Business Management Accounting

Business Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Meaning of management accounting and its importance towards the organization...................1
QUESTION 1...................................................................................................................................2
Review on cash position of Woodrock Limited .............................................................................2
QUESTION 2...................................................................................................................................5
Analysis of best strategy for Plaistead Plc using marginal costing technique.............................5
QUESTION 4...................................................................................................................................8
Calculation of standard costing variance.....................................................................................8
CONCLUSION..............................................................................................................................12
REFRENCES.................................................................................................................................13

INTRODUCTION
Management accounting , this term is define systematic procedure of using and
representing accounting g information for internal user of the business organization. It is part of
accounting , which is generally applied by manager in their business corporation so they can
record all the transaction bin effective manner and reduce chances arise of errors. This report is
prepared to solve problem of different organization by applying technique of management
accounting. By making cash , flexible budget and computing variance as well as break even ,
margin safety and P/V ratio, in his report help in arising knowledge and understanding of
importance of managerial accounting in running business corporations. To control cost and arise
business profit by making attractive ,and reliable budget.
MAIN BODY
Meaning of management accounting and its importance towards the organization
Management accounting: Business strategy used for analysis, recording, computing and
presenting accounting information in effective way , which help in systematic decision making
process. It is part of management function. Accounting department by using this technique
accounting, record all the essential transaction in ethical way. This is essential tool which useful
in run business activity in effective way. Following are the role of management accounting :
 Decision making: Manager apply tools of this accounting strategy which help in tasking
decision regarding which alternative is best .By applying marginal costing, and methods
of budgeting manager can easily recognize, which project useful in providing future
benefit for the organization (Alyousef, and Mickan, 2016).
 Cutting cost: Business organizations by applying technique of computation of cost can
understand activities which become the reason of extra incurring of cost . This help in
making policies to cut cost of theses business activities. Which help in generating profit.
 Optimum utilisation of resource: By identifying allocation of resource according to
business activity as well as cutting cost also useful in properly use scare resource special
finance resource of the business organization.
 Making pricing strategy: Management accounting help in providing best pricing
strategy, through which organization take decision regarding selection of price for their
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business organization. They choose price which satisfy customer as well as help in
gearing profit.
 Help in environment scanning process: Marginal costing, standard costing and system
of management accounting useful in identifying effect of external as well as internal
department of production and distribution procedure .
 Provide base for preparing budget: Planing tool of management accounting as well as
its system useful in given accurate information regarding formulating future as well as
current budget. This help manager to identifying future business opportunities.
 Risk analysis: Management accounting useful in assessment of risk, by making budget,
organization able to identifying risk and on the basis of that they formulate future
policies to avoid theses risk.
QUESTION 1
Review on cash position of Woodrock Limited
Cash budget: This term refer as numerical statement which define cash inflow and outflow of
organization for particular period of time. Cash budget is useful in providing base for future
budget and able to formulate policies of controlling cash outflow. Manager only consider cash
and its relevant transaction which deal only in the form of cash (Li, and Gu, 2020). It
considered, expenses and revenue collected by business organization. Following are the cash
budget of Woodrock Limited
PARTICULARS
MONTH
1
MONTH
2
MONTH
3
MONTH
4
MONTH
5
MONTH
6
OPENING BALANCE NIL NIL NIL -31914 -24430 -23156
RECEIPTS
RECEIPTS FROM CLIENTS NIL NIL NIL 41000 30000 35500
TOTAL A 0 0 0 9086 5570 12344
PAYMENTS
PAYMENTS TO SUPPLIERS NIL NIL 11800 8600 10200 12800
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RENT 12000 12000 12000 12000 12000 NIL
PAYMENT OF LEASE FOR
MACHINERY 2500 2500 2500 2500 2500 2500
MARKETING AND
ADVERTISING 8000 8000 8000 8000 NIL NIL
SALARY TO MANAGER 3000 3000 3000 3000 3000 3000
INSURANCE 4000 NIL NIL NIL NIL NIL
Payment to labour 7416 5412 6414 8016 11226 13032
Total B 36916 30912 31914 33516 28726 18532
Closing balance (A-B) -36916 -30912 -31914 -24430 -23156 -6188
Working notes:
CALCULATION OF RECEIPTS FROM CUSTOMERS
PARTICULARS MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH 6
DESK (30 PER
UNIT) 21000 15000 18000 24000 30000 33000
CABINET (50
PER UNIT) 20000 15000 17500 20000 32500 40000
TOTAL
RECEIPTS 41000 30000 35500 44000 62500 73000
Calculation of payment to supplier
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PARTICULARS MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH 6
DESK (10) 7000 5000 6000 8000 10000 11000
CABINET (12) 4800 3600 4200 4800 7800 9600
TOTAL
PAYMENTS 11800 8600 10200 12800 17800 20600
Calculation of labour hours
Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Desk (0.5 hour
per unit) 4200 3000 3600 4800 6000 6600
Cabinet (0.67
per hour) 3216 2412 2814 3216 5226 6432
Result 7416 5412 6414 8016 11226 13032
By analysing cash budget of Woodrock Limited , it has been concluded that , financial position
of the organization is not in better condition . As organization not able to generate cash inflow
thus , its budget show negative closing balance. This will be lead organization in liquidation
position as it is really hard for managers to cooperate entity when it only generate loss. This
showcase negative side of money outflow. To enhance position of cash inflow Woodrock
Limited needs to consider following suggestions
For reduce credit payment , organization need to proved attractive discounting offers to their
customer, so get influence for cash payment rather credit payment.
