Management Accounting for Financial Control

The assignment examines the crucial role of management accounting in managing and controlling financial transactions. It emphasizes the need for organized operational activities to prevent future financial issues. The document delves into costing methods, budgeting tools, and systems for transparent financial reporting to achieve a strong financial position.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Introduction to management accounting:................................................................................1
Task 2...............................................................................................................................................2
2. Different costing methods used to analyse profitability.........................................................2
TASK 3............................................................................................................................................3
3. Planning tools used in management accounting:....................................................................3
TASK 4............................................................................................................................................5
4. Comparison with with other company's in relation to solve financial issues.........................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is necessarily required in every every business whether small or
large. Every organisation should need to record, summarise and control all financial entries
which are performed by an organisation. This project report covers various accounting system
and reporting used in completing various task (Chenhall and Moers, 2015). It also includes
different costing methods and planning tools used in budgetary control and also effective use of
techniques to resolve financial issues. This project is overall about management accounting
system which helps in building future growth of an organisation.
TASK 1
1. Introduction to management accounting:
Management accounting refers to formulating and implementing policy and principles in order to
control, summarise and record all financial entries that are made within an organisation. The
management of an organisation is held responsible to design, execute and control all operational
activities and use provisions of accounting information in order to make better decision in order
to get profitable result. The nature and scope of accounting system is wide because of its
accuracy and correctiveness (Albu and Albu, 2012). To attain long term objectives manager
should need to make financial report in more effective way which includes all accurate and
reliable financial transactions. Using outdated system prevent to collect accurate data as well as
affect the performance of company.
Types of accounting system:
Different types of accounting system which help in controlling business operation are as
follows: Cost accounting system: Its main objective is to determine profitability, cost control and
other aspects of costs which are incurred in production process and different operational
activities. Inventory management system: This system involves monitoring and controlling
opening and closing stocks of company. So manager need to use ABC costing and stock
turnover ratios in order to identifying accurate position of stock. Price optimisation system: This system relate with price which can vary according to
every unit produce. Price optimisation helps in deciding which prices the customers can
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afford for their products. Therefore systematic tools and statistical planning should
required in order to get profitable and effective result.
Job costing system: This system is used to identify lot size of goods and service produce during
the year and accordingly assigned manufacturing costs to specific product. It includes product
date, identification number and many other features (Van der and Vosselman, 2012).
Methods of accounting reporting system:
Accounting reporting system helps in analysing and controlling wastage of company in
form of costs and unnecessary expenses. Methods of this system are:
Operating budget: Its main objective is to determine actual cost done by company in the
production of products. It consist as part of internal reporting.
Performance reporting: Comparing and analysing the company's past and present year
performance is smut for organisation which helps managers to achieve desired outcomes and
eliminate deficiencies.
Job cost reporting: It is used to find out the actual cost which is levied on specific job
and need to evaluate in order to determine whether cost can be minimize.
Task 2.
2. Different costing methods used to analyse profitability
Costing refer to analysing and evaluating total cost used in manufacturing of goods and
services. It is related with cost of production such as material cost, labour cost and overheads
(Endenich, Brandau and Hoffjan, 2011). Cost which is measured in terms of monetary value
which helps the manager to make decision as these cost provide more accurate and reliable
information about the actual cost imposed by company. There are various methods of costing in
order to make analysis of net profit:
Absorption costing: Cost which is levied on manufacturing of products and services is
known as absorption costing. Such cost consist of fixed and variable cost. It is also known as
fixed production cost as maximum of costs are related either production.
Marginal costing: It is related with the cost which is incurred to produce one extra units
in production. It is not considered as fixed costs because of which contribute per units is taken
into consideration.
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Inventory Cost: It refers to costs related with the procurement, storage and management of
inventory. It includes ordering costs, carrying costs and shortage or stock out cost. Ordering cost: Ordering cost is dependent and varies based on two factors-The cost of
ordering excess and the cost of ordering too less (Cullen and et. al., 2013). Carrying cost: It refers to the cost incurred during storage in warehouse and maintenance
on their product. It includes rent of warehouse and other infrastructure used to preserve
inventory.
 Shortage or stock out cost: It refers to the cost incurred in unusual circumstances and is
small part of total inventory cost.
Benefits of reducing inventory cost to an organisation: Reducing inventory cost helps in
allocating funds to some other areas such as production, distribution and communication so as to
help in selling the inventory products to their customers (Alleyne and Weekes-Marshall, 2011).
Investing money in production, distribution gives profitable result rather than investing money in
storage of inventory.
Methods of Valuation of inventory: First-in-first-out which means the inventory who comes first in warehouse should need
to sell first to the customers. Last-in-first out which means inventory who comes last in warehouse should need to sell
first to the customers.
 Weighted average means Both inventory and COGS are based upon average cost of all
units.
TASK 3.
3. Planning tools used in management accounting:
Budget: It refire to an estimation of revenue and expenses and resources over a specifies period
of time which helps in achieving future financial conditions and goals.
Types of budget: Operating budget: It is related with manufacturing of product and services which is used
to determine total cost and expenses which the company has to incur in future. It includes
sales and production related budgets.
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 Static budget: This budget refers that the expenditure remain unchanged with variation
top sales levels. It is prepared at beginning of project budget period. Cash budget: It relates with the identify and examine the inflows and outflows of cash in
business during the financial year. It is related with operating, investing and financing
activities.
