Management Accounting in Lean Manufacturing

This assignment delves into the crucial role of management accounting within a lean manufacturing environment. It investigates specific management accounting practices employed in such settings, analyzes their impact on operational performance, and discusses the challenges faced by organizations in implementing these practices effectively. The focus is on understanding how management accounting systems contribute to achieving lean principles and optimizing resource utilization.

Management
Accounting
1

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1) Management accounting and its essential requirements of different types of systems.........3
P2) Methods used for management accounting reporting for Diverse Ltd..................................5
TASK 2............................................................................................................................................6
P3) Costing techniques and its differences for preparing income statement...............................6
TASK 3............................................................................................................................................9
P4) Advantages and limitations of budgetary control..................................................................9
P5) Different management accounting systems to solving out financial problems of Diverse
Ltd..............................................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCE.................................................................................................................................15
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INTRODUCTION
Management accounting is a useful approach that is used to make cost control decisions
by the business firms.. Any organization can increase its efficiency by applying management
accounting tools. Present report is related to understanding different methodologies to be
implemented for systematic management of Diverse Ltd. It is one of the small size dance
academies of UK that was found in the year 2007. Therefore, significance of management
accounting concept and its different components are to be obtained. Through this assignment,
various costing techniques for price determination and analysis of several financial statements
including ratio analysis will be expressed. Apart from this, several management accounting tools
for decision-making and forecasting to implement further business operations are recognized.
Hence, students can understand different aspects and importance of management accounting for
the enlargement and enhancing service qualities of small business unit.
TASK 1
P1) Management accounting and its essential requirements of different types of systems
Management accounting is the discipline under which different calculations related to
cost are performed. In this system, management accountant of Diverse Ltd makes decision to
enlarge entity and cultivating effective growth by analyzing business performance. Including
this, different business operations such as cost and inventory management as well performance
of organization is understood through applying accounting tools (Tucker, 2016). Moreover,
optimum utilization of resources and proper financial management of firm is gained in respect of
adequate decision-making process. Management accountant of entity identify overall business
activities of small scale enterprise. As much further prepares strategy for implementing action
plan in respect to improving way in which these activities are performed to reduce cost. It is
valuable for management of entire operations as similar beneficial for creating positive
environment of firm by preparing budget. Hence, it is determined that management accounting is
crucial for the expansion of small business organization and increasing its efficiency for carrying
on entity effectively.
Essential requirements of several kinds of management accounting systems
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Management accounting is of different aspects and tools for implementing business
activities at a high level. In this process, management accountant of Diverse Ltd. analyses
different costing for setting a fair price of goods and services. Some of the important
requirements of management accounting systems are to be described as below:- Job order costing: - Under this costing, manufacturing and cost incurred on starting up of
project is obtained. It includes expenses incurred for purchasing raw materials and in
respect to specific batch or product line. Therefore, job order costing is valuable for
evaluating pricing and different aspects of project accomplishment. However, expenses
incurred on business operations and pricing for manufacturing process is determined
through this process. On the basis of this costing, further price determination is created
that put a huge impact on the market value of organization and its products (Kaplan and
Atkinson, 2015). Thus, costing is appropriate for setting effective price and proceeding
to production and final costing. Processing costing: - In the process costing cost that is incurred in each and every phase
of production is computed. all costs of different production stages are summed up to
compute overall cost of production. In this process, pricing is determined for processing
different stages of project planning. However, expenses incurred over various business
activities are obtained through processing costing. It leads to gain price determination for
expansion and proper management of organization effectively. In accordance with this,
processing costing is considered as the basis for effective price determination. Hence,
processing costing is interrelated with production and distribution of goods and services
provided by the organization that put a direct impact on productivity and profitability of
entity (Ibrahim and Yaya, 2016).
 Finished cost costing: - In this process, price determination for production and
supplement of product is determined. As per the same, effective costing is evaluated.
Under this system, different costing and prices are included such as expenses incurred on
advertisement and launching goods in the market (Hope, 2016). Therefore, management
accountant of small business unit prepares record that includes all expenses and different
tools used for launching and developing products in the market. Hence, finished goods
costing is essential for increasing business and competitive strategies. Therefore,
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effective production and distribution of organization is made efficiently for systematic
balance and management of all business operations. In addition to this, expenses incurred
for setting up and developing products in the market are reported in this form that is
helpful for preparing income statement. Therefore, balance between production and
distribution of Diverse Ltd is obtained through this process.
