Management Accounting - Agmet company Assignment

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and different types of management accounting systems...............1
P2 Various methods which help in accounting report................................................................3
M1 Various crucial benefits of using management accounting system......................................5
D1 Critical evaluation of various reporting method and accounting system integration............6
TASK 2............................................................................................................................................6
P3 Marginal cost and absorption cost.........................................................................................6
M2: Different types of accounting tools and techniques............................................................8
D2: Analysis of data collected from income statement..............................................................9
TASK 3............................................................................................................................................9
P4 Advantages and Disadvantages of planning tool...................................................................9
M3: Analysis of various planning tool and its application for forecasting...............................10
D3: Evaluation of planning tools for responding to financial issues .......................................10
TASK 4..........................................................................................................................................11
P5 How company is opting management accounting system...................................................11
M4: Analysis of planning tools to deal with financial issues....................................................11
CONCLUSION..............................................................................................................................12
REFRENCES.................................................................................................................................13

INTRODUCTION
Management accounting is the procedure of preparing accounts and reports which
provide accurate financial and statistical information required in the organization for making day
to day and short term decision. In simple term it can be said that, accounting in simply managing,
summarizing and classification of financial transactions. In every company there is separate
department which records all the monetary transactions. This assignment is based on Agmet
company which is an chemical products manufacturer as well there approx. 27 employees are
working. Below mention report is explaining management accounting and its need in the
enterprise and several types of system (Amidu, Effah and Abor, 2011). Along with this, various
methods assist in framing accounting reports is described. Moreover, income statement of the
company is prepared by using absorption and marginal cost. The main purpose of this report is to
understand the advantages and disadvantages of planning tool under the budgetary control. In the
end, it explains how an organization have to adopt management accounting system in proper
manner.
P1 Management accounting and different types of management accounting systems
Management accounting is the process which involve preparing and providing statistical
and financial information to the manager of company. So they, can make their daily basis or
short term decisions related to management in effective manner. Moreover, the same is also
known as managerial and cost accounting but it is different from financial accounting because it
produce or prepare reports for internal and external stakeholders (debtors, shareholder, investors
etc. and internal users are purchases, suppliers, employees etc.). The same also include detail of
enterprise sales revenue, available cash, accounts payable and receivable. Most important is that,
information involved in this is confidential and for internal use only.
Management accounting play important role for the manager of Agmet which is an
chemical manufacturing organisation because it help them improving their decision making
power (Carlsson-Wall, Kraus and Lind, 2015). It is necessary for every type or companies such
as sole proprietors, non-profit enterprises as well government also. Accounting in associations
done on monthly basis for maintaining their cash inflow and outflow records. Apart from this,
cost accounting is an procedure which assist in identifying business cost and operations for
preparing internal report related to the transactions. When day to day records are maintained it
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will assist manager of Agmet company in taking decisions related to finance or any other
activity.
Management accounting system is that focus on tracking all the cost which is associated
with production or manufacture of goods and services with Agmet Company. Although,
traditional management accounting system also track cost but these are by using process costing
and job order methods (Granlund, 2011). Main motive of doing this activity to minimising extra
cost which take place while producing products and services with Agmet. There are different
types of management accounting system as well their roles which is integrated with several
organisational process related to Agmet are discussed. Discussion of all these is mention below
along with their requirement :-
Job costing system – It is an system through which manufacturing cost is assigned to
each and every individual goods as well these keep on tracking for monitoring expenses. Agmet
company use job costing system when products are identical to keep track of order expenses. The
same procedure of accounting consist of receiving enquiry, estimate price of job, order receiving,
production order, cost recording and completion of job. Job costing is important for organisation
and customers both because in relation to the enterprise it assist in allocating resources to
different task which results in minimising cost. On the other hand, with the help of same
customers get goods at minimum price.
