Improving Financial Performance with Management Accounting

This assignment focuses on the crucial role of management accounting in driving business success. It emphasizes how management accounting tools assist management teams in understanding their company's financial performance, identifying its competitive position within the market, and ultimately making informed decisions to enhance profitability and overall growth.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P 1 Management accounting system...........................................................................................2
M1 Benefits of management accounting system........................................................................4
P2 Different methods used for management accounting reporting.............................................5
TASK 2............................................................................................................................................6
P3 Calculation of costs by utilising appropriate techniques of cost analysis .............................6
M2 Applying a different accounting technique and developing a financial report for Nero
company......................................................................................................................................8
TASK 3..........................................................................................................................................10
P 4 Advantages and disadvantages of various types of planning tool which can be utilised for
budgetary control......................................................................................................................10
M3 Analysing the utilisation of several planning tool and its application for developing as
well as forecasting budget.........................................................................................................11
TASK 4..........................................................................................................................................12
P5 Evaluating the way enterprise are adapting management accounting system for resolving
financial problems.....................................................................................................................12
M 4 Analysing the way to respond to financial problems .......................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting is defined as the procedure of recording as well as maintaining
financial data. It is the important activity that is performed by management department which
assist manager in making appropriate decision. Management accounts assist employees and other
stakeholders in identifying the position of company in market. It also involves formulation of
plans , policies,designing of procedures in order to support firm in improving business
performance.
The study of management accounting is important as it allows person to develop the
understanding about the several concepts in management accounting. This activity will also
enable them manager in achieving expertise in preparing as well as reporting of financial data.
Management accounting is important as,it helps business entity in controlling the cost of
production and other expenses which might have adverse effect on the profitability of company.
The purpose of the report is to demonstrate the understanding of management accounting
system in context of Nero Ltd. It also has focus on the identifying the range of management
accounting techniques and analysing the application of planning tool in management
accounting.
TASK 1
P 1 Management accounting system
Management account is refers to as the procedure of recognising, evaluating, analysing,
interpreting as well as communicating the objectives of organisation. It includes the presentation
of financial information in appropriate format. This accounting system support manager in
formulation of appropriate strategies, plans and policies for organisation. It assists internal as
well as external stakeholder in identifying the position of company and planning appropriate
tactics for improving the same. It also supports manager in identifying the appropriate methods
for managing several business activities and also assist in allocation of funds in systematic as
well as effective manner. Budgeting procedure is followed by manager in Nero Limited company
for managing liquidity of funds. This process helping organisation in controlling as well as
managing cash flows (Brook, 2012)
Different types of management accounting system and their use
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Cost accounting system- This system support manager in determining the cost of product on the
basis of which the profitability of firm can be estimated. It is required for controlling cost which
might have adverse effect on the profit margin. This accounting system assist business entity in
identifying the unnecessary cost and help manager in recognising the suitable strategies or ways
for reducing additional expenses. Cost accounting system can be categorised into process costing
and order costing. The requirements of Cost accounting system are:
 This accounting system are required participation as well as cooperation between
various departments. As this will assist manager in determining the exact cost which
may occur in production of specific product. It is required by manager in Nero Ltd. to create flexible, easy to implement and
understandable management system. When creating the cost accounting management
accounting system , manager or accountant in Nero limited company should ensure that
cost accounting system is effective and is catering the need as well as demands of
different users and also fulfilling requirement by several business operations.
Inventory management system-This type of management accounting is beneficial in order to
supervise and manage stock. The business procedure or operations of Nero limited company
could be integrated with inventory management system in order to increase efficiency and
effectiveness of inventory within an enterprise. Inventory management system helps business
entity in ensuring proper utilisation of resources.
 It is required by manager in cited venture to design replenishing strategy. As this activity
will help manager in planning of cost requirement by operations in advance.
 Inventory management system aid firm in achieving the objective of cost reduction.
Job costing system- This system involves assigning of manufacturing cost to each and every
task in order to keep record of expenses. Job costing system is utilised by Nero limited company
In case of production or manufacturing of identical goods. This process include:
Receiving enquiry-consumer have much focus on quality of raw materiel used in the product,
price of specific item and time taken by employees for processing the order.
Determination of price- The price is determined by manager by considering the various factors
such as quality of good, value delivered, customer need and preference (Easterday and Eaton,
2012)
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Order receiving- The order is placed by customer when individual is satisfied with the price of
product and assured about quality of goods.
