Management Accounting: System, Reporting, Costing, and Budget Analysis

This report provides a comprehensive overview of management accounting principles and practices, focusing on their application within the 4COM company. It begins by defining management accounting and highlighting its significance in organizational growth, emphasizing its role in supporting managerial decision-making through the analysis of financial data. The report then delves into various management accounting systems, including cost accounting, price optimization, inventory management, job costing, and batch costing, explaining their functions and advantages. Furthermore, it explores different management reporting techniques such as account receivable reports, performance reporting, operational budgets reports, inventory management reports, and job costing reporting, illustrating their usefulness in monitoring and controlling organizational performance. The report also discusses the advantages of management accounting systems, such as increased productivity and efficiency, along with a critical analysis of management reporting systems. Finally, it examines costing methods, including absorption costing and marginal costing, and their application in calculating net profit. The report highlights how these methods aid in financial planning and decision-making, contributing to the overall financial health and strategic planning of the company.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is the processes and tools that focus on the positive utilisation of
organisation resources, in order to support manager in their responsibility to increase customer
value and shareholder interest. The main purpose of the accounting system is to gain long term
advantages for the cited company (Ihantola and Kihn, 2011). It consist of continuous
determination of the cost of product and services, data for managing and controlling operations
in order to measure the performance. The primary information those are more valuable for the
managers are fulfil through through analysis short term and long term decision regarding
accounting of financial transactions.
The project report consist of four tasks which covers significance of accounting system
and it use in organisation growth. How various types of accounting system and reporting are
useful for the company are explained under this report. At the same time costing method can be
effective in calculation of net profit for the cited company. The report also covers various types
of budget and its merits and demerits in development of an organisation. Overall projects discuss
about how company can overcome its financial problem which are arises in an businesses.
TASK 1
P1: Management accounting and its essential use in an organisation
Accounting are related with collecting, recording and summarising of financial data in
the company's books of accounts. These are used by the company in planning and controlling of
organisational operations. It is interrelated with the management to make effective decision for
the growth after analysis financial statements of the 4COM company. The short term and long
term goals are depend upon the financial position on the company from the past few years. It is
evaluated with the aims to get positive results in future time. The prime objectives of the
company is to generate maximum profit with its available resources. In that context, accounting
systems help and provided right direction to the company to invests their capital in the right
place. It is observed that financial statements are considered as one of the important aspects
which is analyse the productivity and performance level (Hansen, 2011). The accounting
informations are used by the managers to get competitive advantages over the other. In order to
identified the position of the company managers are continuously prepare report as on regular
basis. It will help them to estimate total costs which are incurred by the company during the
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production process. The major aspects of the accounting systems are used to get timely and
accurate results from the inputs. The overall reports are prepared and submitted by the managers
to the top management in order to take appropriate decision regarding future growth of the
company. A perfect planning can always begun with the right kind of accounting system carried
in an organisations. These all done in order to achieve organization as well as individual
objectives. In earlier time managers are not able to maintain their record because they are using
manual system to do so (Endenich, Brandau and Hoffjan, 2011). But with, the implementation of
techniques and latest technology it changes the complete scenario. Now, there are most effective
systems available with the company which can be applied in order to achieve its desire objective.
Types of management accounting systems which are used by managers are explained
underneath:
Cost accounting system: According to this system, total estimation of costs are analysed
which are incurred during production process. On that basis, various decisions are framed and
prices are set for the product produced. It includes various costing methods such as, Normal,
standard and actual costing.
Price optimisation system: It is said to be an important aspects of accounting which are
use by 4COM in their operational activities. It is based on the concept that evaluate price
sensitivity of customers, whether they are able to pay for there products. The company observe
that how customers react towards different prices fixed by the company for there products.
Inventory management system: Under this, overall control and monitoring of stocks of
the company are determine. It is the responsibility of the managers to over looks all the level of
stocks which are stored into the factory.
Job costing: In this system of accounting, the process through which costs a cited
company is incur to a particular job an individual and business concern is associated with. It
mainly used when the products are produce and are sufficiently various from each other.
Batch costing: It is very similar to Job costing as costs are determine by a batch in-spite
of a individual product. It is indicated with a batch number which consist of production year and
batch lot.