Price optimising system – This is utilised for controlling the price of resources as well
price optimising system is used in Agmet for deciding price of chemical and several other
manufacturing products. Respective organisation can use the same system for tailoring the cost
for their customers by stimulating their responses at various price level. Most important is that, it
will assist enterprise in identifying pricing structure for promoting, initial and discounting. Price
optimising system involve several factors such as category goals, products life cycle and
competitors pricing strategy before deciding cost of goods in the enterprise. In organisation price
optimising is required for identifying behaviour of customers at different level of price.
Cost accounting system – It is the process of analysing, summarizing, allocating,
recording and evaluating several actions for controlling cost. Cost accounting system is an
framework which is utilised by the Agmet for price estimation of goods for valuation inventory,
analysation of profitability and cost control (Johnson, 2013). There are mainly two basis of the
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same one is job order and another is process costing. Moreover, their are two essentials for cost
accounting system of products are :-
 Cooperation and participation of executives required by various departments - It
will make sure that appropriate cooperation and participation in the building procedure of
cost accounting system which can assist the management in accurate ascertainment cost
of the goods.
 Flexible and simple – The accounting system which is developed must be flexible and
easy to be understand by execute. Along with this requirement of users should be meet as
well adoption must be done according to requirement.
Inventory management system – It is consider as one of the effectual supervision of all
non-capitalised stock goods. Through this Agmet company can maintain record of the products
supply chain from producer to the warehouse. Inventory management system is generally related
to the production department for creating effectual work order as well as bills of products and
several other manufacturing related invoices (Klychova, Faskhutdinova and Sadrieva, 2014).
Apart from this, their are several methods which needed to be taken into account like FIFO,LIFO
and AVCO. This system is required for managing orders, management of warehouse and it can
be useful for tracking inventory in better manner.
P2 Various methods which help in accounting report
Management accounting is the procedure which present various types of reports to the
company manager so they can analyse them and help in making appropriate plan by using it.
This project show different functions and activities that has to be done by firm in the previous
time period. There are various significance of management accounting that are described as
follows:
 It help company manager for identifying different types of errors and issues related to
debtors, creditors and managing stocks.
 Such report can be used for developing future policies and strategies so they are making
effective plan for getting desired goals and objectives in better manner.
 The project help in all the department so they assist in making systematic process which
can be done in best possible way.
There are certain popular forms of management accounting reports which are useful for
described as follows:
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Account receivable reporting – It is the report which is developed to identify specific
amount that will provide by firm to the debtors. It is important for making report of firm because
this will support in managing and maintaining monetary resources in better manner. The major
thing of this project is that it can reduces the amount of debt by analysing and finding rules for
debtors who are paying capital for buying specific goods and services appropriately. The report
is used for measuring and calculating the need of money in the business concern. Agmet
company produce this report in order to decrease their amount of bad debts. Under this list
prepared for unpaid customer and unused credit memos on the bases of date. From this report
organisation able to know the unpaid debtor who continuously making default for the amount.
After knowing them organisation make decision not to sell them the product in upcoming future
on credit.
Accounting payable reporting – Every organisation has some suppliers. In this,
stakeholders are play an essential role in getting success and failure of company because raw
material or goods are supplied by them are sold to their customers. In this reporting, data about
capital that firm has paid to their creditors and it is described that sum of data has paid to the
suppliers (Mistry, Sharma and Low, 2014). They have make strong relation with their vendors
that assist in developing effective supply chain management. The account payable is important
for identifying appropriate company suppliers who are delivering best quality based products and
services at reasonable rate. The company used this reporting because it will help them in
analysing their suppliers who provide products or raw material at affordable rate to them.
Preparation of account payable report is done to know the supplier which can be trusted for
taking goods. It also inform the organisation about the paid and unpaid amount to vendors
(Schaltegger and Csutora, 2012). Through the help of this report Agmet able to get information
about the money paid to the vendors on the schedule date and create good relation with them.
Inventory control reporting - Inventory control is activity of checking the stock of
business or shop to figure out what, when and from where to order and to perform other logistics
operation. It is important for maintaining accurate balance of inventory in the store of company.