Thus, above mentioned management accounting systems are beneficial to gain optimum
allocation of resources as well as cost effectiveness. In this regard, different ideas are generated
for systematic management of business operations at high level (Fullerton, Kennedy and
Widener, 2013). Hence, effective costing is crucial for the expansion of small business unit and
increasing high quality services of organization at a large scale.
P2) Methods used for management accounting reporting for Diverse Ltd.
Management accountant of Diverse Ltd recognizes all business operations and further,
maintains records for preparing reports in respect to performance of entity. However, different
management accounting tools are applied by the organization to achieve effectiveness can
express as follows:- Financial statements' analysis: - For this statement analysis, management accountant of
organization recognizes income statement and costing for price determination. However,
financial position of entity is obtained. Including this, by recognizing the income
statement, further investment and fund allocation tools are determined to gain
effectiveness of organization. Therefore, financial statements' analysis is useful for proper
costing and optimum allocation of resources and fund effectively. Budgeting: - It is one of the most appropriate management accounting tools that is useful
for proper management of business entity Under this system, on the basis of current
business performance, strategies are prepared for maintaining balance between
production and distribution of products, reducing uncertain changes occur at workplace
as well as adequate allocation of funds and resources (John, Etim and Ime, 2015). In this
way, strategic and risk management is presented that is useful for carrying on Diverse
Ltd business operations systematically. However, excess and wastage of goods are also
reduced through preparing production budget to control over excess of production. Along
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with this, management accountant of small business unit prepares an agenda for operating
business activities and enhancing quality services of organization to gain maximum level
of customer satisfaction.
 Ratio analysis: - Ratio analysis is the method that is used to measure company
performance for specific time period. Through this process, different elements of Diverse
Ltd. are obtained including inventory, costing and liquidity. Therefore, by comparing all
these elements with last years' activities as well contrasting business operations of entity
with its competitive creates sense for expansion of firm. Including this, ratio analysis is
the qualitative term for recognizing all aspects of organization and development of small
sized enterprise effectively (Otto and et.al., 2013). In this regard, different methods are
utilized for implementing strategies regarding effectiveness of business. Hence, by
determining the turnover, liquidity and solvency ratios, economic profile of entity is
obtained that is helpful for improving various operations of enterprise to enlargement.
 Job cost reports: The report of accounting which shows costs and expenses level of the
firm of every job of the products and services. Several kinds of jobs are to be introduced
within an entity regarding to manufacture goods as well as services. For produce goods in
each job there are expenditures incurred which are recorded at the job cost report. Higher
the total amount of job cost reports lead to enhance total cost of the production within
firm. It is beneficial for the company due to providing total cost level of each and every
job and on the basis of that fruitful business decisions can be made.
 Sales reports: Furthermore, the report which provides information about the selling
amount to the company is identified as sales report. Sum of money which comes within
working environment by selling goods and services to the customers and other
stakeholders is sales or revenue for it. Each and every firm wants to generate sales or
turnover in higher value and increasing trend consistently (Tucker, 2016). The reason
behind this is that, more revenue lead to improve net profit which results is enhancing
financial health of the Diverse Limited within its respective industry.
 Account receivable reports: In this kind of management accounting reporting the
amount which receives within entity are recorded and then considered in the working
capital. Lesser the amount of this respective report will lead to manage and enhance the
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working capital of the firm. Here at the majority level basically two kinds of values are
taken into account which are such as debtors as well as customers who purchase goods on
credit. When there are credit sales reduces then it will be effective for management
because there is no need to wait for money. It is one of the highly important type of
report which supports to the management in order to do accounting reporting.
 Inventory management reports: Along with this all, another management accounting
report is regrading to the stock level which available within workplace. Through this
report system the Diverse Limited able to determine that how much inventory level is
there along with its value. When firm not able to manage the inventory properly then it
leads to reduce efficiency for generating revenue and profit. Therefore, financial
performance of it within industry declines up to the greater level (De and et.al., 2014). To
determine value of inventory specific methods are available which are like LIFO (last in
first out). FIFO (first in first out) and weighted average technique.
TASK 2
P3) Costing techniques and its differences for preparing income statement
Costing is term of calculating incurred expenses and income earned by organization.
