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Benefits and Limitations of Management Accounting : Report

   

Added on  2020-01-16

18 Pages5086 Words359 Views
Management Accounting

Table of ContentsINTRODUCTION...........................................................................................................................3TASK 1...........................................................................................................................................3P1 Management accounting and its different types....................................................................3P2 Different methods for management accounting reporting....................................................5P3 Income statement of marginal and absorption costing..........................................................7TASK 3..........................................................................................................................................10P4 Different types of planning tools used for budgetary control with their advantages andlimitations..................................................................................................................................10TASK 4..........................................................................................................................................13P5 Compare how organisations are adapting management accounting systems to respond tofinancial problem......................................................................................................................13CONCLUSION..............................................................................................................................15REFERENCES..............................................................................................................................17

INTRODUCTIONManagement accounting plays vital role in planning and organising the availablefinancial resources and find out the effective business action to ensure the profitability of theconcern. Therefore, according to American Accounting Association, management accounting isthe effective process to choose best option among the various alternatives available, in the lightof their feasibility and profitability in near future (Ahadiat, 2013). This method helps to interpretand evaluate the pre and post effects of the projects undertaken through various managementaccounting techniques like Annual rate of return method, net present value method or variousbudgetary control techniques based on the nature of the project need to be evaluated. In thepresent report T.M.A engineering Ltd. is the small business venture with 25 employees andturnover less than 500000 Pounds is planning to take effective management accountingtechniques like absorption costing, marginal costing or cost volume profit analysis to improve itscost effectiveness and ensuring better presentation of its accounting reports for its stakeholders.This report explains various types of management accounting systems wit their benefits andlimitations. Moreover, it signifies the merits and demerits of various budgetary controltechniques. An income statement is also prepared to compare the marginal and absorptiontechniques and their effectiveness to improve the performance of the organisation (Albelda,2011). TASK 1P1 Management accounting and its different typesManagement accounting is an appropriate method of analysing overall financialstatement which act as a effective tool while estimating the future capital. It is a process toanalyse the results of the goals which was previously planned and find out the reasons of thevariances achieved. Variance means the difference between the standards maintained and theactual results obtained. Management accounting is the effective process to calculate thedifference occurred and analyse the reason behind, which might be happened due to the internalinefficiency or external challenges as well as it provides impressive suggestions to remove all theobstacles and inefficiencies. This process don't have any fixed norms to be followed thus, itspresentation and analysis is based upon the nature and size of the organisation.Management accounting divided into different parts-

Lean accounting – According to this accounting system first priority is given toformulation of various effective strategies which will be very supportive in reducing thecost. The main reason behind reducing cost is to remove the level of wastage whichmight be arises in manufacturing process. In fact there are many more cost whichoccurred during producing goods which must be eliminated from this process and toachieve this accurate information or evidences is required with the help of this system.Accurate data is very much indispensable to control extra and unused cost or expenditure.Traditional management accounting system- It is also known as conventional methodwhich was used earlier by financial accounting system to manage overall enterprisebudget or control cost with the help of various techniques. In fact job order costing orprocess costing is included in this method to track various other cost. Basically jobcosting method is used when there is a presence of individual allocation whereas processcosting is used or needed in case of many process exist in a production of product. Apartfrom this traditional methods was applied by previous companies because it consider asprevious tools. Transfer pricing- In this accounting system pricing strategy is mainly based onmovement in existing goods which occurs while manufacturing products by differentdepartments. In fact two important or indispensable cost which included in thisaccounting system are variable cost and opportunity cost. Therefore cost increases due tothe increase in production of units which influence the price of product. Job Costing: Job costing is the method in which cost and expenses of any project arecharged on job rather than process. This method is used by the large manufacturingcompanies who has the time limit to complete their orders on time and satisfy the highdemands in market otherwise the order could be replaced by the other competitor in themarket. This method is also used by the organisation who cannot invest high in theexpensive machines and equipments to produce high quality products as per the demandsof its customers in the market, so they join hands with the other job providers who havethe effective machines to produce the quality products.Apart from this management accounting is very helpful and useful in reducing the extraand unused cost of an enterprise to maximize their profits by minimizing their losses with the

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