Agmet firm used this reporting for managing and maintaining their stock in the store for future
time period. Several issues of Agmet regarding extra inventory or scarcity of stock that can solve
by using inventory report.
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Performance reporting - A performance report is a combination of accounting,
operations, financing, and strategic planning of an organisation. The performance report can be
defined as detailed accounting that measures the outcome of business activities in terms of its
success in a specific time period. This report includes previous and future perspective, proposal
and the its justification (Moser, 2012). It is important for comparing past and present
performance of employees. If their any improvement in existing working is required then it will
can be done in easy manner. Performance report help them in examining staff members and there
are various department work for done promotion along with incentive can be decided for
forthcoming time.
Budget reporting – It is one of the most essential type of reporting. This will help in
developing appropriate report which provide all firm related information and it reveal income
and expenditure in the form of actual and expected. The prime usage of this report is conduct for
identifying deviation. It is essential for developing future strategies and policies in better manner.
Agmet firm have facing various issues and problems because it is quite expensive and also time
consuming that can synchronised by eliminating confusion and major disputes. There are
separate funds which are assigned to each employee under the specific budget.
M1 Various crucial benefits of using management accounting system
Management accounting have their various advantages which help in achieving goals and
objectives of company. It will also help Agmet which is an chemical manufacturing company for
managing their several resources in effective manner.
Types of accounting system Advantages
Job costing system  With the assistance of Job costing
system Agmet company can estimate
their all kind of cost which occur during
manufacturing procedure.
 Assist in evaluating the quality of work
done.
Cost accounting system  Cost accounting will assist Agmet
company in fixing and reducing the
prices of their offerings.
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 Along with this, it will provide
important information which is required
for planning purpose.
D1 Critical evaluation of various reporting method and accounting system integration
It can be determined that accounting system and reporting can be used for giving valuable
data and information about current position of Agmet. It is vital for developing proper
information abut both of them. The phenomena is link with two essential factors in organisation
procedures which is defined as integrated accounting system. It is used for providing
standardised process that can be helpful for in using funds in effective manner. Along with this,
there are different types of reporting methods such as performance report which are associated
with current and previous year performance of Agmet company. With the use of account
receivable report, they can able for analysing outstanding total amount and recovery timing.
Inventory management report can be used for providing valuable data regarding actual position
of stock which kept by firm.
TASK 2
P3 Marginal cost and absorption cost
Cost is the money which is paid or invested by the person for purchasing something
against it. Same in the organisation for production purpose manager collect several raw material
and other required things against these also money is paid by them which is known as cost. In
Agmet chemical manufacturing company the cost that is to be taken into account as the correct
acquisition in which total amount of value will be needed for expanding for achieving more
valuable results in future (Ward, 2012). There are several types of costing methods which are
considered for calculating net profit of the company. some of them are given below:
 Marginal Costing – It is an costing technique which is taken into account by the
organisation while manufacturing one extra unit. Marginal cost only involve variable cost
in order to sales at that time it will be utilised for calculating net profit of the
organisation. While in this fixed cost for the period is completely written off against the
contribution. It has been identifying that variable cost used to involve important part of
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marginal cost which is related to direct labour, material and overhead expenses. This
more effectual method for taking better decision in coming future.
 Absorption Costing – It is related to all the type of cost which occur while production of
goods and services within Agmet chemical manufacturing organisation. Absorption
costing involve two cost in them these are variable and fixed as well because of its
particular nature it is also known as full costing method. Moreover, it is one essential
method which provide valuable outcomes in future decision making.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis – it is an technique which widely used by production management
and management accountants. Although, break even analysis is an important point at which cost
and expenses required to provide equal outcomes for Agmet company. BEP is the point at which
company neither get profit or loss of any kind.
A. Total number of product sold
Sales per unit 40
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Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of Safety – It is the principle of investment in tghis investor only purchse or buy
securities at time period when price in market is low compare to their intrinsic value. Margin of
safety is the amount of over the organisation BEP (break-even analysis). In simple term it can be
said that, it is the amount of sales an enterprise can loss before they exactly started loosing
money or stop generating profit.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Different types of accounting tools and techniques
It can be analysed that there are different types of accounting methods and tools that can
be used into consideration as more reliable for making effective decision in proper manner.