Through costing, management accountant of Diverse Ltd analysis all factors and elements of
business organization as per which prices are determined for production of goods. In accordance
to this, effective income statement is prepared that is useful for presenting financial position of
entity. Therefore, costing is a process for evaluating price regarding business operations and
performance of organization in monetary aspects. Therefore, different costing techniques can be
described as below:-
Marginal costing:- Under marginal costing, after evaluating gross profit, net profit is
measured in which fixed assets are not included. In this process, costing is benefited for making
decisions for short time period. In accordance to this, management accountant of Diverse Ltd
obtains costing to prepare income statement (Chenhall and Moers, 2015). However, different
aspects are presented for investment and further business operations. Thus, marginal costing is
related to setting price of products for production and distribution system.
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Interpretation:- There is expense incurred on business operations is 6600 and gained
income is 21000. Therefore, gross profit is evaluated by subtracting revenue to expenditure is
14400. It presents that organization has gained proper profit and analyses that organization can
increase its earning capacity. Moreover, for determining net profit, only variable expenses are
deducted which is worth of 9300 GBP. Thus, through marginal costing, profit is obtained
efficiently to enhance profitability ratio of organization.
Absorption costing:- Under this costing system, it is believed that fixed expenses should
be added to variable to determine total cost of product. In this regard, while evaluating net profit,
variable expenses are added to fixed that is useful for further implementation of business
organization. It is beneficial for long term planning and decision-making process to increase
efficiency of organization (Christ and Burritt, 2013). However, absorption costing is useful for
determining accurate pricing to generate different ideas for further business operations.
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Interpretation:- Through this data interpretation, it is determined that gross profit of
organization is 14400 that is effective for presenting favorable earning capacity of entity. Further
for determining net profit, variable and fixed expenses are added that are 1800 and 3300
respectively. In this regard, net profit is measured by subtracting gross profit to total expenses
that is obtained as 9600 GBP. Hence, net profit margin through absorption costing is beneficial
for long term planning that is useful for further business operations.
Differences between marginal and absorption costing:- Both marginal and absorption
costing methods are different from each other that can be comprised as below:-
Bases Marginal costing Absorption costing
Profit earning tool Under this costing, fixed
expenses are not added to
variable for determining net
profit margin.
In comparison to marginal
costing, for determining net
profit, variable cost is added to
fixed overheads.
Time periodicity Suitable for short term period Appropriate for long time
periodicity
Thus, under marginal costing process, total cost is considered as variable cost of products
while absorption costing is related to addition of variable and fixed costs to determine total price
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of products. It is comprised that marginal is benefited for achieving short term goals while
absorption is useful for long time period that is helpful for making place in market for long
periodicity. Hence, proper idea is generated for investment and systematic funding for allocation
of resources systematically. It is interrelated wit overall business operations for production and
supplement of goods and services (De and et.al., 2014). Hence, various factors and decision-
making tool is processed for expansion of small business entity.
TASK 3
P4) Advantages and limitations of budgetary control
Budgeting is an approach for forecasting and decision-making process for expansion of
Diverse Ltd. It includes different aspects related to reducing problems occur at workplace and
increasing its efficiency. In addition to this, proper management of business operations is
obtained through this technique regarding effectiveness of entity. Under this process,
management accountant of organization recognizes all business activities as well presents
various strategies for enhancing service qualities of firm (Fullerton, Kennedy and Widener,
2013). In this regard, different merits and criticism of budgetary tools can be described as
below:-
Characteristics of budgeting:- Management accounting tool as budgeting is beneficial
for forecasting and making decisions related to effectiveness of organization. In accordance to
this, various tools and techniques are obtained for enlargement of small business unit. Different
advantages of budgeting can be expressed as:- Analysis actual business performance:- Under budgeting process, management
accountant of organization recognizes business performance including financial and other
operations. Therefore, recorded data are analyzed through this system to implement
positive changes. Including this, production and distribution system related to business
activities are obtained that present business and competitive strategies effectively.
Moreover, different costing and price determination methods are generated for increasing
efficiency of entity at high level (Grabner and Moers, 2013). In this regard, market value
of firm and customer satisfaction level is determined through this process. Thus, it is
determined that budgeting is useful technique for forecasting and decision-making related
to further business operations. In addition to this, different ideas are generated for
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implementation of small business unit as well creating its good reputation in market for
long term sustainability. Decision-making tool:- Budgeting is considered as decision-making tool for
implementing strategies related to business effectiveness. In addition to this, for this
planning process, management accountant of organization makes decision as per current
performance. Including this several strategies are prepared for implementation in further
years and making its effective position in market at high level. However, management
accounting tool as budgeting is essential for decision-making process and expansion of
business unit in next years (Heizer and Barry, 2013). Moreover, decisions are made by
management accountant for reducing changes occur at workplace that is useful for
creating positive environment of entity to increase its efficiency for facing competition
and making place in market for long term period.
