlighting through the cost model (Corporatefinanceinstitute.com, 2022). In this context, this method helps to identify the highest and lowest activity levels which lead to focus on the fixed cost which is −10,000.
Table 3: The Scatterplot Calculation
(Source: Self-Developed)
This Scatter plot method refers to highlighting the relationship between different variables such as X variable and Y variable where, X variable is unit produced and Y is electricity cost. In that case, this method helps in representing observations from variables that highlight a line graph which may help to analyses patterns and show the strength of the relationship (Betterevaluation.org, 2023).
Figure 2: Scatter plot of X variable and Y variable
(Source: Self-Developed)
Netflix marketing costs vary from $1 million for 10 million subscribers up to $3 million for 20 million subscribers. Graph costs and activity on a scatterplot with activity on the x-axis and costs on the y-axis. Developing the slope of variable cost and use it to compute the fixed cost based on the vertical intercept when the activity level equals zero.
This least square method refers to the regression analysis which estimates the sum of the squares to highlight the difference between an observed value (Geeksforgeeks.org, 2021). Moreover, the substantial uncertainties to identify the variables can be considered their ordinary least squares and nonlinear least squares.
Multiple regression is a tool of statistics that helps explain how a dependent variable such as cost interacts with several independent variables, which include the cost drivers. Thus, this becomes a very useful tool for Toyota and Netflix, as their cost behaviour is influenced by several factors operating simultaneously.
For Toyota, multiple regression can be applied to explain how changes in factors such as the volume of production, prices of raw materials, labour hours, and machine utilization impact manufacturing costs (Davuluri, 2023). Toyota can therefore predict how changes in one factor, say rising labour costs, affect total production costs. This will make budgeting and cost control much simpler for the company.
Similarly, for Netflix, using multiple regressions, one could determine that the number of subscribers, the cost of acquisition of content, server maintenance costs, and advertising could be factors that contribute to the cost of running their operations (Li and Kumar, 2022). Using such information would allow Netflix to understand at what points to increase the scale of content offerings, how much more marketing spend should be allocated, or use more servers.
Overall, multiple regressions give such two companies critical insights into aiding forecasts on cost, as well as optimal usage.
In this managerial judgement, two companies are chosen such as General Electric and Intel. Intel has suffered from significant concerns in maintaining overhead costs within the complicated process of production. The major reason behind implementing Activity-based costing is to offer effective product costing and enhance the accuracy of cost. Sallam et al. (2023) asserted that it can support managing overhead costs where the organisation's supply chain is complicated and differentiated effectively. In contrast, it can help in making informed decisions including finding major areas, pricing and decisions of product mix to decrease cost (Mclaney, 2017). General Electric also integrates Activity-based costing which highlights the combination of operations in different industries by showing significant challenges. Momin and Mishra (2024) remarked that the traditional costing process failed to offer worthy pieces of information regarding the cost structure of its different services and products. This Activity-based costing is implemented in General Electric to obtain proper visibility of the major cost drivers in different business units specifically in the manufacturing divisions. Therefore, Challoumis (2024) expressed that it can support enhancing resource allocation through understanding the actual costs of production within different services and products. However, it contributed to improving decisions which are relevant to cost-cutting, pricing and outsourcing.
Figure 3: Implementation of ABC
(Source: Fastercapital.com, 2025)
The implementation process of Activity-based costing regarding Intel is to find the major cost drivers which encourage the overhead costs throughout the process of manufacturing. The study of Dutta et al. (2021) mentioned that it can support evaluating the useful activities which highlight the major resources including quality control, machine setups, and testing. Intel shows the planning of different activities regarding its services and products which utilise the resources effectively. Alternatively, it can support allocating costs depending on the appropriate resource consumption through different products. Judijanto (2024) proclaimed that Activity-based costing can be implemented by integrating effective software for automating cost allocation and gathering data. However, these insights are useful for implementation across significant financial management systems.
In the case of General Electric, they have implemented ABC by gathering insights regarding costs and activities throughout the different areas. Therefore, these insights are effective in finding the actual cost of operations. Abdelmotteleb et al. (2022) asserted that General Electric can structure its different activities by confirming that overheads are allocated for particular services and products. Therefore, they can invest in the necessary training for their employees which confirms that they are informed about the principles of Activity-based costing which is beneficial for tracking costs. Pollari (2024) declared that General Electric can implement the insights of Activity-based costing within the decision-making process. Therefore, it supports the management of the cost structures and useful strategies of pricing regarding products.
Intel has identified numerous activities such as selling computer components, designs and manufacturing regarding consumer markets, material handling and business. They can drive cost allocation effectively depending on the appropriate resource consumption by concentrating on the activities. The study of Steiber et al. (2021) expressed that General Electric has identified different activities including customer service, health care technologies, energy solutions, and jet engines. However, its major effective activities such as distribution, procurement, and quality control which is beneficial to know regarding cost drivers.
Intel can benefit from Activity-based costing by driving effective decision-making, enhancing cost accuracy, informed decisions regarding pricing and improving cost control (Cugini and Caprioglio, 2021). However, it can support driving investment for resource decisions, informed pricing, and finding gaps. Alternatively, General Electric can obtain improved planning, appropriate product costing, and enhanced profitability with the support of Activity-based costing. Therefore, it can support managing supply chains, finding effective cost areas and offering indirect costs that lead towards long-term planning and decreased costs.
It is noted that Intel has suffered from significant challenges including process redesign, and increased initial costs. The study of Mızrak (2024) mentioned that the resistance to change highlights that employees are doubtful to learn new processes of costing which needs effective communication relationships. Alternatively, the major insights regarding Activity-based costing are considered an inaccurate and time-consuming process due to facing challenges in measuring useful cost drivers. However, General Electric faces challenges in the process of complicated data collection throughout its operations. This Activity-based costing can support raising overhead costs at the initial stage by using proper resources for tracing activities.
This report concluded that the behaviour of cost in both manufacturing and service industries needs to be understood. For different company such as Ford and Netflix, accurate cost allocation techniques like ABC along with estimation tools would better support the company in decision making, cost control, and profitability. Proper management of costs is vital to operate effectively and have an effective pricing strategy in the respective market.
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