Management Accounting and Strategic Management

This document provides a comprehensive report on management accounting, including its importance, types, and benefits. It discusses the role of management accountants in sustainable development and explores the concept of open-book accounting. The report also examines the challenges and limitations of management accounting systems and suggests avenues for further research. Additionally, it covers various references from books and journals related to management accounting.

MANAGEMENT ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting enables that a business to be conducted with the motive of
earning maximum profit with the help of available resources (Mistry, Sharma and Low, 2014).
The board report is delivered to senior administration accountant of ABC Ltd. his venture report
went for giving explicit data about the utilization of different kinds of bookkeeping framework
just as revealing strategy utilized by the organization in their business tasks. Alongside that,
favourable position and drawback of utilizing arranging devices those are utilized in budgetary
control are referenced underneath. Aside from this, talk about utilization of costing procedures in
ascertaining net gainfulness is additionally under this report. Examination with other association
in regards to utilization of the executives bookkeeping framework in controlling money related
issues are considered viably.
TASK 1
Management accounting and essential requirement of different type of management accounting
system
Management accounting is an accounting tool, which prepares and presents accounting
information, which is useful for the management department to execute various policies and
plans. Management accounting generally works for internal activities of a business, it involves
analyse of business cost and operations for preparation of internal reports for business.
Management accounting prepares budgeting, taxes of organization etc. Management accounting
is differ from the financial accounting, financial accounting includes preparation of financial
statements for the external environment like creditors, investors etc. However, management
accounting prepares reports and data for internal environment of the organization, which helps
the management department in the decision-making, and for the running business effectively
without any problem.
Inventory management system- inventory management system is a system, which
tracks the movement of goods in all process of supply chain. It tracks the entire movement of
goods starting from production to finishing goods and storing in warehouses. It helps the
business to see that what is the current position of goods, it also check the availability of goods
in warehouses (Moser, 2012). ABC Ltd needed inventory management system that can track the
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entire process of production and check the availability of goods in the warehouses. Because of
inventory management, system that company will be able to maintain proper supply and demand
of goods.
Process costing- process costing is the accounting technique, which tracks the cost of
production at each stage of production. In this when raw material goes in production process then
process costing starts and it calculates the cost at each stage till the last stage of production. This
is helpful in calculating total cost of production. ABC Company can use process costing by this
company can tack the cost of production of both products at each stage and this will help that
company to assign right price.
Process costing method - Process-costing method is an accounting method of tracking
cost of product at each stage of production. In this method when raw material goes in production
this method, starts to calculate cost and it calculate cost till product is made. Basic system of this
method is that it calculates the cost at each stage or process of production.
Price optimizing system- price optimizing system is the system, which assigns the right
price of products and services. It assigns the price at that level at which customers feel satisfy to
pay that price and business also get profit. Right price assigning is very important because if
price is too high than customers will not buy that company's product and if price is too low then
business will suffer loss (Schaltegger and Csutora, 2012). Company should assigns cost
according to the demand of customers. Company has the business of providing cars on rental for
tourists. ABC Ltd may raise the rental price in the summer time because there would be high
demand of cars by customers and customers will be happy to pay on that time so right price
optimizing is necessary because if ABC Ltd company raise their prices in off season then it
would be lose for company.
Job costing system- job costing system is a system in which accountant or product
manager tracks the cost of all manufacturing jobs rather than each process. This system is very
different from the process costing. In this cost of each job is recorded. In other words, job costing
system is a system which focus on cost of each job assigned regarding to a particular production
process. There is company ABC Ltd and there is 100 workers and company produces biscuits,
and company wants to assigns cost of product in the end. In this situation, company should
calculate total amount of expenses of 100 workers, and total material expenses, because this
system focus on the calculating cost through job costing system.
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Job costing method- Job costing system is a system in which accountant or product
manager tracks the cost of all manufacturing jobs rather than each process. This system is very
different from the process costing. In this cost of each job is recorded. In other words, job costing
system is a system which focus on cost of each job assigned regarding to a particular production
process.
Methods for management accounting reporting
Account receivable report- This report determines the payments owned by the company
from the customer who are accountable for the order of goods and services to business. When the
client does not make payment for any purchase made by him in that case the company issue
invoices with a specified delivery date. Companies should review these reports from time to time
to avoid losses. ABC manufacturing limited prepares this report to keep a record of invoices
issued to companies who bought materials and equipment from it or any other purchase made by
them.