Some essential aspects of accounting systems are:
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It is used for planning: The main part of decision are arises from accounting system
which are used by the investors to analyse the performance in order to plan its long their
programs.
To determine the financial position: The accounting should help to get competitive
advantage over other by estimating it financial positions (Hyndman and Connolly, 2011).
P2: Various techniques those are used for management reporting
It has been found that most of the critical decision are taken after the analysis of
accounting systems. For the future stability of the 4COM company are depend upon the
accounting records which are used by the managers. The main roles and responsibility of
management to maintained and control stability among each and every departments which are
working for the same objective. The all will be identified and plan through the use of proper
accounting reporting. The reporting of every accounts need to determine the position of the
stocks and costs which are incur during the production process.
The reporting can be done according to the policies which they are seems effective for
the cited company's. It is can be monthly or annually also. The overall ways of decision are
based on reporting of various aspect associated with the accounting systems. The manages need
to maintain balance among every department which help the management to taken effective
decision for future. The data collected from different departments are based on those reporting.
Some of the reporting which are used by the managers in their organisation are discussed below:
Account receivable report: In this reporting, the most of the invoices are billed at the
last of every months. It is most effect tools for the small business concern. It provide managers a
detailed lists of the balance due for an individual subscription.
Performance reporting: In the 4COM company, the performances report of each
segments are prepared in order to analyse position of products and services. The chosen groups
are connected in order to analyse effective corporate plan (Bennett, Schaltegger and Zvezdov,
2011). In relation to increase advantages from the cited company's they always performances on
continuous basis.
Operational budgets reports: Under this reporting, those expenses which are incurred
by the company during production process are recorded under it. It is identified as total expenses
which are used for the production of additional units in order to incur net profit. It is done to
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evaluate total costs that a company is spending over their products. It consist of sales and
production budgets.
Inventory management report: In order to manage the level of stock which are kept by
the company such kind of reporting is done. Some of important techniques those are more
effective under these circumstances. Like ABC controlling which are used to divide the stocks
into various groups according to their durability and quality. Other one is EOQ which is used to
know the level of stocks can be last for the company. From these two techniques reports are
prepared and make changes accordingly (ZalehaAbdul and et. al.,2011).
Job costing reporting: Under this reporting, those costs which are identified by the
company from the individual products are recorded in it. The total revenues are determine by
managers in order to know the desire profitability they are getting from the particular project
lots. The main aspect which need to be considered under this reporting is to record each lot
details those are produced during the time. Those phases are avoided which are generating less
profit.
M1: Advantages of management accounting system and its uses
In an organisation MA is use to increase the productivity and operational efficiency of an
organisation. The other benefits are reduce production costs and improve workplace design. It
will help to improvise the proper manpower planning and capacity planning. The material
handling cost can also be overcome though using effective management accounting system. By
using inventory and job costing techniques 4COM company can increase their efficiency and
goodwill for the future expansion. The financial position of the company can be enhance through
using right accounting techniques at the right place. Use of perfect accounting techniques one
can control all its operations through applying effective methods in it. The resources can be
utilised in more effective manner and wastages can be managed.
D1: Critical analysis of management reporting system
In 4COM company, reporting is considered to be more effective tool for the managers in
analysing the performance in current year time. The all financial transaction which are incurred
by the company are first recorded and summarised before, it transfer to journal books of
accounts. Operational budget reporting and performance reporting are said to be more useful
reporting techniques which provide more accurate results. The expenses which are incur during
production of products and services are analyse through preparing annual and monthly reporting.
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In the opinion of Alleyne and Weekes-Marshal, 2011 the continuous analysis of reporting can
increase the profitability for the cited company in order to plan their business operations.
TASK 2
P3: Calculation through using different costing methods
In order to plan the company future, the accounting are need to be evaluated on the
regular basis. It will help identified the total capital available with the cited company to make
expansion of another units. The costs which is considered to be the major aspects for taking
decision are need to be analysed properly. As costs are said to be those amounts which are paid
in return of something or for manufacturing of products. Under the formulation of accounting
records costs are need to be connected with the data which are associated with the cost to
company. There are some costing methods which can be useful for the evaluation of net profit
for the company. It is generally, calculated through income statements. Those are discussed as:
Absorption costing: In accordance to determine the profitability position of the company
this shorts of costing is been used. The total cost of manufacturing is related with 4COM policies
which are joint with producing broad brand and cellular mobile phones. The mode of calculation
under this method are done through those cost of goods an organisation by using into
cerebration of indirect expenses as well as direct costs (B Douglas Clinton CMA and CFM,
2012). The fixed costs are considered under this costing.