To avoid number of default debtors, ,manager formulate policy of supervising and tracking
record of each debtor.
By increase value of products , organization able to generate high rate of profits which become
the reason of cash inflow (Diao, Sarkar, and Jan, 2016).
Manager of Woodrock Limited need to prepare policies of controlling cash outflow by cutting
cost incurred on useless business activities.
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Optimum lionization of inventory, help in reducing maintenance cost on storing inventory.
By spreading target market Woodrock Limited able to covert their adverse cash closing balance
into favourable balance.
Issue related with behavioural aspect which may causes of arsing problem within business
organization
Success of budget depend on qualities and expertise skills of manager , thus it is not necessary
formation of cash budget help in providing accurate and reliable future business information.
Budgeting is time consuming procedure as collection of record, analysing and researching
books , past records and on the basis of that preparing budget. All these steps require huge time.
It is not essential that particular budget technique useful in applying all the aspect of business
department.
QUESTION 2
Analysis of best strategy for Plaistead Plc using marginal costing technique
Marginal costing: It is a technique of managerial accounting, in which profit is calculated by
analysis effect of additional marginal units. It only consider effect of variable cost thus marginal
costing also famous as variable costing. It includes, prime cost.
 Computation of contribution
Particular Per unit (70000)
Amoun
t
Sales 13 910000
- Variable cost
Material 5.25 367500
Labour 2.95 206500
Variable overhead 1.85 129500
Contribution 206500
Fixed cost
Production 59000
Selling 47600
99900
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Contribution = 70000/206500 = 2.95
per unit
Particular Per unit 53000 Amount
Sales 13
- Variable cost
Material 5.25 278250
Labour 2.95 156350
Variable overhead 1.85 98050
Contribution 156350
Fixed cost
Production 59000
Selling 47600
99900
Contribution =689000 /156350 = 2.95 per unit
 Computation of profit when 53000 units are sold
Break even point = Fixed
cost/ Contribution per unit 106600/ 2.95 = 36135 units
Margin of safety =
Current sales units – Break even sales
units 70000-36135 = 33865 unit
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Break even in revenue =
Fixed cost / P/V ratio
Profit / Volume ratio = Contribution /
Sales* 100 = 206500/910000 = 22.69
%
Margin of safety = Current sales - BEP sales = 910000- 46810 = 440190
 Computation of units require for making 90000 desirable profit
PARTICULARS PER UNIT COST AMOUNT
SALES 13 689000
LESS: VARIABLE COSTS
MATERIAL 5.25 278250
LABOUR 2.95 156350
OVERHEADS 1.85 98050
CONTRIBUTION 2.95 156350
LESS: FIXED COSTS
PRODUCTION 59000
SELLING 47600
PROFIT 49750
 Units require for achieve desire profitable Sales in units = Fixed cost + desired profit / PV ratio
= 106600 + 90000 / 2.95 = 66644
Computation of units for desirable profit = Sales to generate profit / units
= 866461 / 53000 = 16.35
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Analysis suitable business strategy
PARTICULARS PER UNIT COST AMOUNT
SALES (81900) (13 + 9 %) 14.17 1160523
LESS: VARIABLE COST
MATERIAL 5.25 429975
LABOUR 2.95 241605
OVERHEAD 1.85 151515
CONTRIBUTION 337428
LESS: FIXED COSTS
PRODUCTION 59000
SELLING 47600
MARKETING AND
ADVERTISING 45000
PROFIT 185828
Thus business strategy useful for future projects. It will useful in generating 185828 profit. This
will beneficial for organization as cost of running day to day business is also not high.
Interpretation: Marginal costing tools useful in identifying profit and effect of various factors on
generating business revenue. Manager of Plaistead Plc apply this technique for determining
profit and number of units they required for achieving future desired profit (Aleem, Khan, and
Hamad, 2016).