Production order- This order is placed at the initial stage of Production procedure.
Recording of cost-It is required by production or operational department to record all aspect of
cost involves in production of goods or services.
Completion of task- After completion of task,it is required by operation or production
department to submit report to account department. It is duty of account manager to compare
actual cost with standard and identify the gap.
Price optimising system- This management accounting system is utilised by Nero limited
organisation when determining the price of variety of goods or services at same time. It supports
management department in analysing the variation in demand of specific product at different
level of prices or changes in cost of particular item. Nero limited can adopt this system for
determining the prices of goods or services for different consumer segment. It will assist cited
venture in determining the suitable pricing structure in order to promote item. Competitors
pricing strategy, Goals , target, Product life cycle are some factors which are considered by this
system (Alino and Schneider,2012)
M1 Benefits of management accounting system
The several benefits of management system in context of Nero limited organisation are-
Job costing system- It will support manager in predicting the approximate cost which may occur
in production of specific products.
Price optimising system-It will help manager in determination of suitable price for goods or
services. This system will support organisation in increasing sales and profitability.
Cost accounting system- this accounting system is beneficial as well as useful in managing as
well as controlling expenses.
Inventory management system- This system will assist business entity in increasing effectiveness
and working efficiency (Butt,2010)
P2 Different methods used for management accounting reporting
The management reports assist management in making appropriate decision related to
business. It is required by manager or account on to focus on the quality of reports as well as
information contained in a document. As this will help user in developing the understanding
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about data. It also allows user to rely on the data contained in the report. The several types of
reports which are prepared by management department and its benefits are:
Budgeting reports-It support manager in formulating plan which is developed on the basis of
analyse on business performance. Budgeting reports are prepared in order to control as well as
manage cost. It supports various department in an enterprise to improve performance. Budgeting
reports allows manager to analyse the scope of providing the incentives to employees.
Formulation of future budget assist firm in combining the efforts of different department in order
to drive organisation towards accomplishment of business objectives.
Account receivable report-
Job cost report-This type of reports are mainly concerned with recognisance of cost and profits
that has been generated by conducting particular operation or by developing specific product or
service. Purpose of developing this report is to identify those activities which are adding cost to
firm and tacking the action to eliminate the same. By utilising the data in the report management
department can take combined efforts to reduce the expenses. Job cost report also measure the
cost when the task or operation in progress. It helps manager in ensuring the proper utilisation of
resources and confirming that project is profitable.
Performance reports-This report is prepared by the human resource manager in cited venture on
the basis of employee performance at work place. It helps workers as well as manager in
identifying the performance gaps and recognising the appropriate method to improve the same.
Performance reports allows human resource management team in comparing the actual
performance with standard and help them in analysing the scope of enhancing the same.
Inventory and manufacturing report- These types of reports are prepared by the companies
those who are involved in manufacturing of goods or services. Inventory and manufacturing
report is prepared by manager in such firm for making the operational or production system more
efficient as well as effective. It consists of various information such as labour cost, wastages,
overhead expenses etc. Inventory and manufacturing report supports manager in development of
suitable strategies as well as plan to minimise wastage and eliminate additional expenses.
Order information report-These types of reports or documents assists manager in analysing the
demand of company product or services. It also helps management team in Nero limited
organisation to develop the understanding about business trends and plan production as well as
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operational activity accordingly. The several reports prepared by management team assist
manager in combining or integrating various managerial activities accomplish minimum cost of
placing order.
A business Opportunity report- The major benefit of this report is that it supports manager in
Nero limited or any other company in exploring a swell as capturing several business
opportunities which is essential to grab for fostering company growth and achieving success. It
is required by management team to prepare appropriate report and should focus on the
presentation of information. As this factors have great influence on business decisions and also
on organisational performance. Business Opportunity report will allow manager to integrated
several business procedures, system and operation with report. As this activity will assist
management team in analysing the situation and planning the appropriate tactics to deal with
same (Anessi-Pessina, Barbera, and Steccolini, 2016)
TASK 2
P3 Calculation of costs by utilising appropriate techniques of cost analysis
Cost is defined as value of money which has been utilised by organisation in order to
produce products or services. It also includes the monetary calculation or evaluation of
resources, stock, raw material , risk, efforts, time , opportunities that has been captured or
forgone by management team in production procedure. The several types of costs or expenses
which are associated with production or operational activities are:
Fixed as well as variable cost-Fixed expenses or cost is always cost which has to bear by firm
when developing product or services. This type of cost remain constant , there is no fluctuation
in expenses. However, such type of cost or expenses may increase with rise in level of
production. But fixed not get decreased when , there is decline in level or quantity of production.