 Operational Budget: It covers revenues and expenses incurred in day to day business of
company. Operational budget are divided into small reporting periods if company budget
annually.
Pricing Strategies: Pricing Strategies that to be implemented regarding selling goods and
services which helps in maximising profitability for each unit sold in the market. Such strategies
are: Pricing at a premium: With premium pricing, company charges higher cost than their
competitors. Pricing for market penetration: It aims to charge less prices on their product in order to
attract customers. Economy pricing: With this strategy, company minimizes the cost associated with
marketing and production in order to keep product prices down (Cokins, 2013). Price skimming: The company setting high rates during introductory of new products
and services and then lower the prices when selling in the market.
Common costing systems: Actual costing: It is a cost accounting system which depend on actual cost, direct cost
rates and actual qualities used in production to determine the cost of specific products. Normal costing: It is used in derivation of cost. The components such as actual costs of
material, actual cost of labour, and standard overhead rate are used to determine the cost
and are used for allocation purpose. Standard costing: It involves estimating the required costs of a production process
through planning budgets, managing and controlling costs management performance.
Budgeting and strategic planning:
Mission statement: It specifies the basic purpose of an organisation to achieve so it is
clearly understood by all the member of an organisation. The mission statement should be
designed to achieve potential benefits such as providing a clear organisational goals and
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objectives, providing a basis of motivating people and resource allocation and establishing an
identity that will attract people etc.
Competitive forces: The company should assess industry structure and competitive
position in order to achieve competitive advantage. The five basic competitive forces are:
 Threats of new entrants
 Threats of substitute products
 Bargaining power of buyers and suppliers Rivalry industry
Goal strategies: Company need to adopt such strategies which provides basic direction
for goal setting. Some strategies should affect gaols setting for a number of years. Such strategies
are:
 Concentrating on a single core business
 Product development and innovation
 Horizontal integration by acquiring competition
 Concentric diversification by entering new businesses
 Market development by marketing current products in related or new markets.
TASK 4
4. Comparison with with other company's in relation to solve financial issues.
It has been observed that financial issues can make a adversely affect on the productive
and growth of an organisation therefore manager is required to formulate plans and strategies to
achieve short and long term profitability (Gondand et. al., 2012.). Lack of financial resources,
unavailability of cash and short term liabilities are some financial issues which negatively affect
the profitability of an organisation. It is required to identify these financial issue before it
happens so that they are in position to resolve and control these type of issues. This financial
issues may arises due to misconducting in accounting information and error in record keeping.
Some effective tools are as follows:
KPI: Key performance indicators are such tools which are used to achieve financial
issues in an organisation. The main objective of this tool is to analyse and evaluate performance
of team ass well as organisation during the year.
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Financial governance: Government formulate some rules and regulations in order to
analyse durability and stability of company in the future therefore company should required to
follow such rules and regulation in order to resolve financial issues so that they can get
profitability situation (Albu and Albu, 2012).
Management accounting skills which helps in preventing problems or issues: Knowledgeable about the latest accounting rules and theories: Management accountant
should need to attend refreshers, going to conferences and seminars that will help them in
knowing the latest accounting rules and theories in order to implement in accounting
system so that no problems are arises (Chenhall and Moers, 2015). Accurate and detail oriented: Management accountant need to work with accurate and
correct information so that he can understand the problems that mat arise and therefore
implement corrective measures to resolve financial issues.
 Organized and structured: Keeping all the figures, paperwork and data that management
accountant deal with daily requires good organisation skills. Therefore all the operational
activities need to be organised and structured in such a way that help in preventing
financial issue and problems that may arise in future.
Therefore in order to attain good financial position it is required to develop strategies and
systems which helps in providing full disclosure of financial positions and responsibly owned
and governed.
CONCLUSION
With the help of this report in has been concluded that management accounting is
necessarily required to manage and control financial transactions. This project also provides
necessary information related to various accounting system and reporting which helps in making
better decision. Costing methods plays an important role in determining the net profit of
company and there are also various tools which need to be implemented to control budget which
helps in resolving financial issues that may occur in future conditions.
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REFERENCES
Books and Journal
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society. 47. pp.1-13.
Albu, N. and Albu, C. N., 2012. Factors associated with the adoption and use of management
accounting techniques in developing countries: The case of Romania. Journal of International
Financial Management & Accounting. 23(3). pp.245-276.
Van der Meer-Kooistra, J. and Vosselman, E., 2012. Research paradigms, theoretical pluralism
and the practical relevance of management accounting knowledge. Qualitative Research in
Accounting & Management. 9(3). pp.245-264.
Endenich, C., Brandau, M. and Hoffjan, A., 2011. Two decades of research on comparative
management accounting–Achievements and future directions. Australian Accounting
Review. 21(4). pp.365-382.
Cullen, J., and et. al., 2013. Reverse logistics in the UK retail sector: A case study of the role of
management accounting in driving organisational change. Management Accounting
Research. 24(3). pp.212-227.
Alleyne, P. and Weekes-Marshall, D., 2011. An exploratory study of management accounting
practices in manufacturing companies in Barbados. International Journal of Business and Social
Science. 2(10).
Cokins, G., 2013. Top 7 trends in management accounting. Strategic Finance. 95(6). pp.21-30.
Gond, J.P., and et. al., 2012. Configuring management control systems: Theorizing the
integration of strategy and sustainability. Management Accounting Research. 23(3). pp.205-223.
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