Contribution is 2.95 units required when organization sell 70000 units , the organization is
required 469810 fr arriving the stage of no profit , no loss. They calculate marginal of satisfy ,
which h help in identifying units require for production security for future uncertainty. Plaistead
Plc require to generate sell 440190. For this they need to sell 33864. Organization when they
sell 53000units able to generate 49750 revenue their contribution is valued at 15630.Manager of
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33864 require to attain their future profit target, 66644 units must be sale, only then they can
achieve their target.
Break even concept of marginal accounting is useful in determining the point where profit as
well as loss of the organization is equal. With the use of Break Even point, organization will be
able to recognize impact of launching new product. Manager can understand impact of additional
investment in organization. Main purpose of using this technique is to recognize best decision
which hep in gaining competitive business advantage. Effect of changing price on profit and
reducing or addition of new units. For calculating of Break even points manager require to work
according to following assumption
While calculating of BEP it is essential to focus or consider only fixed , and variable cost.
This concept is basically not consider fluctuation in files, thus price is treat as constant factor
while calculating BEP.
Volume of sales and level of product units also consider as equal level.
Manager consider, fixed price while calculating BEP it will useful in considering best alternative
Manager of business organization focus on generating profit. For Plaistead Plc it is essential to
determine theses effective break even point (Friedl, Küpper, and Pedell, 2005).
QUESTION 4
Calculation of standard costing variance
Budget: Numerical statement, through which manager can identify future position of
organization by understanding profit , loss and forecast expenses incurred in future period of
time. Preparing budget is really essential for organization wherever it was small, large or
medium size , every or4ganization need to formulate it . Thus will help in providing guideline
and future path. Procedure of preparing budget is define as budgeting their are various types of
budget is formulate and manager have option to apply different strategy through which they can
prepare budget. Following are the budget prepare by Jayrod Plc
Original budget: This is define as statement which show profit, loss, cash inflow and activities
through which organization can formulate their future business policies. It is considers as detail
budget, . They also showcase, debt and assets value of particular business organization. Original
budget is made for particular 2 years.
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Flex budget: This budget is define as numerical statement which showcase, value of profit, loss
and changes of financial assets value on the basis of changing of volume of production units.
Theses types of budget is useful for organizations to determine the effect of changes of volume
on profit of the organization. It is different from organismal or budget as , while formation of
original budget manager only consider, fixed units., while flexible budget help in understanding
profit generating at various level of units. It is also linked with changes in cost volume. It is
calculation of revue is different as it consider all the fluctuation elements during identify future
value of profit (Paul, 2020).
Flexible budget help in understanding amount which is fluted with time. This will help in
estimating revenue at different level. Manager can easily or effective evaluate real value of
finance. This Wil useful in adjustment of every situation. Manager by understanding strategies
of revenue at various level able to build best business strategies which help in maintain sustain
position for long term purpose. This is useful in determining difference as well as organization
apply flexible budget to determine rate of fluctuation and comparison with their past years
budget. Manager of business coronation to understand effective of each relent factor , formate
this budget which help in attaining their business desirable goal.
Original Flexed Actual Total
20000 18500 18500 57000
480000 444000 446250 1366650
140000 129500 129940 399440
60000 55500 58800 174300
100000 100000 104000 304000
780000 729000 735390 2244390
Calculation of variance:
Variance: These are tools of managerial accounting which help in calculating difference arise
between actual and budget cost. Variance are the reason of fluctuation arise between real or
budgeted cost. There will be 3 types of variance which manager calculate to evaluate cost. In
other words it is the study of calculation of deviations. The main reason of differences arises in
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value is because of the chances in marketing condition, delay in service, effect of environment
factor. Economy rescission cycle period. Al these are directly affect.
Following are the types of variance calculate by Jayrod Plc
Direct material variance:
Difference arise between actual cost of material and budget cost. It consider, calculation of direct
price, mix, material yield, and direct material usage variances. Main reason of different are in
material variance is , increment or decrement in prices, change in volume of prediction. And cost
of other essential material required for manufacturing units (Lunkes, Costa,Bortoluzzi, and da
Rosa, 2018).
Direct Labour variance: This variance is calculate to determine different among budget cost
required for labour.