 Monitoring over entire business activities:- Through budgeting tool, excess and wastage
of products are get managed effectively. In this process, management accountant of small
scale enterprise analysis production and distribution system of products that is useful for
systematic management of all business operations (Hope, 2016). However, proper
balance between supplement and production of goods is maintained through
implementing strategies. It is useful to gain optimum allocation of resources that impacts
on productivity of entity at high level. It influences business and competitive strategies to
make position in market and maintaining customer satisfaction for demand of products at
large scale. Apart from this, it is beneficial for enlargement of entity and increasing
efficiency of organization efficiently.
Limitations of budgeting
It is risky for obtaining accurate market research and analyzing business operations more
specifically. In this regard, accepting challenge for forecasting and making decisions related to
further business operations is difficult that impacts on business organization's effectiveness.
Including this, occurrence of uncertain changes at workplace disturbs environment of entity.
However, budgeting planning procedure is not followed efficiently. In accordance to this, it is
recognized that do not follow on prepared strategies in decided time remains unable to reach out
set target. In addition to this, preparation of budget is quite costly that is not affordable for small
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business entity. It impacts on financial position of organization for enlargement and increasing
service qualities of firm to face competition (Ibrahim and Yaya, 2016). Moreover, wrong
prediction over current business performance disturbs all planning procedure and decision-
making tool to implemented for further business operations. Hence, it is required for
management accountant of Diverse ltd to analyze all business operations effectively that will be
appropriate for further operations. Including this, systematic approach for expansion of small
business entity is essential to make planning procedures more efficiently. In addition to this, it is
crucial for making decisions adequately to expand business through effective strategies to
increase efficiency of entity. It will be able to create positive atmosphere of company. Thus, it is
necessary for organization to use budgeting technique effectively for enlargement of entity
systematically.
P5) Different management accounting systems to solving out financial problems of Diverse Ltd
There are several accounting systems that affect o business performance of Diverse Ltd
(Diverse Ltd, 2016). For example; cost, financial, inventory and different accounting tools. In
this regard, different ideas are generated for expansion and increasing efficiency of firm (Ismail
and King, 2014). Including this, systematic management of all business operations can be
managed through this systems. Therefore, some of the main management accounting systems can
be described as below: Financial management:- Through costing and analyzing all financial statements such as
income and cash flow is beneficial for craeting proper balance production and
distribution of products. Therefore, management accountant of organization focuses on
economic structure as well makes decision related to increasing earning capacity of firm
(John, Etim and Ime, 2015). In accordance to this, several tools and techniques are
obtained for systematic financial management and fund allocation that impacts on other
factors of entity. In addition to this, management accounting tool as budgeting and ratio
analysis is useful for presenting actual monetary performance of entity that generates
various ideas for further business operations. However, systematic financial management
of organization interrelated with growth of entity entirely. It influences business and
competitive strategies of firm to gain its effective position in market. In addition to this,
ideas are generated for investment and allocating fund from different sectors are useful
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for enlargement of entity also impacts on overall business performance for long term
sustainability of firm in market.
 Cost effectiveness:- Adequate price for increasing in demand for production and
distribution is determined through this process. Therefore, management accounting tool
as cost effectiveness is valuable for effective price determination and making decisions
related to costing. For systematic cost effectiveness, management accountant of small
business enterprise sets price by concentrating on overall determinants of company's
factors (Kaplan and Atkinson, 2015). In accordance to this, cost effectiveness is termed
for affordable pricing regarding increasing in market demand and enhancing productivity
of firm. Under cost management approach, management accountant of organization
evaluates costing in different forms such as marginal and absorption costing for preparing
income statement to present financial performance of organization. In this regard, price
determination is obtained effectively that impacts on business and competitive strategies
of firm. Inventory management:- Under this management accounting system, inventories are
managed effectively for systematic production and distribution of products. In this way,
varieties of tools and techniques are applied for keeping goods safely and providing
services to customers effectively (Novas, Alves and Sousa, 2016). In addition to this,
management accountant of small business enterprise uses different approaches for
enlargement of entity and proper management of goods. However, it impacts on
production and distribution of products related to business performance. Therefore,
inventories are managed through using management accounting tool that affects business
performance at high level to increase efficiency of entity. Including this, it is helpful for
systematic utilization of resources and further various decisions are made regarding this
business approach. Thus, through management accounting tool, proper inventories and
goods of entity can be managed efficiently to increasing efficiency of organization at
high level (Otto and et.al., 2013). It is interrelated with other business operations to make
place in market and attracting customers at large scale.