Examples of such types of fixed expenses in business are depreciation , rent etc. Variable cost or
expenses are such which may fluctuates with the changes in level of production. This types of
cost have direct relationship with production activity. Example of variable cost or expenses are
direct labour, raw material etc.
Historical as well as replacement cost-These types of cost or expenses are incurred by company
in the past. Historical cost is considered to be the base of determining the future expenses that
might occur in production of specific product or services. Replacement cost is recognised as the
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expenses or price that is to be paid by organisation in order to get product replaced. It is utilised
for adjusting rise in prices in the financial record.
Unavoidable or avoidable cost-Avoidable expenses are those which can be avoided, controlled
or reduced. These types of cost or expenses have minor or no effect on the profitability of firm.
Avoidable cost can be controlled as well as managed by bringing improvement in business
operations as well as system. Unavoidable expenses are those which has direct as well as adverse
effect on profits. These types of expenses if avoided can lead to bad consequences for company.
Unavoidable cost are uncontrollable in nature and require special attention by management team
in an enterprise.
Incremental or sunk cost- Incremental cost are also recognised as differential cost. These type
of expenses is defined as additional expenses which is to be bear by firm because of changes in
business system , operation or nature of organisational activities. Incremental cost are evaluated
by calculating the expenses incurred in producing extra unit of goods. Sunk cost remain constant
and already been paid by company. It indicates the portion or percentage of expenses that has
been already incurred and there is no scope of recovery of such expenses. Sunk cost are not at all
suitable for making the decisions as these cost are based on past record.
Total, marginal as well as average cost- Total cost include all the expenses that is incurred by
firm during product of products or services. Marginal cost is considered to be as the expenses
which has occurred due to production of extra unit. Average cost is defined as expenses which
has been incurred by company for individual unit of output.
Outlay and opportunity cost-Outlay cost are recognised as actual expenditure incurred by
organisation in order purchasing, implementing and in maintenance of machinery at workplace.
It also includes cost of employing workforce , buying raw material etc. This cost are involved in
cost accounting. Opportunity cost indicates the expenditure in context of the profit or revenue
that is foregone for selecting another suitable alternative. This type of cost concept is applicable
for making important business as well as capital budgeting decisions (Grimm and Blazovich,
2016)
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M2 Applying a different accounting technique and developing a financial report for Nero
company
Marginal costing is considered to be as an appropriate source that can be utilised by manager in
Nero Ltd for making essential and big business decisions. It is recognised as part of management
accounting system in which several variable expenses are allocated to the cost units. Marginal
costing is defined as the expenses which is incurred by company for producing additional unit of
output. It is the simple tool for gathering information related to various costs and developing the
plan to reduce the same. Marginal account also support management team in analysing the
impact of change in production level on the profitability of business.
Absorption costing
When calculating cost by this method, the two important factors are considered by
managers these are expenses associated with production or operational activity and resources.
The expenses that are evaluated or calculated utilising absorption costing are direct labour as
well as material, fixed and overhead expenses etc. Particularly in this method, a part of fixed
expenses is being allocated to individual unit of good along with variable cost that has been
incurred in manufacturing of goods. Recognition of variable of overhead cost assist management
team in making suitable decision for company. Absorption costing is concerned with identifying
as well as calculating overall cost as well as expenses which are associated with the production
or manufacturing of product.
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INTERPRETATION-It has been identified from the information in table there has been
increase in sales. There has been tremendous growth in revenue earned by Nero company. But
the management team in cited venture is required to formulate appropriate strategies in order to
reduce expenses and cost. Organisation need to emphasize on planning appropriate policies or
tactics in order to deal with unavoidable cost which has negative impact on the profitability as
well as financial performance of company (Ahrendsen and Katchova,2012)
TASK 3
P 4 Advantages and disadvantages of various types of planning tool which can be utilised for
budgetary control
Budgeting control is defined as the procedure by which the budget is prepared for the
future data. The purpose of preparing budget is to assist provide the foundation to management
team on the basis of which actual results or performance can be compared with standard. The
other objective of budget is to communicate as well as define the target of organisation and to
provide plans which will help management team in driving firm towards achievement of
business goals.
