Analysis of Management Accounting Systems

The project assignment involves analyzing the management accounting systems used by Tech UK, focusing on their financial performance. It highlights the importance of accounting and reporting methods in achieving maximum returns and provides a summary of the key points discussed.

Management Accounting

CONTENTS
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(a): Definition of management and their essential requirement.............................................1
(i): Comparison.......................................................................................................................2
(ii) Importance of management accounting information........................................................2
(iii): Cost accounting system..................................................................................................2
(iv): Inventory management system.......................................................................................3
(V): Job costing system..........................................................................................................3
(b): (i); Various method of accounting reporting...................................................................4
(ii): Importance of using reporting methods...........................................................................5
M1: Benefits of using management accounting system.........................................................5
D1: Critical analysis of various reporting system..................................................................5
TASK 2............................................................................................................................................6
(A): Different types of costing methods.................................................................................6
M2: Analysing accounting techniques.................................................................................11
D2: Data interpretation of calculated outcomes from income statements............................11
TASK 3..........................................................................................................................................11
(i): Types of budget..............................................................................................................11
M3: Analysis of planning tools............................................................................................13
D3: Critical analysis of financial issues...............................................................................13
TASK 4..........................................................................................................................................14
(i): Balance scorecard approach...........................................................................................14
M4: Analysing financial issues............................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
In present scenario management is always planning to make use of appropriate
accounting techniques which will lead to increase better outcomes in coming period of time. It
seems to be one of the crucial role of managers to make use of reliable resources that are
sufficient enough to attain maximum profit for the company (Hilton and Platt, 2013) .According
to the mentioned case of Tech UK it has been analyse the company is planning to analyse their
financial statements because they are not able to earn valuable amount of revenues in last few
years. For this purpose they have appointed a new accountant for auditing of their financial
statements. This project an aim is to evaluated accounting and reporting methods in effective
manner so that every transaction can be recorded effectively. Apart from this, different types of
costing methods are being used to calculate net profit for the company. However, use of various
types of budgets can lead to manage their future costs and expense. Evaluation of various
management accounting techniques those are use for the purpose of resolving financial issues
those are arises in an organisation.
TASK 1
(a): Definition of management and their essential requirement
In accordance with increase overall goodwill of Tech (UK) Limited in front of other
companies they need to grab new opportunities by using appropriate accounting systems. This
will be consider more effective in recording all financial and non-financial transactions those are
done within an accounting period of time. The manager always looks to make use of reliable
systems which will be essential enough to increase overall productivity and growth for the
company (Parker, 2012). Management accounting is known as one of the essential process of
collecting, recording, summarising and evaluating all data in more vital manner in the set period.
Managers are uses the provision of all information in respect to make better inform themselves
before they decide all essential matters within their organisation. These effective provisions
assist financial data and make advice to every company for using in the organisation and
evaluation data that are made by company in last year. The process of formulating management
accounting report and account that used to provide reliable and accurate financial and statistical
results for the company. One more effective point is taken into account that financial and
management accounting is having some kind of differences those are mentioned below:
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(i): Comparison
Management accounting Financial accounting
It used to provide data to people within every
organisation to make further decision for future
planning.
This accounting is basically is mainly for those
external parties those are associated with the
business. Such as investors.
Management accounting cannot need any kind
of rules and regulation because they always
formulate them.
While financial accounting is entirely based on
rules and policies those are used for the
purpose of recording financial transactions.
It can be related with specific product and cost
related aspects those are based on the
increasing profitability for the company.
It used to contain entire organisation
performances on the basis of their financial
statements.
(ii) Importance of management accounting information
There are various crucial benefits of using management accounting information that are
collected within an accounting of time from the managers. They uses this to be presented in front
of various stakeholders that are vital parties for making future decision making in their valuable
projects ( Renz and Herman 2016 ). Some of them are
 Increase profitability: The primary motive of using accounting information to enhance
maximum profit by selling more products that are produced by Tech UK during the
period of time.
 Forecast for future: Another important aspect of using management accounting
information is to take crucial decisions that are entirely based on future productivity of
the company. Every investment that is made by the company is considered more reliable
in coming period of time.
(iii): Cost accounting system
It is known as one of the effective design which is being used by the company to determine
their overall costs that are done within an accounting period of time. These are cost are used to
analyse products ability and inventory valuation and controlling measure that are effecting
operational effectiveness up to an extent (Soin and Collier, 2013). It is related with various types
of cost those are incurred during production of various product and services for the company.
Some of them are mentioned below:
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 Actual costing: These are said to be that cost which are actually incurred by Tech UK
while production process. It is mostly related with direct material and direct overhead.
 Standard costing: It is mostly used by an organisation to make analysis of actual cost
that is paid by the company are relatively different from one another.
