Management Accounting and Decision Making: A Case Study of Imda Tech

This document discusses the importance of management accounting in decision making for Imda Tech, a firm that produces mobile phone chargers and gadgets. It covers topics such as different systems of management accounting, profit and loss account under absorption and marginal costing, and various types of budgets and pricing techniques.

MANAGEMENT
ACCOUNTING

INTRODUCTION
The method or process under which different kinds of the financial transactions are to be
made, recorded, analysed, assessed, evaluated etc. is known as management accounting which is
the most helpful for entity in order to make several internal business decisions. The firms and
managers often use the respective aspect only while analysing the internal business process along
with taking decisions at the workplace. The report is about the Imda Tech firm which produce
specific type of the mobile phone charges as well as gadgets and then supply to all retailers
within UK. The existing report describer regarding significance as well as systems of the
management accounting and profit and loss account under marginal and absorption method. In
addition to this, it helps to reader to understand about the budgets, its process and methods to
take pricing decisions. At the end of study, it focuses on balanced scorecard (BSC)
TASK 1
A) i Defining management accounting along with differentiate with financial accounting
The process in order to prepare the accounts which helps to assess accurate and reliable
data along with the appropriate time for making the day to day as well as short term business
decisions is called management accounting. With the help of management accounting the
business like as Imda Tech able to know that which are the constraints occurs at the workplace in
the internal. In the accounting, there are generally two aspects comes which are like as
management and financials further difference among these both is as follows:
Management Accounting Financial Accounting
The accounting method which is used for the
very short time as well as day to day decisions
for internal is identified as management
accounting.
The process in which financial statements are
prepared using the transactions and make the
long term or yearly business decisions is called
as financial accounting.
The key purpose of such accounting is for the
internal business analysis as well as helps to
the internal business stakeholders.
When management as well as the external
stakeholders like as customers, investors,
suppliers etc. going to make decisions then use
the financial accounting systems (The
Differences Between Financial Accounting &
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Management Accounting. 2017).
The accounts and reports under current system
are to be made within any period of time or as
the management wants and requires.
For making the financial accounts as well as
reports then there are particular time periods is
fixed like as yearly, quarterly or half yearly
and within such time frame only Imda Tech
can make the statements of financials.
In the management accounting any kind of the
formates and structures are not settled out for
make the reports and statements.
While preparing the reports then there are
specific kinds of formates, disclosures along
with the accounting theories and standards are
settled which are necessary to follow.
Primary focus of management accounting is on
the present or existing data as well as
estimating for the future periods (Kaplan and
Atkinson, 2015).
Financial accounting focus or looks upon the
past and historical data for assessing the
business performance and make fruitful
decisions.
A) ii Significant of management accounting in order to make decisions
Management accounting is one of the best as well as highly appropriate tool for the Imda
Tech business entity in order to make the decisions for manufacturing products like as mobile
phone chargers due to evaluating level of expenses and costs. When the management assess that
there are how much amounts is to be spent for manufacturing the products as well as services
then make the decision for charging prices to sale in the market. Apart from this, total cost of
production is also to be determined with the help of management accounting process and aspects.
In this kind of accounting process inventory or stock management comes which helps to derive
the value of stock which is available with the entity in its workplace. Moreover, Imda Tech firm
able to take decisions that how to utilize the inventory and then make it healthier in the industry
of currently operating (Ward, 2012). It provides information to the Imda Tech management of
each and every small transactions which relies under the financials aspect and by this firm able to
know that how much amount is currently used. On the basis of the recorded transactions
company able to make the statements of budget to make and derive decisions for the further
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financial and accounting periods. Through the budgets Imda Tech make decisions that how much
money will require for the next year along with level of production, direct labour cost, amount of
sales needs to generate and many more aspects of the firm. Hence, it can be said that the
management accounting is highly and the most significant for Imda Tech to make decisions for
business process.
B) Various types of systems of management accounting
In the management accounting there are different number of the systems as well as
approaches are there which are described as below:
Cost accounting systems
The system or approach of the management accounting in which level and kinds of
expenditures are to be recorded and assessed and then take the decisions for further is called as
cost accounting. In this, for preparing the chargers different costs like as salary to electric
engineers, cables, fuel, raw materials etc. arises which are transacted in such accounting systems.
With this help Imda Tech highly able to assess that how much costing incur for manufacture the
chargers and then can make decisions for selling in the market to customers (Burritt, Schaltegger
and Zvezdov, 2011).
Inventory management systems
In respective management accounting system the Imda Tech assess that there are up to
which extent stock is available within workplace and how many needs to produce for further
periods. Apart from this, using different method of valuation of stock level such as LIFO, FIFO,
weighted average also determined. Moreover, when management know level and value of stock
then can several types of fruitful decision as well as utilize it in optimum way for generating
revenue.
