Advance Management Accounting Sample Assignment

Advance Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Purpose and presentation of financial information from the perspective of different
stakeholders.................................................................................................................................1
TASK 2............................................................................................................................................3
P2. Use of different accounting microeconomic techniques.......................................................3
TASK 3............................................................................................................................................4
P3. Concept of variance analysis in its importance.....................................................................4
P4. Actual and standard costs to control and correct variances..................................................5
TASK 4............................................................................................................................................7
P5. Evaluation of external and internal factors changing the business.......................................7
CONCLUSION ...............................................................................................................................9
REFERENCES .............................................................................................................................10

INTRODUCTION
In present business scenario, the role of managerial person is increasing day by day as
they are responsible to manage and control effective tool, techniques, operation and workforce so
that valuable decision are taken for improvement in any required (Andriof and Waddock, 2017).
The concept of advance management accounting is related with used of more highly accurate or
advance tools and techniques which enable to predict the future in more advance manner and
support in preparing for present in more progressive way. Nowadays company are more focused
to control cost and deliver best quality product and maintain suitable price to attain the
competitive advantage. To better understand the concept of advance management accounting
southern window have been selected.
In this report, cost analysis techniques, method of cost variance and CVP and useful
solution to the problem presented within one and two activity are discussed. In addition, it also
disclose the relevant component of cost and variance that are essential for making decision.
TASK 1
P1. Purpose and presentation of financial information from the perspective of different
stakeholders.
Overview of company.
It is a well develop and growing family business which was started with producing
aluminium and uPVC window around 35 year ago (About Southern Window, 2019). So in the
recent time they have modified their techniques and technologies in order to manufacture the
latest designer aluminium doors and window and some special product in glazing solution to
meet the customer demand. As southern window is manufacturing glass product form a long
time thus they are able to mix minimum aesthetics and new and effective innovative glass
techniques in order to establish and deliver visionary architectural glazing system.
Purpose of financial informatics to different stakeholder.
In business world, data that is related with overall rating, balance in account, cash
liquidity and other monetary facts and figures that describe the financial status, strength or
position about an respective company is known as financial information. It is stated that entire
financial information must be controlled and managed in effective manner to conduct the
business activity and must be handled carefully so that no internal crucial information is leak out.

All crucial information that is collected must be presented in appropriate and meaningful
financial statement which gives detail understanding about financial position, performance and
following changes in the overall position of a respective company. In southern window, manager
must first apply the authentic IFRS framework that help in preparation of gather financial
information into proper statement which enable number of stakeholder to make economic
decision for further improvement and growth. For example the declaration of revenue is the
declaration of all expenditure and earnings over time (Bhimani, 2019). Every company begins
with the preparation of the income statement for that period when preparing the financial
statements. Some of important stakeholder for respective company that require financial
information to make valuable decision. These are
Investors: Investors of Southern Window rely on the financial information of the
company to check the performance of business. They seek financial information to safeguard
their interests of dividend, bonus shares and decision making power in the company. They wish
to ensure that their investment does not get doomed. They use to analyse the income statement of
previous year in order to estimate future profit. The economic power and solvency of the
business will reveal the safety of their investment that was shown in the audited financial
statements. Such as income statement of southern window, acts as a useful source for carrying
out the company's value investing, the investor can evaluate the cash flows and make a financial
choice about whether or not to share his interest in the firm.
Creditors: Southern window has a wide range of creditors ranging from banks, financial
institutions, venture capitalists to debt funds. They look for timely financial information of the
business to check if the business is functioning properly and is liquid enough to repay their debts
on the due date. Creditor or lender of firm mainly relies on the company's solvency, which the
financial position declaration should reveal. Long-term lending can also be supported by the
business's ' safety ' over particular assets. The significance of these resources will be shown in
the economic position statement.
Government: Government actually also maintains track of financial achievements by
analysing corporate financial reports from various industries of the community. They rely
majorly on corporates for corporate tax which makes the largest part of the receipts to the
government. The receipts generally come in the form of tax, interest payments, capital gains etc.