 Normal costing: It is basically that cost which is being incurred normally on direct cost
of production such as direct material, labour and overhead costs.
(iv): Inventory management system
This seems to be ongoing procedure for moving parts and products into and out of a
company premises. Tech UK used to manage their entire stock on regular basis as they are
placed for new one or before shipping orders to various customers. This seems to be more
relatively associated with tracking stock levels, orders and sales and deliveries during the period
of time. There are various techniques that are related with controlling various stock of the
company. Some of them are discussed underneath:
 FIFO: It is known as first in, first out which means that the long time stock items are
recorded as sell firstly but do not important to detect exact oldest objects that has been
tracked and sold by the company ( Christ and Burritt, 2013).
 LIFO: According to this, cost flow valuation that can be determine by various companies
in moving their production cost from stock to the cost of product sold during the time.
 AVCO: This seems to be utmost valuable costing methods that are based on average cost
of stock during an accounting period of time. It is used to calculate the cost of closing
stocks and cost of goods sold for given period on the basis of weighted average cost per
unit of products produced.
(V): Job costing system
Job order costing is basically reliable for assigning production costs to a single products or
group of products that are produced within an accounting time. Basically, the job costing is
consider only those situation the product manufactured are relatively separate from one another.
There are various types of job costing which are incurred within an organisation during
generating sufficient amount of goods to the company. Some of them are:
 Batch costing: According to this cost an organisation is liable to make analysis of
products that are produces in batches in a given period. Each batch has been allotted a
number that is relatively different from another.
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 Process costing: As per this method company used to assign cost to units of
manufacturing in Tech UK producing large amount of products for an organisation. Such
kind of cost is mostly used to ascertain costs of a product at every phase of production
(Figge and Hahn, 2013).
(b): (i); Various method of accounting reporting
In current era, management is trying to make use of various effective reporting methods
that are effectively responsible for increasing profitability of the company. Every reports are
having certain benefits those are vital for the owner to plan their future projects in more effective
manner. Reporting used to provide enterprises certain information about financial position of the
company on the basis of their financial statements that are prepared by managers in last year’s.
These reports are considered more reliable for making future decision in more reliable manner.
There are various sources from which financial information can be gathered by accountant and to
be presented to various investors and stakeholder for the purpose of making business strategies in
near future time. There are various types of reporting methods which will be valuable for
planning, organising and coordinating resources of the company. Some of them are mentioned
underneath:
Performance report: This happens to be more crucial activities which are used in project
planning process. It consists of collecting necessary information from project progress,
utilisation of resources and estimation of future growth of the company (Wickramasinghe and
Alawattage, 2012 ). This can be more valuable in case all the data collected by the accountant are
accurately provided to the company. It can be related with past performance and profit they are
incurred from the selling of products. Such kind of report is more helpful for the administration
to success of a project and budget related matters.
Inventory management reports: According to this particular report which will be prepared by
the accountant for the purpose of analysing current stock position of the company. All the
opening and closing information of inventory are recorded in this report. This will assist an
organisation to increase their internal capacity by use resources at the time of production of
products and services with the accounting time frame. These are various inventory valuation
techniques which are effective useful for the company such as economic order quantity level,
inventory turnover ratio of an organisation.
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Account receivable report: As per this report, manager can easily be able to analyse their total
list of customer invoices that are remain unpaid from very longer period. The major aims of an
organisation to make use of specific data and time to get recover that outstanding amount from
debtors. All the detail information can be attain in effective manner by using most valuable
aspects for the company.
Job cost report: As per this particular costing report a company can be able to analyse their
overall cost they are paying to produce an individual job. This seems to be more suitable report
for the investors in order to make valuable decision in coming period of time. This can be
implemented by using necessary information from various departments that are operating at
internal and external level of the company (Schäffer, 2013).
(ii): Importance of using reporting methods
There are various crucial reporting approaches that are use by the company in order to
make reporting of all information those are collected within an organisation. They are
considering for using data in accordance with attaining more reliable outcomes in coming period
of time. Every reporting is vital for the investors as they are showing overall financial position of
Tech UK and by analysing those statements they use to make decision to invest capital into their
business.
M1: Benefits of using management accounting system
It has been seen that every accounting systems is consider valuable aspects for Tech UK
company. These accounting leads to make effective decision for increase profitability position in
respect to other organisation. All the above discussed systems are taken as beneficial for the
company such as cost accounting is used to analyse total cost invested in a product production.
While inventory management system is more vital for analyse total stock kept by the company
with them.