Marginal costing: It refers as those cost of product which are related with its variable
costs. In an accounting the variable costs are considered with the production of each extra units
and fixed costs are written off in total against the total contribution. The concepts are mainly
used to estimate the total production capacity of a company in which the costs is least to produce
additional units.
Absorption costing Marginal costing
All those costs which are associated with fixed
and variables are consider under this costing.
Only variable costs are included and fixed
costs are found from contribution.
At each units costs are achieved through at
different stages of production because, fixed
cost for the company will remain the same.
Under this cost will remain the same at various
levels of yield because, variable costs are
changes.
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In this process the difference among sales and
total cost of production results profit for the
company.
In this difference among sales and marginal
costs incurs as contribution.
It is not considered as more effective tool for
decision making such as, whether to accept the
export order or not.
This methods is more useful in taking
management decision because the fixed
expense are remain the same at every level.
Under this costs are analysed through
functional basis such as production cost, office
expenses.
Costs are considered as per the behaviour of
related costs. Both fixed and variable.
Computation of net profit through income statements by using marginal costing
Particulars Amount
Sales 35*600 21000
Less: cost of good sold
Production cost 6+5+2 - 9100
Closing stock: 100*13 - 1300 -7800
Contribution 13200
Less: other expenses
Variable sales overhead 600*1 600
Fixed overhead -2000
Selling and administrative cost expenses (700+600) -3900 -3900
Total Profit / Loss 9300
Calculation of net profit through income statements by using Absorption costing
Particulars Amount
Sales 35*600 21000
Less: Cost of goods sold
Production cost 6+5+2 9600 9600
Gross profit 11400
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Less: other expenses
Variable sales overhead 600*1 600
Less: Over absorbed Fixed production overhead -100
Selling and administrative cost expenses (700+600) 1300 -1800
Total Profit / Loss 9600
According to the information which are provided under the case, it has been observed
that 4COM company is having two kinds of costing methods which can be more useful for
analysing net profit and loss during the year. If they are going with marginal costing the
contribution received is 11200 and after adjusting all expenses they are getting a net profit of
9300. On the other hand, if they are choosing absorption costing they are receiving a gross profit
of 11400 and after meeting all those expenses they are having a net profit of 9600.
M2: Different range of management accounting techniques
There are various accounting techniques which are available tot eh company in order to
manage their financial transactions. Cost-accounting is an important techniques which is used to
determine the actual cost which is going to be incurred by the company during its production
process. The historical cost techniques can be useful for analysing the current year performance
with the past one. While inventory accounting systems can be used under the above questions to
determine the stock level (Abrahamsson, Englund and Gerdin, 2011). Because, every aspects of
the performance are rely mostly on the techniques which are providing valid outcome. Budget
reporting is used to analyse the future estimation of company capitals which are going to invest
in various heads.
D2:Preparation of financial report after analysing business performances
It has been observed that, if the company are using either of the costing methods in the
process of getting Net profit they are getting changes in both. As in order to prepare a financial
report the net profit is considered as one of the important tools. The most of the valuable
decisions are taken on that basis. So, it has been seen that from marginal costing 9300 of net
profit is incurred. While, for absorption costing they are getting 9600. under this circumstances
absorption costing is good for decision-making. The financial report indicate company's current
year positions.
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TASK 3
P4: Advantages and disadvantage of planning tools used under budgetary control
Budgets: It is said that quantitative estimation of the operational strategies of an
organisation for a forthcoming accounting duration. It is usually designed for the period of one
year but, can be prepared according to the seasonal needs or any other requirements changes as
per the company's.
Importance of budgets:
 It indicated that how much capital is required to carry out organisation activities.
 It enables to analyse and monitor profit and loss statements for the year.
 The budgets are said to be base for financial accountability and profitability for the future
growth and performances.