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Southern window is law abiding company and pays taxes duly without delay (Burns and Vaivio,
2011).
Society: Society is the biggest stakeholder for any business. As all the internal as well as
external stakeholders form part of society. Society seeks financial information of the Southern
window because if a company falls, it would disrupt the economy a bit like unemployment,
NPA, and loss of payments which certainly would be a bad situation.
Senior Management: Manager is the most crucial part of every business as they concern
each and every aspect of business in order to make it profitable and attain the desired objective.
They require financial information that is presented in different statement so that they can easily
manage the affairs of company by evaluating performance and position which deliberately
support to make decision. Such is respective company, by viewing income statement manager
receive the clear and elaborated picture of complete performance of southern window in specific
time frame. The period's income statement functions as an indication as to how the policy
scheduled by the firm's managers at the start of the period flows apart and where the potential for
enhancement lies.
Customer: Potential customer also require financial statement as they desire to know
whether or not company would be able to supply them required goods and services in nearby
future. In case of southern window customer are mostly depended on special product that is high
quality of glazing system, therefore they use to analyse the financial information published by
company through different statement in order to make meaningful decision.
TASK 2
P2. Use of different accounting microeconomic techniques.
In present business world, there are different factors that effects the decision-making of
an individual, ways to make deal in markets and the price and demand identified in particular
market. Microeconomic is primarily concerned with the study of transaction and decision which
an individual makes, components that impact there decision and defines the manner related to
buy a specific product that might gets affected by the price, supply and demand. The elements
that are covered under microeconomic are theory of demand, labour, demand and supply that are
related with production (Carraher and Van Auken, 2013). Some of the important micro economic
techniques are discussed below:
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CVP analysis: This method is helpful in ascertaining the actual influence of operating
revenue that happen due to variation in cost volume profit. In accounting term, it is also consider
as break even analysis which is implemented by southern window which help them to define the
point where income is equal to expenses within a specific period. CVP analysis is related with
sales price, variable and fixed cost related to specific unit that are consider to be unchangeable. It
also support in determining the suitable annual sales volume that helps to reduce the losses for
that specific year and supports to reached the desired targets. This also helps to identify the most
favourable and reliable cost-volume mixture. Management in of southern window uses CVP
analysis to anticipate and ascertain the influence of their decisions on fixed expenses, cost of
production, volume of income and importance for their profit programs
Cost variances: This analysis is also related with the defining the variance among the
budgeted price related with manufacturing goods and actual expenses. With the support of cost
variance manager of southern window are able to determine the related between the total price
involved in different producing useful goods of company such as direct labour, material and
other overheads and budgeted cost in that specific time frame. There are various crucial price
differences that are being used in reporting by management of respective firm that are discussed
below:
 Fixed overhead variance
 Direct material cost variance
 Variable overhead variance
 Purchase cost variance
 Labour rate variance
TASK 3
P3. Concept of variance analysis in its importance.
Variance is considered to be the specific gap or difference between the actual amount
used for producing goods and the budgeted amount used in that specific period (Chenhall and
Moers, 2015). In companies, manager are focused to record entire transaction in proper manner
which enables them to examine these recorded figures and make suitable decision. In case if
there is a major variance between planed and actual figures they develop valuables steps to
overcome these differences and reach the desired targets in future. In accounting term, variance
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is defined as the quantitative research that support management of company working for
respective units to find the variation between the predicted and real behaviour in context of
management accounting and yearly budgeting. With the use of this analyses the actual gap
among scheduled and realistic amount is being analysed and it defines that overall productivity
of company is affected. Evaluation of variance may be described as the separation of complete
price variances into distinct components in a manner as to specify or obviously determine the
source of such deviation and the individuals liable for that particular variance (Chenhall, 2012).
Importance of variance analysis for controlling budget
Variance analysis is helpful in setting budgets as it defines more transparent picture of
companies each present transaction and thus enables to make more sound decision for future.