Performance report- This report helps to evaluate the company's performance by
estimating the sales and growth made by the company (Ward, 2012). ABC limited creates this
reports to analyse the budget set on certain projects and the additional cost incurred on it. Based
on this information decisions regarding whether to make more investments, increase production
or control of excessive finance is taken. Comparisons are also made with the previous sales and
profits made by the company. Performance of different departments, how much they are
contributing towards growth can be estimated.
Job cost report- This type of report is prepared to analyse the cost incurred while
performing an activity. It helps to identify the cost incurred due to occurrence of fault. For e.g. if
machine stops working it's impacts will be increase maintenance cost loss of production due to
this. ABC limited establish this to find working hours, labour rate, equipment list, duration of
job. This helps in lowering cost and solution of problems.
Inventory report- Information related to stocks can be obtained in this report
(Wickramasinghe and Alawattage, 2012). Listing of every items in stock and the locations of
their storage remain recorded along with the respective prices and arranged alphabetically. ABC
limited studies the need for further stocks and items, which become obsolete are removed. The
status of inventory can be determined with the help of this report.
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The benefits of management accounting system and their application with in an organisational
context
Inventory management system
 Manage balance between demand and supply because it tracks that what is the quantity
of goods in warehouses.
 It helps in efficiency and productivity because this system helps in provide information
regarding to the goods availability situation.
Process costing benefits
 This system is easy to use.
 Process costing system is a flexible system it can be change according to business need.
Price optimizing benefits
 It helps in assigning right price of product and services.
 It helps in efficient allocation of resources.
Job costing system benefits
 It helps in accessibility because it provides access to calculate overall expenses of each
jobs.
 Job costing system is an accurate system of costing , it helps in calculating accurate cost
of production.
Assessment of integration between management accounting system and management accounting
reporting
It is executed that preparing management reports and maintaining the records are the
essential requirements of accountants (Windolph and Moeller, 2012). Both the accounting
system and management reporting methods remain integrated subject to make proper decision
making and strategic planning process. As ABC Ltd is manufacturing organisation and
accountants are required to keep all the management reports in proper manner so that decision
making process.
TASK 2
Calculation of profit by applying marginal and absorption costing
Absorption costing- Absorption costing is the method of calculating overall cost of a
product. It includes all the cost, which occurs in production. It is of three types: job order
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costing, activity based costing, process costing. Absorption cost method covers total
manufacturing cost including labour cost, raw material cost etc.
Absorption costing
Production Cost
Manufacturing cost Direct Material
Direct Labour
Variable Production Overhead
Fixed Production Overhead
+
+
+
+
Work in progress stock +
Finished stock +
Period Cost Variable Sales and Administrative
Fixed Sales and Administrative
+
+
Total cost --
Cost of sales:
BUDGETED COST OF SALES :
SEP 2018 Amount (£)
Cost of production w1 720000
Opening Inventory 0
Closing inventory -80000
Cost of sales 640000
Variable costing- Variable costing is also known by direct cost. Variable costing is the
method of calculating cost of an extra unit of product produced. This costing method covers all
the variable manufacturing cost, which occurs in production. One basic concept of this costing
method is that variable cost increase in proportion to production or output increase.
