(PDF) Introduction to Management Accounting- Assignment
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Added on 2021-01-02
(PDF) Introduction to Management Accounting- Assignment
Added on 2021-01-02
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MANAGEMENTACCOUNTING
Table of ContentsINTRODUCTION...........................................................................................................................2SCENARIO 1...................................................................................................................................3Management accounting and essential requirements of different management accountingsystems...................................................................................................................................3Different methods used for management accounting reporting.............................................5Benefits of management accounting system and their application in the organization.........6SCENARIO 2...................................................................................................................................9Calculation of marginal and absorption costing....................................................................9Management accounting techniques and financial reporting documents............................11SCENARIO 3.................................................................................................................................12Advantages and disadvantages of different planning tools..................................................12Advantages.............................................................................................................14Disadvantages.........................................................................................................14SCENERIO 4.................................................................................................................................14Analysing the uses and application of the various planning tools for forecasting the budget.14Fixed budget- .......................................................................................................................14.Explaining and comparing the adaptation of the management accounting systems for......16resolving the financial problems which leads to organisation success................................16Cost profit volume analysis..................................................................................................17CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................19INTRODUCTIONManagement accounting is the application of knowledge, techniques applied byprofessionals in order to prepare accounting information which helps the company in formulatingpolicies and procedures and controlling business operations. It helps the company in making
decisions based on accounting information provided by the management accounting. For betterunderstanding of the report, it will take Excite Entertainment limited, a leisure and anentertainment industry in the UK, which is one of the client of the accounting firm of UK anddeals in promoting concerts and festivals at different locations throughout UK. The report willconsist of difference between management and financial accounting along with differentmanagement accounting systems and management reports. It will show calculation of absorptionand marginal costing and will calculate profit from both the methods. Later, it will depict differentplanning tools along with performance indicators which can help the company in measuringperformances. At last it will show the importance of planning tools in achieving success for theorganization. SCENARIO 1Section A Management accounting and essential requirements of different management accounting systemsManagement accounting is the branch of accounting and application of knowledge,techniques and concept used by professionals. It is used in for preparation of accountinginformation in a way that it helps the management of the company in formulating policies andplans, controlling business operations. It also facilitates decisions making and utilization ofresources along with safeguarding assets of the company. Difference between management accounting and financial accounting-Management accounting Financial accounting Management accounting helps management intaking various decisions and assess for all typesof transactions. Management accounting measures bothqualitative and quantitative value ((Differencebetween management accounting and financialaccounting, 2019)).Management accounting is optional and has notfixed set of rules.Financial accounting records financialtransactions of the company.Financial accounting measures quantitativevalues.It is mandatory to do financial accounting forthe company according to rules and regulations.Essential requirements of different accounting systems used in Excite limited are:
Cost accounting system – It is used by the company to record activities related toproduction using continuous inventory system. It is a system of management accounting systemwhich is used to estimate cost of the products for profit analysis, cost controlling and valuation ofinventory. The Excite limited company use this system to know the products that are profitable forthe company and non profitable product of the company (Maas, 2016). It also helps excite limitedto estimate the closing value of work in progress, inventory materials and finished goods whichhelp the company in preparation of financial statement. There are two cost accounting system:Job order costing – This cost accounting system accumulates manufacturing cost of eachproject of Excite limited separately (Management accounting, 2018). As excite limited companyoffers different types of product and services to its customers therefore this system helps thecompany in finding out the most profitable service or product and also inefficient product of thecompany.Process costing – This system accumulates manufacturing cost separately for eachprocess. It is appropriate for products whose production process involves various departments.Mostly used by chemical producers and oil refineries etc.Inventory management system – This system helps in tracking goods through entiresupply chain. It