This analysis enables manager in effective budgeting and makes them to determine the reasons
of variance and make plans so that these gaps do not happen in future. It enables to manage
annual expenditures by tracking budget numbers and making comparisons of them with real
revenue/cost. For companies that are project-driven or system-driven such as southern window
that use to produced different kind of windows and doors variance analyses helps to analyse and
assessed financial data at crucial periods such as in quarter, half year so that any measure
difference among income level and expenses can be determined.
P4. Actual and standard costs to control and correct variances.
In accounting word, the concept of standard costing is related with defining the price
standard and it also help to measure the overall performance of each operation of company. This
directly support to determine the reasons for each and every variance that company faces during
a respective year. By using the techniques of standard costing the manager of southern window
are able to measure the cost of direct labour, direct material and overhead cost for particular time
frame. The process of this costing is depended on comparison of standard cost with actual cost
that helps to determine the variance and make better decision for future. This technique is being
used to monitor difference as it consider cost estimates to count every components of
manufacturing costs like direct material and labour and overhead. This provide assistance to
manager of Southern window in proper planning related to budget creation, product pricing and
cost of delivering goods to various locations to increase general profitability (CLOR‐PROELL
and Maines, 2014).
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There are basically various kind of variances that supports to control the total cost and
reduce if cost is higher that aids to increase overall profitability of Southern window. Some of
these are as follows:
Material cost variance: This variance is helpful in determining the variance between
standard cost of direct material and actual cost of direct material that are used in production.
Labour cost variance: With the support of this variance manager able to effectively
determine the difference between the overall cost incurred on labour and standard cost for the
specific producing specific product in southern window (Dwivedi, 2016). The better understand
the concept of standard costing specific example is used:
Product
Standard
Time Per
Unit
Budgeted
Units
Total
Standard Hour
Actual
Production
Units Total Production Hour
A 3 3000 9000 1800 5400
B 4 2000 8000 800 3200
Q 5 500 2500 400 2000
Budgeted Hours
Variable Cost Product A Product B Product Q
Cost Item Per Hour 9,000 8,000 2,500
Direct Labour £2.00 18,000 16,000 5,000
Variable
Overhead £4.00 36,000 32,000 10,000
Total Variable
Costs £6.00 £54,000 £48,000 £15,000
Actual Production Hours
Variable Cost Product A Product B Product Q
Cost Item Per Hour 5,400 3,200 2,000
Direct Labour £2.00 10,800 6,400 4,000
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Variable
Overhead £4.00 21,600 12,800 8,000
Total Variable
Costs £6.00 £32,400 £19,200 £12,000
Actual Production Hours
Variable Cost Product A Product B Product Q
Cost Item Per Hour 5,400 3,200 2,000
Direct Labour £2.17 11,700 6,933 4,333
Variable
Overhead £3.33 18,000 10,667 6,667
Total Variable
Costs £5.50 £29,700 £17,600 £11,000
Variances between price and quantity:
Direct Labour Rate Variance = Actual Hours x Actual Rate - Actual Hours x Standard Rate
Product A = 5400*2.17-5400*2
= 918
Product B = 3200*2.17-3200*2
= 544
Product Q = 2000*2.17-2000*2
= 340
Direct Labour Efficiency Variance = Actual Hours x Standard Rate - Standard Hours x Standard
Rate
Product A = 5400*2.17-9000*2
= -6282
Product B = 3200*2.17-8000*2
= -9056
Product Q = 2000*2.17-2500*2
= -660
VOH Spending Variance = ( SR × AU ) − Actual Variable Overhead Cost
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Product A = 4*5400-40000
= -18400
Product B = 4*3200-40000
= -27200
Product Q = 4*2000-40000
= -32000
TASK 4
P5. Evaluation of external and internal factors changing the business.