Production Cost
Manufacturing cost Material
Labour
Variable Production Overhead
+
+
+
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Work in progress +
Finished stock +
Period Cost Fixed Production Overhead
Variable Sales and Administrative
Fixed Sales and Administrative
+
+
+
Total cost --
2. Calculation of Budgeted profit
Budgeted profit by using absorption-costing methods:
Absorption costing: actual profit or loss statement
SEP 2018
PER
UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
DM 10 190000
DL 20 380000
VOH 5 95000
FOH 5 95000
40 760000
Opening inventory 0
Closing inventory -120000
Cost of sales 40 -640000
Standard profit 10 160000
Adj. For under absorption -5000
Budgeted profit 155000
Budgeted profit or loss statement by marginal costing Sep 2018
PER UNIT TOTAL
£ ££ £
Sales 50 800000
Cost of production
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DM 10 180000
DL 20 360000
VOH 5 90000
FOH 35 630000
Opening inventory 0
Closing inventory -70000
Cost of sales 35 560000
Contribution 15 240000
FOH production -100000
Budgeted profit 140000
3. Calculation of actual profit
Actual cost by using absorption-costing
methods:
PER UNIT TOTAL
£ £ £ £
Sales 50 800000
Cost of production
DM 10
19000
0
DL 20
38000
0
VOH 5 95000
FOH 5 95000
40
76000
0
Opening inventory 0
Closing inventory
-
12000
0
Cost of sales 40
-
640000
Standard profit 10 160000
Adj. For under absorption -5000
Actual profit
15500
0
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Actual cost by using Marginal-costing
methods:
Marginal costing: Actual profit or loss
statement Sep 2018
PER UNIT TOTAL
£ ££ £
Sales 50 800000
Cost of production
DM 10 190000
DL 20 380000
VOH 5 95000
Total variable cost 35 665000
Opening inventory 0
Closing inventory -105000
Cost of sales 35 560000
Contribution 15 240000
FOH production -100000
Actual profit 140000
Difference among budgeted and actual absorption
cost:
PARTICULAR
BUDGE
T ACTUAL
£ £
FOH charged to production cost 90000 95000
Under FOH charged to profit or loss account 10000 5000
FOH charged in the month 100000 100000
FOH transferred through closing inventory to next month
OCT 2018 10000 15000
FOH charged 90000 85000
TASK 3
Advantages and disadvantage of various type of planning tools used in budgetary control
Budget
Budget is estimation of income and expenses for future time. It is also called financial
plan (Zainun Tuanmat and Smith, 2011). Generally, budget is made for one year. Budget can be
made for a person, for organization and a country also make budget for a particular year.
Rolling Budget
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When a new accounting period is added to the existing budget after completion of the
earlier accounting period is called rolling budget. It does not have a static budget of 12 months, it
moves forward as the accounting period is completed.
Types of budget-
Static budget - Static budget is also known by fixed budget (Van der Stede, 2015). This
budget is made according to company's previous year's income and expenses and this budget
remains constant. Once this budget is made company will follow this.
Advantages
 This budget does not need to update.
 Company try to follow this budget and they try to generate that revenue which is written
in budget.
Disadvantages
 This budget is more costly.
 Statistical information remain complex subject to decision making.
Flexible budget – flexible budget is also known by variable budget. It is the budget
which can be change according to organization's needs (Zoni, Dossi and Morelli, 2012). This
budget is made for different level of activities.
Advantages
 Flexible budget helps in making accurate budgeting because it is made for different level
of activities.
 This budget is helpful in making coordination among various activities.
Disadvantages
 Flexible budget do not provide actual performance of different activities.
 Flexible budget is helpful in reducing cost but do not control incremental cost.
Link budget - It is the budget which shows the all the profits and losses to the receiver
in a telecommunication system through a medium like cable , free space, wave guide and fibre
etc.
Kaizen budget- kaizen budget is the budget whose objective is to reduce actual cost of
production below estimated cost. And focus on continuously progress.
Advantages
 This budget is helpful in reduction cost of production.
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 It is a continue process of progressing.
Disadvantage
 Chances of errors remain equal in this budget.
 Objective perspective the budget remain constant for smooth decision-making.
Zero budget- zero budget is the budget, which is not remain associated on the previous
data and activities, this budget starts from zero and each activity is justified before including in
official budget (Lavia López and Hiebl, 2014). For instance A company is spending $ 10000
each year on the rent of a warehouse, while making zero budget all the data of previous activities
will be ignored and all the activities of ware house will be reviewed, justified and justified before
adding any amount in the zero budget regarding to the ware house activities.
Advantages
 It is situational, this budget does not allow budgeting maker to follow any past activities.
It focus on current activities.
 It is very detailed in a budget all the activities are re viewed and re checked before adding
their amount in budget.
Disadvantage
 This budget is centred it focus on those activities which are profitable.,
 It requires high comprehensive skills to make Zero based budget.
Assessment of planning tools to respond properly in terms of financial problems
It is evaluated, that it is for the most part related with the budgetary issues those are resolve
through utilizing successful utilization of money related instruments. It can prompt economical
achievement on the off chance that they used to make utilization of right apparatuses to
determine their money related issues. If there should arise an occurrence of all the previously
mentioned arranging instruments, for example, determining are significant for assessing the
evaluated dangers that can affect the general execution of amid the timeframe.
TASK 4
Comparison between organisation subject to adapting management accounting system to reduce
financial problems
Financial challenges and problems are part of life and it is observed that organisations
apply different traits to analyse financial problems (DRURY, 2013). Accountants of ABC Ltd
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can be use different management accounting system to overcome financial problems and
challenges. There is two organisations are compared on the basis of implementing the
management accounting systems to overcome financial problems.
