Advantage & Disadvantage of Management Accounting
Added on 2021-02-19
21 Pages6035 Words116 Views
MANAGEMENTACCOUNTING
Table of ContentINTRODUCTION...........................................................................................................................1ACTIVITY 1....................................................................................................................................11 Management Accounting & its requirements..........................................................................12 Different types of Management Accounting Reporting...........................................................33. Calculation of Cost through different Cost Accounting Techniques......................................5Annex A......................................................................................................................................6Annex B......................................................................................................................................6ACTIVITY 2....................................................................................................................................84. Advantage & Disadvantages of planning tools used in Budgetary Control............................85. Adaption of Management Accounting System for resolving financial problems.................10Annex C....................................................................................................................................14REFERENCES..............................................................................................................................16
INTRODUCTIONManagement Accounting is a method of accounting used by internal managers ofbusiness organisation. Managers of company make various decisions related to cost minimisationand preparation of future financial plan in accordance with organisations objectives. Differentreports are prepared by managers with the help of management accounting such as CostingReport and Budgeting Report which in turn helps managers in decision making & formulatingstrategies.This report explain Management Accounting. Further, the below report elaborate varioustypes of systems used by managers in management accounting. Furthermore, importance ofmanagement accounting systems are discussed in this report. Moreover, this report includedifferent types of report prepared by managers with the help of management accounting. Further,this report prepare Income Statement with the help of different management accountingtechniques such as Marginal & Absorption Costing. Furthermore, the below stated reportincludes advantages & disadvantages of planning tools used in Budgetary Control. At last, thisreport explains application of management accounting in a business organisation with thepurpose of resolving financial problems. ACTIVITY 11 Management Accounting & its requirementsManagement Accounting Financial Accounting & Management Accounting are two accounting methods. FinancialAccounting is used for disclosing financial information of a company to its external userswhereas Management Accounting essential for internal managers of a business firm.Management Accounting helps managers in managing companies production process byreducing cost. Further, This cost is also known as Cost Accounting as with this accountingtechnique internal managers of company monitors and control cost incurred duringmanufacturing process which in turn benefits business organisations in achieving highprofitability and Customer Base(Hague, 2018).Further, with the help of this accounting method managers of company are able tocompare estimated cost of production with the actual cost and if there is any difference in bothactual & estimated cost than managers make further plans to eliminate unnecessary cost.1
Management Accounting SystemsManagement Accounting systems are important for managers as with this systemsmanagers are able evaluated and difference between actual & estimated performance. Managersof a company are also able to minimise risk associate in production & other business activitieswhich in turn enhances profitability of company. Thus, this system is having a significantimportance for managers and a business organisation. Different Types of ManagementAccounting Systems are discussed below-Cost Accounting System- This is the most required management accounting system aswith this managers of a company develop a structure through which they can analyse or make anestimation of cost incurred during manufacturing process. After determining cost with the help ofthis system managers are able to decide profit margin. Thus, this system is also important inanalysing profitability of a firm. Further, with this management accounting system managers candetermine value of inventory available for manufacturing process this benefits them in managing& maintaining cost(Kaplan and Atkinson, 2015). This system is also advantageous in determining different types of cost & products ofmanufacturing such as Direct Cost and Standard Cost. Direct Cost includes Cost of Direct RawMaterial, Direct Overhead and Labour used in production process whereas, Standard cost isestimated cost required to manufacture a product. Further, this system is also essential foridentifying profitability of different products offered by a business organisation and with thatmanagers can make decisions related to elimination of a product which is giving loss. Thisfurther helps company in increasing its profits, performance, customer and market share.Inventory Management System- Inventory is a most essential element without which acompany is note able to start its production process thus, it is necessary for a businessorganisation to check availability of stock and determine value of its available stock. This can bedone by managers with the help of Inventory Management System as this system track inventorylevel, sales orders and helps in developing different types bills related to material and otherproduction elements. Thus, this system is beneficial in managing inventory in a manner whichminimises cost. Further, Managers are able to make decision related to selection of an inventory valuationmethods such as LIFO & FIFO. This cost evaluate cost included in each method and provides an2
appropriate method to company. This system is an essential requirement of managementaccounting as it provides detailed information related to Reorder Point, Lead Demand, OrderQuantity, Stock Cover and Accuracy. This in turn benefits business in optimising cost & level finventory. Inventory Management System is applicable in all types of organisations such asManufacturing Firm, Retail Companies and other industries(Labro, 2019). Job Costing System- A Costing System which helps managers in determining costinvolved in a particular job performed by a company is known as Job Costing. This system isimportant as with this production managers of a business organisation can assess cost of each joband make decisions of investment in a job which is more profitable. This system is implementedin organisations which are introducing more than one product line and job. Further, it is alsobeneficial for business ventures which are engaging in a manufacturing activity of uniqueproducts. Event Management Companies and Interior designers most commonly use this systemas they their products & services differs with time. This system is an essential requirement for companies which are paying high cost inmanufacturing of their products & services(Maas, Schaltegger and Crutzen, 2016).Price Optimising System- Benefit of this management accounting system is it helpsmanagers in optimising prices of products & services offered by company according to thedemand & preference of customer which in turn benefits business firms in maximisation of itscustomer base. This system enable managers in analysing response of customers at differentprice and on that basis managers set a price which is accepted by most of the customers. This system is applicable on organisations which are distributing their products &services in more than one market. As individuals of different geographical area are havingdifferent income level and different purchasing power. Further, managers determine price ofproducts after considering profit margin which in turn increases revenue of business(Advantagesof Benchmarking. 2016).2 Different types of Management Accounting ReportingManagement Accounting ReportsManagement Accounting Reports are prepared by managers which gives detailedinformation related to cost, inventory and other elements used in process of productdevelopment. This reports are disclosed to internal managers of company so that they can make3
decisions & develop strategies related investment, expansion, Increment in employees salary,Introduction & minimisation of product line and elimination of cost. This reports are preparedaccording to the business requirements. IT can be prepared monthly, Quarterly andAnnually(McVay, Kennedy and Fullerton, 2016). Further, no specific format is used by companies for preparing management accountingreports. Various types of management accounting reports are explained below-Cost Managerial Accounting Reports- This report provide information related to cost ofeach element used in manufacturing process like Raw Material, Labour and overheads. Further,this report show amount of selling & manufacturing cost so that managers can identify amount ofprofit generated by each unit. This reports are useful for managers as with this they can analyseexpenses done by company and it also provide information related to use of organisationalresources which in turn helps organisations in effective utilisation of their resources. Manageralso makes decisions related to waste management and determining hourly cost of labours on thebasis of this report(Medudula, Sagar and Gandhi, 2016). Cost Accounting Reports are beneficial for companies a with this managers are able toestimate future profits & expenses and which further plays a significant role in achievingbusiness objectives with formulating strategy of minimising cost. Budget Reports- Budget Report shows future financial plan of a company according toits future objectives which in turn benefits managers in evaluating performance of a businessfirm. Budget is prepared by managers on the basis of historical data and this reports includesinformation related to expenses, revenue, income & cost. This report is essential as wholebusiness operations of a company is decided on the basis of future budget. Further, this report is an essential requirement for managers as managers decide amountof incentives for employees and negotiate with suppliers of raw materials on the basis of thisreport. A company can also achieve future goals & objectives if it operates its business inaccordance with Budget Reports. Performance Report- Performance Report gives details of overall business activitiesperformed by an organisation so that managers of company can review performance of companyand its employees. Further, managers develop plans & policies if performance of company is not4
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