Job costing systems
Apart from above mentioned other system is job costing in which each and every product
range is analysed in relating to the cost aspect. Through this Imda Tech highly able to know that
which kind of charger as well as the electronic gadget incurring how much amount of expenses
and costs within workplace (Parker, 2012). On the basis of this, the product is identified in which
cost incur at the highest amount.
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Price optimising systems
Price if one of the key and important aspect which is necessary to make at the workplace
and for that price optimising system is to be used by the Imda Tech. In this, according to the
level of demand the management optimise or adopt the pricing decisions to sell the mobile phone
chargers as well as different types of gadgets to the customers.
TASK 2
I. Profit and loss statement under absorption costing method
It has been visualized from the profit and loss account which is made with the help of
absorption costing that company Imda Tech not generating positive amount or return from the
selling of chargers. Here the firm having loss worth of -5375 GBP which indicate that
management not having skills and efficiency for utilizing the resources along with enhance sales
in the market. Apart from this, absorption costing considers all costs and expenses which relies
and comes under each and every process and due to these things, level of the profit reduce (Otley
and Emmanuel, 2013). Most of the businesses use and execute the absorption kind of costing
method because of showing the clear profit level and scenario.
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II. Income statement using costing method like as marginal
Other than absorption method, when looking up to the marginal approach of the costing it
has been ascertained that Imda Tech earn net profit in the positive manner which is worth of
4625 GBP. By considering the current figures and facts it can be clearly assessed that managers
able to control and administer expenditures up to some extent. Moreover, marginal system takes
into account only the variable as well as direct kind of the expenses come to produce the mobile
phone chargers. Because of considering the different types of level of expenses the amount and
sum of money of net profit determines in the varied.
TASK 3
A) Different kinds of budgets along with their merits and demerits
A budget is a plan which is followed in specific period to achieve objective. There are
many types of budget which has different work different plan and different uses.
Sales budget:- In this budget a company forecast future sales of the firm. It is prepared on the
basis of costumers, production, product, salesmen, location. For preparing this budget salesmen,
past sale, fluctuation, raw material, competitors are taken.
Advantages
 Sales budget is a primary budget.
 It is helpful to achieve sales target.
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 It keeps all expenses control to achieve objectives and profit.
Disadvantages
 For budget preparation it requires correct information.
 Expensive technology tools
Production budget:- For preparing the production budget sales forecast, plant of capacity,
policies based on purchase is the major factors (Cuganesan, Dunford and Palmer, 2012).
Advantages
 Mostly things can be utilized in production Budget e.g. Plant and machinery, labors
hours. Reduce production expenses and maintain stock of goods.
Disadvantages
 Needs of trained employees
 Needs many equipments
Cash budget :- Cash budget means in specific time period cash inflow and out flow. It can be
said that it is a statement of uses of cash in business or organisation. It shows the availability of
fund in business for long term or short term investment.
Advantages
 Easy to stick on:- It means cash in hand. Stop overspending. No tension of swiping debit
card and credit card.
 Financial awareness :- How much money spend on particular product.
 It helps to management for use of labour, material and capital. Cash Budget identified progress with objectives of the enterprise (Granlund, 2011).
Disadvantages
 No guarantee for cash level.
 It is expensive for making a budget.
 No flexibility.
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B) Steps in order to make the budgets Determine information for budget- At the very initial point different kinds of necessary
and required data are to be collected or determined which are helpful for making the
budgets. Due to lack of the data available Imda Tech cannot make and produce the
statement for budget to forecast different data of financials like as cost, expenses,
incomes, sales, production etc (Granlund, 2011). Create the draft- At the second step after determining the data arranged in structure form
and create or make the draft or raw budget. After creating or preparing draft for the
budget which are required for Imda Tech is show to the senior managers. Apart from this,
top the accountable person or manager also the draft and raw budget is presented. Take approval- In the above step the budget is presented to the senior and responsible
managers who analyse and review that whether it is better and effectual for it or not. If
the prepared budget is profitable and made in appropriate manner then approval for the
further step is given (Fullerton, Kennedy and Widener, 2013). Budget implementation- After taking approval from the senior managers regarding to the
budget the management implement at the workplace of Imda Tech and on the basis of it
further strategies are to be made to achieve the targeted data. In this, the firm implement
that specific targets or budgeted data must achieve from the business process.
 Budget evaluation- At the last step of budgeting Imda Tech managers evaluate and
review that the implemented budget giving he positive and profitable results to the firm
or not. If there are the company not able to meet with the targets then take decisions and
actions for combat the problems which can be create due to this.