covers all the aspect of business from production, warehousing, shipping etc. itallows business to see moving parts of its operations, allow business to take better decisions andinvestments. It helps Excite limited company in inventory forecasting, bar coding, inventory alertsetc. to help the company in making smooth decisions (Chenhall, 2015). There are two types ofinventory management system:LIFO: This method means last in first out in which the inventory that is received in lastwill be sell by the company at first.This method is required for Excite entertainment in managingits inventory to the optimum level.FIFO: This method means first in first out in which the inventory that is received at firstwill sale at first too by the company. This method is needed for Excite entertainment for keepingthe track on the inventory that comes first to be sold first so that outdated stock can be eliminated.Job costing system- This system helps the company in collecting information about the costsassociated with specific production (Warren and et.al, 2015). This information is important fordetermining the accuracy of estimating system of company which can help in quoting prices thatallow making reasonable profit. This system helps Excite limited in finding out three types of
information related to direct materials, direct labor and overhead costs such as depreciation. It isused by the company when various items are produced which are different from each other andhas significant cost.Section BDifferent methods used for management accounting reportingManagement accounting reports are used for planning, regulating, decision making andmeasuring performance of the company and its product and services. These reports are generatedcontinuously throughout the accounting period according the requirements of the company amany decisions are based on authenticity of these reports. These reports need to be preparedcarefully by experts who have expertise in book keeping (Navaneetha and et.al, 2017). Managersof the company analyze these reports to highlight certain patterns and convert them into usefulinformation for the company. The reports are:Budget reports : These reports are very critical in measuring performance for all type oforganizations. Excite limited company creates an overall budget of the company to understandscheme of the business. Budget is prepared by the company on previous year experiences.Although, it is highly uncertain. Company's budget list all the income and expenditures and triesto achieve its objectives like increase in sales, profit etc by staying in the budget. It is the mostfundamental report in management accounting. It helps Excite limited in controlling cost acrossbusiness as well as various departments (Collis, 2017). It also helps manager of the company inoffering better incentives to its employees, cut cost and renegotiate terms with vendors andsuppliers.Account Receivable Aging Reports – As Excite limited company relies on extendingcredit to its customers and suppliers therefore preparing account receivable aging report isimportant for the company. These reports break down reaming balances of the clients on specifictime period say, 30 days, 60 days and so on which allow manager to find out the defaulters(Labro, 2019). These report helps the company in tightening its credit policies as maintaining cashflow is important operation of any business. These reports also help in adjusting credit policies toalign them with customers’ repayment capabilities.Job cost report – These reports provide systematic view of the total cost incurred in asingle project of the company with the comparison to the expected revenue by the project. It helpsmanager of the company to evaluate profitability of specific types of jobs and optimize and shift
their focus on the jobs that are most profitable. It also helps the company in taking out theinvestment from non profitable project which helps in saving cost of the company. Performance report – These reports are created to review the performance of thecompany as whole as well as of the employees at the end of the year. Managers use these reportsto make strategic decisions about company's future. These reports help the company in workingtowards the mission of the company by showing specific strategy (Boyabatlı, 2015). These helpsthe manager in deciding which employee perform the best throughout the year and help in takingdecisions related to providing benefits, incentives etc. to the best candidate.The information presented in these reports need to be accurate as many decisions ofmanger depends on the authentication of these reports. The information presented in these reportsneed to be relevant to the users as all internal as well as external users uses these reports forinvestment decisions, borrowing decisions, lending decisions etc. therefore relevant informationneed to be provided by such reports in concise manner. These reports also need to be updated intimely manner so that the business does not suffer and manager can take important decision basedon these reports. These reports need to be concise, systematic with adequate and relevantinformation and easy to understand to internal as well as external users because it helps the usersin making effective decisions.Integration of management accounting system and management accounting report inExcite limited can be done as management accounting system contribute to continuousimprovement in the company through the development and integration of cost accounting systemwhich generates cost report and can help the company in controlling cost of their product and canincrease the production of the company (Isaac, 2015). Also, instead of budgeting and controllingindividually at departmental level, the company can do so at activity level such as inventorypurchasing with the help of inventory and manufacturing report. These accounting system canmeasure and evaluated effectiveness of all major activities which can enhance the performancesof the company by providing various report like budget reports, cost reports which help the angersin taking various decisions.Benefits of management accounting system and their application in theorganizationBenefits of management accounting system:
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