In present time, each and every company are bounded to make respective changes as per
the modification within the surrounded business environment that helps them to attain the
maximum benefit and survive in competitive market. There are various kind of external and
internal variables due to which the business and management accounting of southern window
gets impacted. These are discussed below:
External factors: These factors have a direct impact on the company management
accounting techniques. Some of these are discussed below:
 Environment uncertainties: In business world, the accounting norms are developed
with the establishment of company and its keeps on changing with the changes in
business environment (Cravens and Piercy, 2016). There are number of business
environment uncertainties due to which accounting concepts of southern window also
gets impacted and can lead to low productivity. Due to uncertain environment the overall
unit of company also gets impacted such as financial system, manufacture and
production techniques, tax system etc. that can lead to reduction in profit margin of
company. As per the accounting policies of country and nation company is operating its
business the management accounting techniques of southern window also gets modify
and its directly impact the overall performance.
 Market competition: This external factors is consider to be the main as it describe the
actual uncertainties of environment. Various kind of competitive model helps determine
and evaluate the actual rivals present in the industry in context of southern window. It is
observed that high level of competition manager of respective company modify their
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management accounting techniques so that they are able to maintain better policies and
plans to survive long in present market.
Internal factors: These factors have a major impact on the business and management
accounting techniques of southern window. Some of these factors are:
Innovation: In modern era, companies need to make regular innovation in every field
such as production, internal laws and rules, technology etc. that can lead them to attain the
desired target and remains on the top among different competitors (De Baerdemaeker and
Bruggeman, 2015). In southern window manager use to make required alteration and bring
innovation within their internal management accounting techniques that helps them to develop
the best suitable records and documents. Due to this the overall productivity of company gets
increased and respective targets are meet with the support of effective working.
Strategic risk: This internal factors of business environment have a major impact on the
ability and efficiency of company to reach the goals in business plans. These risk are faced by
southern window due to impact of changes in technological evolutions or customer demand.
Strategic might also lead to a great impact on the management accounting technique of company
as they have to bring modification within production department and increase the number of
working hours so that goods can be produced to satisfy the customer demands (Cowell, 2018).
CONCLUSION
From of the entire report, it has been founded that management accounting is consider to
be one of the most crucial part of business as it support in faithful and effective control on
internal operation of business. Various kind of accounting methodology support southern
window to manage entire staff member and make valid and precious decision that will benefits to
conduct business activities in more profitable and productive manner. It is also concluded that
unfavourable cost variances will lead to reduce the efficiency of company thus southern window
have to expand actual manufacturing hours for increasing labour productivity and best use of
resources. All the external and internal factors of business environment have a negative and
positive impact of the techniques of management accounting of respective firm.
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REFERENCES
Books and Journals:
Andriof, J. and Waddock S. 2017. Unfolding stakeholder engagement. In Unfolding stakeholder
thinking (pp. 19-42). Routledge.
Bhimani A. 2019. Risk management, corporate governance and management accounting:
Emerging interdependencies.
Burns, J. and Vaivio, J. 2011. Management accounting change. Management accounting
research. 12(4).
Carraher, S. and Van Auken, H. 2013. The use of financial statements for decision making by
small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Chenhall, R. H. and Moers, F. 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations and
society. 47. pp.1-13.
Chenhall, R. H. 2012. Developing an organizational perspective to management
accounting. Journal of Management Accounting Research. 24(1).pp.65-76.
CLOR‐PROELL, S. M. and Maines, L. A., 2014. The impact of recognition versus disclosure on
financial information: A preparer's perspective. Journal of Accounting Research. 52(3).
pp.671-701.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Cravens, D. W. and Piercy, N. 2016. Strategic marketing (Vol. 6). New York: McGraw-Hill.
De Baerdemaeker, J. and Bruggeman, W., 2015. The impact of participation in strategic planning
on managers’ creation of budgetary slack: The mediating role of autonomous
motivation and affective organisational commitment. Management Accounting
Research. 29. pp.1-12.
Dwivedi, D. N. 2016. Microeconomics: Theory and Applications. Vikas Publishing House.
Online
About Southern Window. 2019. [Online] Available through:
<https://southernwindows.co.uk/>.
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