 A perfect budget is used for the purpose of controlling a new venture which is established
by the cited company.
Advantages:
 The most important aspects of budgeting is that it coordinates activities in each and every
department of an organisation.
 It is more effective in translation of plan into actions. It indicate the different resources,
sales, and all those activities which are plan under the budgets to carry out strategic plan
for the future.
 It will also help to maintain proper communication system among every members those
are working for the same objectives.
 Reallocations can be done with the use of budgets by taking corrective actions.
Disadvantage:
 It covers all those aspects of organisational performances into financial values for an
individually comparable units of activity.
 There is chance of over budgeting sometimes (Hopper and Bui, 2016).
 Budget planning are too much expensive and time consuming. It so because all the
informations are collected according to statements provided by the departments.
 As there is more advance planning is done which leads to the inaccurate outcome for the
company in coming time.
Budgetary control process:
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1st Steps: Collection of information form every concern departments regarding there
needs. After all those data are gather which are future used during formulation of budget.
2nd Steps: After the data collected from departments it organise in a sequence as per the
demand of the department and it matches with the actual cost with standard costs.
3rd Steps: Once all the analyse is done then, financial aspects are determine which
segments required more capital for the development are identified under this stages.
4th steps: It transfer for the further approval of the budgets to the top management and
after that evaluation are done accordingly.
Different planning tools:
Operating budgets: In an operating budgets is said to be annual budgets of an activities
that are expressed in relation of budget classification and cost accounts. It consists of total
estimation of the values which are required for the performance of the operations that are
associated with the expenses. It is related with those data which is related with production and
administration are mentioned under this budgets.
Cash budgets: It is known as, that statements which is based on total approximation of
future cash income and payments are recorded in a way as to indicate the forecasted cash balance
of a 4COM company at decided intervals. It is considered as detailed budgets of total estimated
cash inflows and outflows incorporating all income and cash items. It is generated from various
activities which are associated with production units (Hutaibat, 2012).
Static budgets: It is that types of budget that are unified expected amount regarding total
inputs and outputs that are planned before the period in particular scenario. To calculate static
budget the person need to deduct the actual amount spend from the planned budgets for each
segments of product over the given period of time.
M3:Analysis of planning tools use under budget planning
In order to analyse the budgetary process they are using different planning tools which
are used to determine the performance and growth level of the company. Some of them are
forecasting which is used to predict the future sales and cost which are going to spend over the
production of single units of a products. Scenario planning is based on alternative condition
which are arises in the company during budgetary control processes. Benchmarking is uses to
compare external and internal aspects of budget which is prepared by the company.
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D3: Ways to respond different financial problems which are arises in an organisation
In every organisation, it is necessary to identify various financial problems those are
affecting the profitability of the company. All those factors are need to be considered while
solving financial issues. In the planning phase, the performance can be analysed through
measuring those financial departments. Some of the financial techniques are key performances
indicators, benchmarking and financial governance which are considered as effective tool to
overcome financial problems. All those issues are identified and analysed through applying those
techniques. By using the above tools a cited company can resolve their issues. So that
profitability of the company be increased.
TASK 4
P5: Comparing organisation the ways they are using management accounting
Management accounting is considered as a vital aspects of an organisation by which
every decision are taken in order to increase the profitability and achieve its long term goals.
The business can analyse the accounting systems which are followed and if they, are not
able to meet there demand according to the set plan. That need to be evaluated on priority so that
changes of risk can be minimised (JOSHI and et. al., 2011). In order to achieve more accurate
and positive results the cited company need to use financial techniques which help in
development and growth of the company in coming time. The valuable decision are taken in
accordance with applying necessary methods and tools which are need to achieve the set targets
in short span of time. The other departments are liable for the issues so by the help of effective
use of techniques they can solve there financial problems. It will be identified that those
resources which are utilised in more effective manners are able to generate more profit to the
company.
There are some of the tools which are used by an organisations in order to solve financial issues.
Those are explained underneath:
Key performances indicators: By using this techniques, a company can manage and
evaluate its financial performances with the help of two year basis. There are various parameters
which are made and inform to each members according to their capabilities those are having to
perform there tasks. They will be able to get more motivated and achieve the individual goals as
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