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APPLE IBM
Financial issue- apple company is facing the
problem of making right management between
supply and demand of products that 's why
company is getting loss continuously. And also
there is problem of checking goods availability
in stores. Because of this apple 's ordering cost
is also getting high.
Financial issue- IBM company is facing the
problem of deciding right price of their
products. IBM is selling its software on
unequal price to customers, that is company's
selling is getting down and company getting
loss.
Solution- After looking in the case of apple
company there is solution that company should
try “Inventory management” . Because it is the
system which tracks the goods availability and
gives order to produce according to the need of
product by customers. This system is also
helpful in analyse that what is the main reason
of higher ordering cost. So implementation of “
Inventory management” is the right solution
for apple company.
Solution- In the case of IBM company there is
a problem of right price assigning. To
overcome this problem IBM should implement
“ Price optimisation system” because it is the
system which helps in assigning right price of
product. In the case of IBM there is problem of
high price and low profit. After
implementation of “ Price optimisation
system” IBM will be able to assign right price
of their software's. And because of this IBM's
selling will increase and their profit also.
National Health Services Al-Khair Foundation (AKF)
Financial Problems: National Health Services
is facing the problem of the funds which are
received by the trusts the problem which is
discovered is that the company is unable to
manage its resources efficiently resulting in the
improper treatment given to the patients.
Financial Problems: The problem faced by the
Al-Khair Foundation was the management of
the funds and keeping track of it. With this
problem the financial pressure faced by the
foundation was to raise fund and mange their
funds.
Solution: After the analysis of the problem
which is faced by the NHS the solution is to
implement the Service Line Reporting (SLR)
Solution: To overcome this problem the Al-
Khair foundation adopted the new ERP
software known as Acumatica Cloud ERP for
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and Patient Level Costing (PLC) these two
management system helped the NHS to keep
record of the patient and all the expenses
related to the daily care was allocated to the
patient directly and SLR system helped in
reporting the patients so that they get the care
as soon as possible.
its Finance management and NGO project
Governance. This software helped them to
keep track of their funds and also manage
them. After adopting this software Al-Khair
foundation has overcome the barrier of
managing their funds and concentrated on their
work of public welfare and development.
Six methods of investment appraisal
1. Accounting rate of return: the return which is expected from the assets or any investment
while it is compared to the initial investment cost is known as the Accounting Rate of
Return. It divides the annual income from the asset by its initial cost of investment.
2. Payback Period: The time which is required by the company to recover the cost of an
investment is know as the payback period. Time value of money is usually ignored in the
payback period.
3. Net Present Value: the difference between the prevent value of cash outflows and the
present value of cash inflows over the period of time is know as the Net Present Value.
To analyse the profitability of any project NPV is used.
4. Internal Rate of Return: The metric which is used to estimate the profitability of the
potentiality investment during capital budgeting is know as the internal rate of return
5. Discounted Payback Period: a capital budgeting procedure which is used in determining
the profitability of any project is called the discounted payback period.
6. Profitability Index: The ratio which is used to identify the relationship between the
benefits and the cost related to the project is called profitability index.
Effectiveness of management accounting system to overcome financial problems for sustainable
success
It has been seen that administration bookkeeping can be progressively helpful to inspect explicit
key variable in a given timeframe. The key factors would acquire monetary issues case it isn't
bargain on right purpose of time (Boyns and Edwards, 2013). Affectability examination is the
particular procedures that can be utilized as free factors an incentive in which every one of the
effects are seen on ward variable according to the given suspicions. Recreation strategies can be
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utilized to break down the capital spending hazard. It is done to decide likelihood portfolio in
connection of standard of getting significant favorable position amid the timeframe.
CONCLUSION
From the above project report, it is explained that administration bookkeeping is increasingly
essential angles for an association. It tends to be help supervisor to record their exchange with
the help of utilizing right framework. In this procedure, money related chief need to utilize
distinctive sorts of bookkeeping framework and announcing. Benefits and negative mark of
utilizing arranging devices can be utilized to control the monetary allowance to achieve their
general points of the organization. Further, this can finish explicit costing strategy to analyse all
out net increase. It has been looking at that specific issues those are emerges inside an
association are connected with the monetary are resolve through utilizing the executives
bookkeeping framework.
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