D1: Critical analysis of various reporting system
According to the all above mentioned reporting systems, managers can easily be able to
present all necessary aspects of their business in overall planning of business operations. Such as
performance report are consider more crucial report that provide information about last and
current year position of the company (Hansen, 2011). While account receivable report is taken in
account for analyse total time period for retaining their outstanding amounts from the debtors.
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There are some other reporting methods those are equally effective for an organisation to make
valuable decision in coming period of future.
TASK 2
(A): Different types of costing methods
Cost is one of the essential components of the company. It is directly or indirectly related
with the production of products and services. All direct material, labour and overhead costs are
taken into account while calculating cost for TECH (UK) Limited. In case of small and wide
organisation, cost is more concern factors for them to plan their production ability in coming
time. Cost is necessary aspect of every manufacturing making companies that are associated with
development of effective goods and services for the company in the allotted period. It is said to
value of money that is being paid for getting something in return. This seems to be considering in
financial valuation of efforts, quality and risks that are associated with production process.
Costing process is predication of total cost which is associated with a product of building up of
new venture. It consists of all those variable costs those are known to be variables as compare to
their costs (Chan, Wang and Raffoni, 2014). There are various types of costs which are related
with production planning. Some of them are discussed underneath:
Absorption costing: It is known as one of the reliable costing method which is associated
with production of products and services. It included both variable and fixed costs that are
incurred in producing one unit or more than one. Because of this effective nature, it is said to be
full costing method. Instead of all this crucial aspects, it is not so effective costing for making
future decision making for the company. It is a valuable technique which is used for analysing
total cost of goods through taking necessary steps of indirect cost as well as other cost.
Marginal costing: This refers to be more reliable costing method that is use by the
company for producing one additional unit during the manufacturing process. It consists of only
variable cost and fixed costs get absorbed while calculating contribution per unit. Instead of all
matters this is consider more reliable for future decision making. Such kinds of cost are charges
as per their higher unit cost generated from the margin.
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M2: Analysing accounting techniques
In accordance with attaining more reliable outcomes in coming period of time the manager
uses to use various accounting tools and techniques. It has been determine that Tech UK
Company can easily attain sufficient amount of return in case they are using reliable techniques
in their business operations (Lavia López and Hiebl, 2014). There are various accounting
techniques such as standard costing tool which is used by the company in order to analyse their
actual aspects those are incurred within an accounting period. While historical cost techniques
are also effective in case of future forecasting. Likewise, marginal costing is more effective in
evaluating net profitability for Tech UK in order to attain competitive advantage from other.
D2: Data interpretation of calculated outcomes from income statements
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
According to the net incomes generated by Tech UK by using various costing method it
has been found that the results are quite fluctuating during the time. In case they are using
marginal costing they are able to generate sufficient amount of profit with 2125 pounds. The
major difference is results are showing from the treatment of fixed costs that are use for
calculating contribution per units during the time. The major point of decision is being use by
using marginal costing so it is consider more vital for effective decision making for the investors.
TASK 3
(i): Types of budget
Budget are consider more effective tools for the company which consist of cost and
expenses detail that Tech UK limited is using in coming period of time. It is known as overall
estimation of costs that are incurred by company while production of products and services is
forecasted more prior to the company. There are various effective budgets that prepared by the
company are discussed underneath:
Operational budget: It is one of the crucial budgets that are being prepared by managers
to determine their expenses a company is going to invest during production of products. It is
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more reliable for controlling all those expense those are incurred within an accounting time that
is monthly or weakly records can be done more effectively.
Advantage: This seems to be crucial budget for the department to attain better outcomes in
coming time. It can be more reliable in future planning process.
Disadvantage: The major limitation of this budget is that it can be more time consuming
something as all reports are needed to be analysing for decision making.
Capital budget: It is known as one of the crucial planning which is being used to determine,
whether an organisation can attain their long term investments by using plants, machinery and
other crucial tools. It is used to record all business potential expenses that are applicable for large
number of organisation.
 Advantage: It assists an organisation to informed decision regarding an investment
decision taking into account for reliable investment decision in coming period of time.
 Disadvantage: Capital budget is still remaining appropriate factors as overall risk factors
and other discounting factors those are crucial for effective decision making.
Cash budget: It is one of the major budgets a company used to formulate within an accounting
period of time. This seems to be prepared by using all essential cash inflows and outflows that
are done by the company from various activities are recorded into this budget.
 Advantage: It is using more cash budgeting tools which is determine, whether cash
balances would remain sufficient to fulfil ongoing obligations and reduce liquidity
position of the company .
 Disadvantage: Most of the business incorporate cash budget in its entire budgeting
process. In case of the recovery time get completed during the time. Management can be
able to make plan for their unauthorised matters.
Process of budget preparation:
 In the opening stage of budget preparation, a financial manager uses to develop an
effective worksheet that can assist department with overall estimation of capital.