C) Pricing techniques for determining selling prices
The strategy or technique under which the management of Imda Tech derive the charges
or selling prices to sale in the market is called as pricing strategies. There are different kinds of
methods and techniques are available which helps to determine that how much amount needs to
charge from customers behind selling the mobile phone chargers (Soin and Collier, 2013). Some
pricing methods are given as below:
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 Cost plus pricing method – In this type of pricing technique, at the very initial level the
company derive total cost of production and manufacturing and then go for the further
process. After calculating total expenses the firm add percentage of the profit which it
wants to earn from the customers and then derive prices of products. For instance, agreed
profit of the firm is 20% and cost of every unit is worth of 200 GBP then and price will
be such as 200 + 20% = 240 GBP. Market led prices – Another method is market led in which the management assess and
determine condition of the market as well as external factors such as competitors etc.
When there are level of competition is too much high and more, then in this case, the firm
charge lower price to attract more users. Hence, in such kind of method the firm analyse
about the market and then take decisions for charging level of prices of products and
services.
 Penetration strategy – At this type of pricing strategy at the initial stage the firm charges
lower prices when it introduces in the industry for attract customers (Contrafatto and
Burns, 2013). As the company grows in the market and move towards growth position
from introduction then start to charge higher prices of the services.
 Value added pricing method – Apart from such all, in the value added method the
management of Imda Tech include its brand position and image as well reputation while
calculating the prices. Along with such things, it involves quality of the gadgets and
chargers in the total cost. In short in the value added pricing techniques the management
include all the intangible assets and then derive selling price.
TASK 4
I. Use of the balanced scorecard for combat with the financial constraints
The balance scorecard is a strategic planning to communicate what they are trying to
accomplish doing work with strategy day by day. It may be short run and long run.
Uses of balance scorecard:
 For creativity and unexpected idea
 Its provide strategic feedback.
 It provides an effective communicating priorities to all levels of organization to understand
their work related to business and archiving goals.
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 For increase market share
 For growth of business
 For beat the competition
 For right decision on right time
 For implementation
In the balanced scorecard there are mainly four kinds of the perspectives available which
are such as customer, financials, internal business process as well as the learning and growth. On
the basis of the key and main perspective such as financials the Imda Tech able to analyse that in
context to profitability and revenue generation it performs in increasing or declining ways. Apart
from this level of costing is also analysed which is the very sensitive factor for every firm
(Pitkänen and Lukka, 2011). On the basis of BSC, reasons and responsible aspects are identified
in the appropriate along with facts and figures. By considering such all the criteria the
management of Imda Tech entity determines and frame the strategies as well as tactics for
reducing or eliminating the problems and constraints which arises in the finance department.
II. Use of BSC for enhance financial governance as well as develop fruitful strategies
The balanced scorecard is one of the best as well as widely used from the companies for
assessing performance of various criteria and then make decisions for it. Through the BSC
management of Imda Tech able to know that company is up to which extent performing in
context to the financials. By considering the financial perspective of BSC the firm determine that
it having how much capability to generate the sales and revenue along with profit level. In this, it
determines in the optimum way all the elements and data of financials which is better and fruitful
for the Imda Tech to frame the strategies for enhance its performance. After analysing existing
conditions, financial department use the innovative as well as updated techniques such as
enterprise resource planning etc. for recording the financial transactions in appropriate manner
(Li and et. al., 2012).
Moreover, by using the BSC Imda Tech entity improve and enhance the financial and
profitability performance within the industry of mobile phone chargers which lead to increase thr
financial governance at the workplace. Apart from this, due to assessing all the facts and figures
of financials the managers make those strategies which improve the positive things and decline
or eliminate the negative aspects. Hence, in short it can be said that by taking support of financial
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perspective of BSC the Imda Tech can enhance the financial governance along with framing the
effectual and effective strategies.
CONCLUSION
By summing up the current report of management accounting it has been assessed that
management accounting is one of the best technique for Imda Tech firm in order to analyse the
internal business process and in accordance to that make effectual decisions. In addition to this,
financial accounting is also one of the significant for assessing the financial health and make
decisions. There are some systems of management accounting like as price optimising, job cost,
inventory management and cost accounting are fruitful for Imda Tech. It can be concluded that
with the help of marginal and absorption costing tools the firm generate net profit worth of 4625
and -5375 GBP respectively. Different variety of budgets and pricing methods supports to Imda
Tech to forecast data and charge selling price of chargers. From the last part it can be analysed
that balanced scorecard is the best method to resolve various kinds of occurred financial
problems.
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