Types of Management Accounting with Benefits and Limitations : Report
Added on 2020-01-16
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MANAGEMENTACCOUNTING
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1P1 Management accounting and its different types....................................................................1P.2 Different methods for management accounting reporting...................................................4P3 Income statement of marginal and absorption costing..........................................................8TASK 3..........................................................................................................................................12P4 Different types of planning tools used for budgetary control with their advantages andlimitations..................................................................................................................................12TASK 4 .........................................................................................................................................16P5) Significance of management accounting systems in financial development ofR.L.Maynard.............................................................................................................................16CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20
ILLUSTRATION INDEXIllustration 1: Financial Planning Process........................................................................................5Illustration 2: Income statement using marginal costing method....................................................9Illustration 3: Income statement using absorption costing............................................................10Illustration 4: NPV.........................................................................................................................13Illustration 5: IRR .........................................................................................................................14
INTRODUCTIONManagement Accounting is the process of analysing the financial position of theorganisation through the financial data available, to provide corrective short term decisionswithin the organisation. It is the process of preparing various reports and accounts that provideaccurate financial information that helps the managers to make decisions regarding funding inthe new product or service or any other short term projects require ensuring the smooth runningof the enterprise (Abdel-Kader, 2011). Thus, management accounting deals with themanagement of funds and optimum utilization of these funds to achieve the efficient and bestresults. This report explains the various types of management accounting with their benefits andlimitations. It also explains the different methods of the management reporting with theirdifferences, through an income statement showing the absorption and marginal costing. Thisreport also signifies the merits and demerits of various budgetary control techniques. An analysisand comparison of income statement as per absorption costing techniques and marginal costingtechniques is mentioned in this report and its detailed analysis is made to get quantity and pricevariance in order to investigate the reason for such variances (Albu, and Albu, 2012).TASK 1P1 Management accounting and its different typesGeneral managerR. L. Maynard Management accounting: It signifies the way of the efficiently utilize the funds availableof the cited company. This process utilizes various techniques like budgetary control, varianceanalysis and financial statement analysis in order to address all the requirements oforganisation. It provides the detail scenario of the organisation starting from analysing marketelements which may affect the process of organisation and ends with implementation of plansand strategies with review of such plans (Amidu, Effah, and Abor, 2011). Thus, this processhelps the organisation to find out the variances and loop holes from the standards maintainedand actual results achieved so that the effective and timely actions could be taken to eliminatethem quickly before it affects the ultimate goals of the organisation. Various types ofmanagement accounting systems are as follows:There are different systems of management accounting regarding decision-making and1
forecasting for further business operations. It includes systems like; financial, cost accounring,performance management etc. However, some essential management accounting systems forR.L.Maynard can be understood as below:Financial accounting systems: For identifying monetary position of R.L.Maynard,financial statements are analysed such as; profit and loss account, balance sheet, incomestatement and so on (Amidu, Effah and Abor, 2011). Therefore, economic position ofentity is identified on the basis of which further ideas are generated for reducingoccurred financial problems and improving them as well. Cost accounting system: Through analysing incurred expenses and gained revenue onbusiness operations, cost effectiveness can be gained. On behalf of this analysis, furtherbusiness operations are set that affect productivity and profitability of R.L.Maynardeffectively. Thus, under management accounting approach, costing on product andservices are determined efficiently (Fleischman, Walker and Johnson, 2010).Job Costing: It is the method in which expenses and cost can easily be tracked as it ischarged to the job but not on process. As in job costing there is a job worker whoproduces goods and services on behalf of the entity. This method is used by the largemanufacturing companies with high demand and have the time limit to complete theirorders on time otherwise the order could be replaced by the other competitor in themarket. This method is also use by the organisation who cannot invest high in theexpensive machines and equipments to produce high quality products as per thedemands of its customers in the market, so they join hands with the other job providerswho have the effective machines to produce the quality products. Thus, this method ismainly adopted by the organisations need to produce the goods in bulk. This method ismainly used for the jobs where Quotations need to be submitted. Here, profitability isanalysed job wise (Bebbington, and Thomson, 2013). Example: R. L. Maynard has toperform job costing operation for estimating the costs which are involved with materialsand labourers. Furthermore, the specific job requirements are correctly estimatedthrough this operation. Batch Costing: It is used by an entity when cost is charged specifically on a particularproduct. Usually this type of cost accounting technique is used by pharmaceutical2
industry. Such batches contains identical units but their prices are different. If eachbatch and its cost is easily ascertainable only in that case batch costing technique can beused by a firm. In this method every batch has the fixed price thus these batches couldeasily be traced through the batch number. To calculate the cost the products producedare averaged and thus thus in this method cost per product is generally low as it dealswith the large scale production like medicines. This method consists of mainly two typeof cost i.e. preparation cost and carrying cost. Set up cost is the cost involved in thesetting up of machines and the equipments require for the production and carrying costincludes manufacturing cost, storage cost, depreciation etc (Brandau, and 2013). Price optimization system: Through this management accounting system, priceoptimization for production and distribution of goods and services. However, it is ablefor cost effectiveness and proper management of entire business operations affectfurther implementation. In this regard, appropriate cost is set on the basis of incurredcost on expenditures regarding business operations (Douglas and CFM, 2012).Therefore, price optimization system is essential for effective decision making andforecasting on management of further business operations of R.L.Maynard.Contract costing: In this type of cost accounting or management accountingtechniques cost is tracked on the basis of specific order. It simply means that cost relatedwith a contract is charged exclusively on that particular contract. The contract means thelegal agreement between the two parties to carry out the specific work within the timelimit. Contract costing signifies the method to calculate the cost of the long termcontract like construction of the bridges and dams which took about two or three yearsto complete but the cost is pre decided in the agreement having an escalation clause thatsignifies the hike in the contract price at fixed percentage due to hike in the material,labour and other raw materials necessary for the contract to be completed. The paymentin this contract is made to the contractee on the basis of the work certified by theengineer of the contractee (Callahan, Stetz, and Brooks, 2011). Inventory management system: This management accounting system is able tomanage inventories of R.L.Maynard that affect its productivity and profitability. Inaddition to this, inventory management system is essential to be identified for adequacyof resources and fund systematically (Ihantolaand Kihn, 2011). Therefore, inventory3
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