 In the next phase, department used to asked for meeting of managers and other important
authority to make necessary discussion on budget preparation.
 Appointing innovative and skilled managers to work with financial requirement that are
required during development of budget.
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 The entire budget is transfer to upper level for taking other necessary approval of higher
department.
 Reviews and correction of any essential requirements that are related with the budget if
any.
Pricing method:
There are various pricing methods which are used by an organisation in setting price for
their products and services those are delivery by the company to their customers. Some of them
are:
Cost plus pricing: It is said to be one of the crucial pricing methods which is associated
with the motive to get more reliable benefits in coming period and to attain final value for the
company.
Demand based pricing: Under this method, a product selected as per the need of
customer so that their demands can be satisfied from all those products those are produced by the
company during the time (Demand-based Pricing. 2018).
Costing methods: There are various types of costing methods that are crucial for the
company in order to attain more effective outcomes in coming time period. Some of them are
variable costs that can changes as per the demand or changes in prices. While fixed costs are said
to be effective method that assist an organisation to pay certain amount during production
process.
M3: Analysis of planning tools
There are various planning tools which are effectively responsible for controlling budgets
for the company. Before making any crucial decision managers need to make use of tools in right
ways so that better outcomes can be attain in near future time. Such as forecasting tool is used to
estimate overall cost and expenses a company is going too incurred in future. While contingency
tools are more reliable as they are used to control and detect risks that are happens in an
organisation. All of them are vital for attain better results in coming period of time.
D3: Critical analysis of financial issues
In every business organisation there are certain issues those are affecting the overall
profitability position of the company. In order to resolve them the company need to make use of
appropriate method which will be sufficient enough to deal with all kind of issues those are
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arises in an organisation. Balance scorecard in more correct option for the company to deal with
all problems that are affecting the productivity and services quality of Tech UK.
TASK 4
(i): Balance scorecard approach
As it has been seen that Tech UK Company is analysing their financial performance by
using financial statements of the company. They are recorded certain amount of loss during the
year which will lead them to make effective decision regarding appointing a new accountant. It
can be highly skilled and qualified person that can detect all kind of issues that are affecting the
financial performance of the company. After making all analysis, it has been found that they
need to make use of balance scorecard approach to deal with all this problems. As balance
scorecard is consider more effective tools that is based on resolving various issues those are
related with the company overall growth and sustainability. There are certain perspectives which
will be needed to be taken into account. Some of them are discussed underneath:
Financial perspective: It is consider more effective perspective of balance scorecard and use all
financial resources that are use by the company in production process are analyse properly.
Customer and stakeholder: As per this perspective certain customer aspect and view points are
related with the department are taken into account.
Internal business process: It is associated with overall efficiency of those entire product and
services are product by the company during the time.
Organisation capacity: It is related with human capital, technology and other resource that are
related with performance of the company.
M4: Analysing financial issues
It is necessary for the company to detect all those financial issues those are affecting the
growth and profitability position. It can be directly affecting the efficiency level and stability at
the same period of time. There are various key financial tools which can used to resolve
problems like product and service level and productivity position. Such as key performance
indicator, benchmarking and financial governance are some useful tools that are use for resolve
financial issues.
CONCLUSION
This project assignment is all about analysing management accounting systems those are use
by the company Tech UK evaluate the financial performance. It has been concluded that
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accounting and reporting method are more vital aspect those are helpful in attaining maximum
return in coming time. While by the help of costing method company can easily be able to
analyse total net profit for the company. All reports are showing positive responses in coming
future period.
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REFERENCES
Books and Journals:
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Renz, D.O. and Herman, R.D. eds., 2016. The Jossey-Bass handbook of nonprofit leadership and
management. John Wiley & Sons.
Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the significance of
contingent variables for adoption. Journal of Cleaner Production. 41. pp.163-173.
Figge, F. and Hahn, T., 2013. Value drivers of corporate eco-efficiency: Management accounting
information for the efficient use of environmental resources. Management Accounting
Research. 24(4). pp.387-400.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
Schäffer, U., 2013. Management accounting research in Germany: From splendid isolation to
being part of the international community. Journal of Management Control. 23(4).
pp.291-309.
Hansen, A., 2011. Relating performative and ostensive management accounting research:
reflections on case study methodology. Qualitative Research in Accounting &
Management. 8(2). pp.108-138.
Chan, H.K., Wang, X. and Raffoni, A., 2014. An integrated approach for green design: Life-
cycle, fuzzy AHP and environmental management accounting. The British Accounting
Review. 46(4). pp.344-360.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
Online
Demand-based Pricing. 2018.[Online] Avaliable through: <
http://www.economicsdiscussion.net/price/4-types-of-pricing-methods-explained/
3841>.
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