There are various types which are described:
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 Marginal costing tools – It can be analysed that it is one of the suitable method which
can help in understanding net profitability of the firm.
 Historical cost – It is one of the vital evaluation which can be used for measure value of
an asset on balance sheet on the basis of their nominal cost as original value.
D2: Analysis of data collected from income statement
There are various issues which occurs in the company in forthcoming time period so they
require to use different costing techniques in better manner. This will develop reliable factors to
the company that will assist in making decision effectively. In order to use marginal costing, the
firm used to make adequate amount of profit with 17500. In this case, they are using absorption
costing which help them in getting a profit of 15675. Main reason behind this is that absorption
cost included only fixed cost whereas absorption includes both Fixed as well variable.
TASK 3
P4 Advantages and Disadvantages of planning tool
Budgetary control is determined as “control technique” in which comparison between
actual outcome and standard outcome has been done (Wickramasinghe and Alawattage, 2012).
The roles and responsibilities of all person are totally related to managing and controlling all
required actions and make proper changes in set budget which ensure less deviation from
original plan in upcoming time period. This will help in making effective plan which can be used
by different techniques, the work of forthcoming and developing contingency planning has been
done by using effective tool of planning. These are described as follows:
Zero based budgeting – It is the planning tool which has some unique features that
separate from other equipments. In this approach, budget is formulated with the help of zero but
it is take more time. The role of company manager is to set in this and they required to provide
appropriate justification to all the activities or functions which need capital. In fact, they are
doing such activities for long time period in current time period, then they need to make cost and
values for acquired money.
Advantages – This method is mainly focus on using financial resources by assigning
funds to the activities and functions which are unnecessary for increasing cost and wastage of
capital (Windolph and Moeller, 2012). Along with this, efficiency and productivity of whole
company help in using planning techniques or tools.
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Disadvantage – It is lengthy and time consuming procedure. If company manager does
not have any managerial skill and it is not described under organisation in proper way so they
can not use ZBB tool.
Forecasting tools:
Forecasting tools are a vital factor in the budget control process. It uses the accumulated
previous years financial data to predict the financial outcomes for upcoming period of time. It
also shows whether the budget will provide the right direction to the business or not. With the
correct implication of the forecasting tools there would be less loss of revenue and it will result
in profit maximization.
Merits of Forecasting Tools:
 It provides valuable information to the organisation that it can use to make effective
changes in the budget as per the operations.
 Forecasting tools help in establishing a measurable target which is realistic in approach.
 These tools consider both internal and external influences for the budget control.
 Control can also be maintained with the help of these forecasting tools.
Demerits of Forecasting Tools:
 Forecasting tools are based on historical data while the present situation might be
different so it is not always accurate.
 It is a time consuming process especially in a poorly organised organisation.
 Factors such as new technology, competitive promotional activity cannot be stopped from
these tools.
Contingency Tool: A contingency tool or planning aims at the futuristic situations that
may impact the organisation and allow to be prepared for it with all the safeguard tools and
techniques to ignore more damages and loss (Zainun Tuanmat and Smith, 2011). It help the
management to make appropriate decision making at the time of incident.
Merits of Contingency Tool:
 By having contingency tool, the management feels more prepared.
 Contingency tools allow to stand steady in disastrous situation.
 It allow to plan more futuristic and adaptive for upcoming incidents.
 It provides directions to the staff and helps to save their time and other resources.
 Helps in minimizes damages and secure public relations.
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 It minimizes loss of production.
Demerits of Contingency Tool:
 It is costly and time consuming operation as it performs many actions like training of
staff, gathering resources and equipments etc.
 The fact of ignoring disasters is still considered over becoming more prepared for it.
 The contingency tools and techniques needs to be updated timely.
 It is very difficult to choose the more efficient contingency tool.