 Performance management:- Management accounting tool is essential for gaining
effective performance of business organization and employees. Under this tool, various
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tools and techniques are utilized for getting workers' good contribution in team work and
increasing their interest towards performing job (Quattrone and Paolo, 2016). In this
regard, business performance including different elements as financial, production and
costing are concentrated for expansion of entity as well remains valuable for proper
balance of maintaining its good reputation in market. Including this, effective business
performance is interrelated with entire development of activities. In accordance to this,
varieties of ideas are generated for increasing efficiency of organization as well gaining
effective role model of workers to create positive environment of firm effectively. Thus,
management accounting is beneficial for overall expansion of entity and increasing
strength for business and competitive strategies at high level.
 Key performance indicators: As per this system the management of Diverse Limited is
highly able to know that at which point firm not able to perform well. Several types of
indicators are available and used by the company which are like quality, net profit,
variances, costs, comparison with previous year, productivity, efficiency of individuals
etc. Due to considering properly such all the KPIs the management able to assess
performance and then make decisions. For example: in the current year it generates lower
net profit as compare to previous fiscal period then it has been identified that
performance is poor. Moreover, strategies and decisions made to improve the value of net
income.
 Bench marking: It is the metric which supports to Diverse Limited in order to compare
with the standard value and agreed objectives. The value for benchmark is either settled
by company internally or authority member of industry (Christ and Burritt, 2013). By
comparing both the values business performance is assessed by the firm and in
accordance to that further strategies are prepared.
 Budgetary targets: Those values which predetermined in the books of budget for several
aspects are discussed in this kind of management accounting system. Budgetary targets
are in different forms like sales, profit, cash balance, expenses, revenue, production units,
material purchased etc. When Diverse Limited able to meet with the targets made in
budget fruitfully then it can be said that it performs well in its respective market segment.
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 Financial governance: It is part of the corporate governance which analyse and take care
various financial activities. Along with this, among all the financial employees specific
roles and responsibilities are to be given and on the basis of that problem is easily
identified. Moreover, the employee due to which any financial shortfall comes into
consideration then corrective actions are taken to resolve this.
 Variance analysis: The tool of business performance analysis under which comparison
between two values is made is called as variance analysis. Those factors which compared
are like budgeted or estimated and actual. When variance computed in negative manner
then it is adverse for the firm which shows poor business performance. In opposite to
this, when difference value is positive then it can be considered that Diverse Limited
having better and well performance within industry.
Thus, management accounting systems are useful for systematic management of all
business activities. In accordance to this, different methods are utilized to gain effectiveness of
organization (Quattrone and Paolo, 2016). Including this, developing business performance and
enhancing service qualities of firm can be determined effectively. However, management
accounting as decision-making tool is useful for expansion of small business and increasing its
qualitative services that is useful for optimum utilization of resources and funds at high level.
Including this, it is beneficial for creating positive environment of organization to increase its
business and competitive strategies at large scale. In addition to this, it is helpful for encouraging
employees for effective contribution at workplace that impacts on customer dealing services of
entity. However, various tools and different ideas are generated for implementation of small
scale enterprise to increase efficiency of firm effectively.
CONCLUSION
The report is concluded that management accounting is significant for entire development
of business organization. Different management accounting tools and systems are determined for
enlargement of Diverse Ltd systematically. In addition to this, approaches for determining
business performance is obtained through this study. However, importance of management
accounting is effectiveness of organization is considered that impacts on overall performance of
entity. Moreover, decision-making tools and forecasting tools including budgeting and income
statement are determined. Along with this, costing techniques and differences between them are
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obtained through this assignment to gain cost effectiveness. In accordance to this, advantages
and limitations of budgeting is considered for effective strategic and risk management of firm.
Apart form this, several kinds of management accounting tools for entire growth of organization
is obtained through this tool to make position in market. However, different methods are
understood for systematic management of all business operations effectively to increase business
and competitive strategies of organization for long term sustainability in market.
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John, N., Etim, J. and Ime, T., 2015. Inventory Management Practices and Operational
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Online
Diverse Ltd. 2016. [Online]. Available through:
<https://beta.companieshouse.gov.uk/company/04511018>. [Accessed on 21st March 2017].
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