The two unique planning tools are:
SCORO- It provides management team in Nero company with different budgets. This software
or system helps management team in managing different activities such as management of
finance etc. It is an effective tool that can be utilised for manager in Nero organisation for
controlling as well as managing budget. SOCORRO integrates budgeting procedure with
customer relationship management which further assist in management of various aspects of
business aspects. It enables manager to arrange and store data at one place so that information
could easily be accessed when required.
PROPHIX- This tool provides Nero limited company with variety of products that scales as well
as developed constantly with the growth of organisation. It also assists management team in
forecasting the budget for future use. It is the most effective, adaptable and flexible tool which
can be used for planning as well developing different types of budgets. PROPHIX also support
management team in allocation of resources and increasing working efficiency (Ahrendsen and
Katchova, 2012)
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M3 Analysing the utilisation of several planning tool and its application for developing as well
as forecasting budget
Budget is the appropriate source that assist business entity in developing a financial or
monetary plan which includes the description about the way firm will arrange resources which
are essential in order to conduct various activities or operation within an enterprise. It assists
company in identifying appropriate methods or techniques for controlling cost, expenses and
managing cash flow. The major advantage of formulating budget is that it allows manager to
identify the performance gap and recognise several problems that might have adverse effect on
business performance. The different types of budget are:
Capital budget- It includes all capital receipts as well as payments. Capital budget is defined as a
budget which is utilised by manager in Nero organisation for allocation of financial resources as
well as maintaining company's fixed assets. The objective of capital budgeting is to assist firm
in controlling those major expenses which have great influence on business long term decision as
well as planning. The steps that are included in preparation of capital budget are:
At initial stage, it is required by manager to create or design a statement which must
include business objectives. In next, phase , cash flow is monitored as well as analysed by
management team in order to identify cost as well as revenues earned by organisation during
particular financial period. At the next stage, determination of cost of expenses and evaluation of
funds that are required to be invested is made by management team. At the last stage, it is
required by manager in Nero company to create spreadsheet on the basis of information
gathered and make appropriate decision.
Operating budget-This type of budget is mainly concerned with the prediction of expected
income, expenses and expected cost for specific financial year. In context of Nero company ,
operational budget will be utilised by management team for managing operational activities
within an enterprise. It will help firm in improving the routine performance. Operational budget
will also support organisation in increasing operational efficiency and productivity. It will also
aid business entity in improving the quality of product or services. The cost or expenses that are
associated with operational activities are labour cost , employees salaries, Workers wages etc.
Disadvantages of budgets
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Interdepartmental conflicts- Strict budget may lead to lack of resources which further increase
the chances of conflict among employees. As this factor will also have adverse effect on
organisational Performance and success. Workers may blame each other if they fail to achieve
desired targets. It also has negative impact on relationship between employees.
Top management support-Effective controlling and management of budget required the support
of top level management team in an organisation. As unclear objectives , unreliable
information , undefined roles and responsibilities may have adverse effect on the budget process
and decision made by management team in such situation may get wrong.
Budgetary slack-This type of slack occurs when there is high level of variation in projected
revenue or cost. Budgetary slack occurs in situation when overestimation or underestimation of
cost or income in order to gain additional financial resources for supporting the budgeted level
of operation or activities.
Increase in pressure-in some situation , the strict budget can lead to increase in level of pressure
which might have effect on the quality of performance and direct influence on outcome (Barth,
Konchitchki and Landsman, 2013)
TASK 4
P5 Evaluating the way enterprise are adapting management accounting system for resolving
financial problems
There are some management accounting techniques can be utilised by manager in Nero
organisation for identifying the financial problems and reason for the same. These techniques
will also assist manager in recognising the factors that have adverse effect on the finial
performance of company and recognising of the way to improve the same. It is required by
manager in an enterprise to establish specific standards , benchmark for measuring financial
performance of organisation. Management can also use some important performance indicators
for analysing or identifying performance gap. Utilisation of budgetary control techniques in
planning as well also in executing of several activities in Nero company will assist the business
venture in developing focus on accomplishment of set targets or standards in order to achieve
desired outcome.
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Key or important performance indicators are non-financial as well as monetary measures
that are used by most of the companies for measuring their performance and analysing their
success during specific period.