Particular B
Standard hour per-unit B
Standard cost-per-hour £
Standard cost per-unit output (5x 3) £
Actual hour per-unit =
Standard cost per-unit output = 3
Labour total variance:
Actual direct labor cost = 15190.00
Standard direct labor cost =14110 =
Labor rate variance
(ACTUAL HOUR X ACTUAL RATE) - (ACTUAL HOUR X STANDARD RATE)
Actual hours x standard rate = 16500.00
Actual hours actual rate = 18120.00 = 1620.00 (A)
Actual unit x standard hour
Actual hour
labor efficiency hours
Standard rate per-hour
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Labor efficiency variance
Material variance
Material total variance
Total material variance
9000 UNITS SHOULD HAVE COST £15
ACTUAL MATERIAL COST
Material total variance
Material price variance
19000 kg at £10kg
ACTUAL MATERIAL COST
Material price variance
Material usage variance
1000 units at 2kg
ACTUAL MATERIAL PURCHASE AND USED
Material usage variance -
Standard price per-kilo
Material usage variance
(ACTUAL PRICE * ACTUAL QUANTITY) – (STANDARD PRICE * ACTUAL QUANTITY) 1
Material quantity variance:
(STANDARD PRICE * ACTUAL QUANTITY) – (STANDARD PRICE * STANDARD QUANTITY) 1
Main purpose of calculation of variance its key value & limitations
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Standard costing is effective technique of management accounting which managers use for their
day to day business activities.
Take decision: By using standard costing manager can take relent decision. Organization choose
those alternative which comparative generate low cost and their difference is also low as
compare to other alternatives.
Fix responsibilities: Standard costing useful in determining whether organization result is come
in favourable or adverse outcome. Adverse variance will lead manager to identify cause of
different and distribute responsibilities to their employee for working towards convert adverse
outcomes into favourable variance (Chatterjee, Laxminarayan and Gosselin, 2016).
Management by exceptions: Organizations use strategy of management by exception , through
applying standard costing. Manager focus on big projects . Manager select criteria and on the
basis of that they can easily attain their business goals.
Limitations
Variance are only useful for subject matters. They does not consider other relevant topic Which
directly affect cost incurred activity.
Manipulation of variance: This technique may useful in providing accurate business result. But
it totally depend on employee that they may be for their personal interest change m result of
variance for making secret profit.
Skilled persons: For calculation of variance, organization need to hire skill and capable
personal. Who has knowledge of accounting norms ans its standard (Beriwal, and Chino, 2018).
Limited use: Variance generally use for manufacturing organizations. In Service industry , it so
relay hard to calculate cost and value of services thus this application is not relevant in
hospitality sector organizations. Theses type of management accounting tool may be useful in
several condition but it totally depend on the skill of manager who use these technique as effect
manner.
CONCLUSION
From the above analysis it has been concluded that management accounting play vital role for
attaining success of the business organization. It is use for take best decision. By formulating
cash as well as flexible budget manager can recognize activities through which organization can
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generate cash inflow and profit value at different level of production of units. By applying
marginal cost , organization can evolute effect of different factor on profit and number of units
require for attain desire profit. They use standard costing , which help in identifying the
difference between actual and budget cost as well as manager find out reason of difference and
change policies through which they can control or reduce difference among variance this will
useful in gearing profit and achieve predetermine goal of the organization.
REFRENCES
From books and journals
Alyousef, H. S. and Mickan, P., 2016. Literacy and numeracy practices in postgraduate
management accounting. In Multimodality in Higher Education (pp. 216-240). Brill.
Li, Z. and Gu, J., 2020, February. Research on Artificial Intelligence Cash Budget of Electric
Power Enterprise Based on Evidence Reasoning. In The International Conference on
Cyber Security Intelligence and Analytics (pp. 308-314). Springer, Cham.
Diao, Y., Sarkar, R. and Jan, E. E., 2016, April. Optimizing ATM cash flow network
management. In NOMS 2016-2016 IEEE/IFIP Network Operations and Management
Symposium (pp. 1073-1078). IEEE.
Aleem, M., Khan, A.H. and Hamad, W., 2016. A comparative study of the different costing
techniques and their application in the pharmaceutical companies. The Audit Financiar
journal, 12(143), pp.1253-1253.
Friedl, G., Küpper, H. U. and Pedell, B., 2005. Relevance added: Combining ABC with German
cost accounting. Strategic Finance, 86(12), p.56.
Paul, D. D., 2020. STANDARD COSTING AND ABC: A COEXISTENCE. Strategic
Finance, 101(11), pp.32-39.
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Lunkes, R. J., Costa, C.H., Bortoluzzi, D.A. and da Rosa, F.S., 2018. Study on the Adoption of
Management Accounting Practices in Hotel Companies in Florianópolis, SC,
Brazil. Turismo em Análise, 29(2).
Chatterjee, S., Laxminarayan, R. and Gosselin, R.A., 2016. Cost per DALY averted in a surgical
unit of a private hospital in India. World journal of surgery, 40(5), pp.1034-1040.
Beriwal, S. and Chino, J., 2018. Time-driven activity-based costing in oncology: A step in the
right direction. International Journal of Radiation Oncology• Biology• Physics, 100(1),
pp.95-96.
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