M3: Analysis of various planning tool and its application for forecasting
There are various methods and techniques which control budgets for an organisation, so
manager require to use different planning tools. There are various types of techniques such as
forecasting which can be used for analysing total costs and expenses which occurs in the firm.
Along with this, contingency tool are used for managing and controlling all business risk which
arise in the division. There are different kind of apparatuses which assist in examining as per this
they require to make effective procedure of budget.
D3: Evaluation of planning tools for responding to financial issues
It can be analysed that company require to face different internal issues which occurs in
the united kingdom. The firm need to managed and controlled different implications which are
related to making budget in better manner. In this, forecasting tool is used for predicting future
issues or problems so firm are direct effect on company performance for resolve by using Key
performance indicators (Zainun Tuanmat and Smith, 2011). The contingency technique is one of
the reliable method that can be helpful for managing and controlling business risk which directly
affect on whole performance of the firm. This can be solve by using various financial regulations
which main motive is to smoothly running of business operations.
TASK 4
P5 How company is opting management accounting system
In an organisation, it is analysed that company manager has to diverse the tools and
techniques for address the entire business issues which can be emerged in better manner. Its main
motive is to incorporate accounting report that will efficiently based on using resources which
are taken by managers for making effective decision. There are various financial issues which
are described as under:
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Insufficient funds – Business requires decent amount of capital which paid for the cost
of rent, purchasing and leasing techniques, market, etc. This problem occurs when firm do not
have any sufficient amount of funds for fulfilling its payment.
High level of debts – An organisation need to enhance its sale whether it is credit or cash
sale in expand their business operations and functions for attracting more customers. The
continuous credit sales has lead towards increasing the level of debts.
For overcoming from such challenges or issues, company follow different management
accounting tools that includes benchmarking, key performance indicators and financial
governance. Such tools are described as under:
Benchmarking – It is the procedure of analysing performance of an organisation
product, service against various business consideration. Along with this, it is the practice of
business concern for comparing key metrics with operations to the similar firm. This will help in
developing various goods and effective credit strategy for recover the debt from customer on
time.
Key performance indicators – It is the tool which can be used by business concern to
track and examine views which is important for getting success and growth of the company. This
will assist in determining that company manager support in achieving desired goals and targets in
better manner. If firm is acquiring success and development so this will assist in resolving major
issues of funds because company is perform work for making positive image in the market place.
There are two types of KPI are described as under:
 Leading KPI- This support in evaluating business performance or its specific project. In
Agmet company, it is used for estimated future trends or event which assist in managing
business performance.
 Lagging KPI- It is used to recognise the long term trends of the market. In Agmet,
manager use such KPIs for evaluating the procedure and project management in better
manner.
Comparison
Agmet UK Hichrom Ltd
The firm is regulating and operating
manufacturing of grocery matters. They can be
used for resolve their basic financial issues by
This company is doing working at minimum
level so they have chance This organization is
working at minimum level. The financial issues
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executing key performance indicators. are necessary for implementing in financial
governance and other accounting techniques
effectively.
M4: Analysis of planning tools to deal with financial issues
This can be determined that management accounting can lead towards developing
marginal accounting which can used for recording specific information regarding different tools.
In addition to this, there are various accounting which are related to issues that directly impact on
different divisions (Zainun Tuanmat and Smith, 2011). This can be observed to be vital for future
growth and gaining expected which can use by an enterprise.
CONCLUSION
From the above discussion it has been analysed that management accounting is the
process of framing an report in effective manner. As well it is an effective tool which will assist
Agmet chemical manufacturing company in improving their financial condition. With the motive
of this manager use several types of accounting systems and reporting ways for summarising
their accounting transactions. Moreover, different costing methods are taken into account for
calculating net profit of the business. With the utilisation of different pros and corns of planning
tools which assist in budgetary control. This overall work is done for evaluating several financial
issues which affecting performance of organisation and their essential measures. It will help
them to make better understanding for certain outcomes in future.
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Online
Scenario planning. 2018. [Online]. Available through: <https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1736110>.
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