Financial or monetary indicators
Profitability ratio-It represents the percentage of sales which the organisation has foregone in
order to pay operating cost for earning profit.
Liquidity , debt and solvency ratio-Current demonstrates the companies potential to make
payment of short term debt that has been taken by firm for fulfilling business requirement. Quick
ratio represents the sufficient quantity or number of liquid assets which can be utilise by an
enterprise for payment of debt. Working capital ratio indicates the Potential or ability of firm to
maintain its solvency that is essential in order to fulfil the requirement of routine activities or
operations.
Revenue ratios-It assist manager as well as other stakeholder in identifying the income generated
from sale of product or services.
Non- financial indicators
Human resource management-It assist business entity in identifying the methods or techniques
adopted by human resource management team for retaining talented as well as skilled employees
for long time. This indicator represents the percentage of employee turnover during specific
financial year.
Quality of products or services-This factor has direct effect on the sustainability of business.
Poor quality of product or service may lead to high level of dissatisfaction in client. It is required
by management team in Nero company to compare the quality of their goods with that of
competitors. As this activity will support organisation in identifying the performance gap
(Moehrle, Stober,Bloomfield and Christensen,2010).
M 4 Analysing the way to respond to financial problems
The function of management accounting in supporting organisation in achieving success
and maintaining business performance :
 It is required by manager in Nero company to develop such strategies or policies that can
be easily aligned with business goals.
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 Manager in business venture can utilise several tools as well as management techniques
in order to support an enterprise in including sustainable matters in decision making
procedure.
 Management accounting system provides very useful information that can be utilised by
manager for creation of policies, procedures, plans or strategies. It allows management
team to develop understanding about pricing as well as budgeting decision (Puri, 2014)
CONCLUSION
It has been concluded from the report that management accounts provides financial
information which supports management team, in making appropriate business decision. The
Nero company should utilise the management tools and techniques. As this will help firm in
increasing sustainability and fostering growth. It has been identified from the project that
budgeting is the effective techniques which aid organisation in controlling cost and managing
cash flows. Proper use as well as application of management tools and techniques offers different
strategies and plans which can be adopted by firm for improving financial performance.
Management accounting is important part of business which assist management team in
recognising the business performance and identifying the position of company in market.
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REFERENCES
Books and Journal:
Brook, D.A. 2012, "Budgeting for national security: a whole of government
perspective",Journal of Public Budgeting, Accounting & Financial Management. vol. 24,
no. 1. pp. 32.
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and private sector defined benefit pension plans",Journal of Public Budgeting,
Accounting & Financial Management. vol. 24. no. 2. pp. 278.
Alino, N.U. and Schneider, G.P. 2012, "Conflict reduction in organization design: budgeting and
accounting control systems",Academy of Strategic Management Journal. vol. 11, no. 1.
pp. 1.
Butt, M. 2010, "Variance analysis",Accounting, Auditing & Accountability Journal. vol. 23, no.
6. pp. 816-816.
Anessi-Pessina, E., Barbera, C., Sicilia, M. and Steccolini, I. 2016, "Public sector budgeting: a
European review of accounting and public management journals", Accounting, Auditing
& Accountability Journal.vol. 29. no. 3. pp. 491-519.
Grimm, S.D. and Blazovich, J.L. 2016, "Developing student competencies: An integrated
approach to a financial statement analysis project",Journal of Accounting Education.
vol. 35. pp. 69.
Ahrendsen, B.L. and Katchova, A.L. 2012, "Financial ratio analysis using ARMS
data",Agricultural Finance Review,vol. 72. no. 2. pp. 262-272.
Barth, M.E., Konchitchki, Y. and Landsman, W.R. 2013, "Cost of capital and earnings
transparency",Journal of Accounting and Economics. vol. 55. no. 2-3, pp. 206-224.
Moehrle, S., Stober, T., Jamal, K., Bloomfield, R. and Christensen, T.E. 2010, "Response to the
Financial Accounting Standards Board's and the International Accounting Standard
Board's joint discussion paper entitled 'Preliminary Views on Financial Statement
Presentation.'",Accounting Horizons. vol. 24. no. 1. pp. 149.
Puri, A.K. 2014, "Financial Statement Analysis and Security Valuation", Abhigyan, vol. 32, no.
2. pp. 74.
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