Impact of JIT and Balance Scorecard on Financial Activities

The assignment discusses the application of JIT and Balance Scorecard methods in reducing financial problems within Tech, a firm with a financial loss of £1.5m. The analysis aims to help the firm reduce wastage and increase financial activities such as capital and cash. Various references from books and journals are provided to support the discussion.

MANAGEMENT
ACCOUNTING REPORT
FOR TECH

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Management accounting and essential requirements.............................................................1
P2 Various types of managerial accounting reports to present financial reports........................3
TASK 2............................................................................................................................................4
P3 Income statement using absorption and marginal costing method for Tech.........................4
TASK 3............................................................................................................................................5
P4 Budget for planning and controlling purpose........................................................................5
TASK 4............................................................................................................................................8
P5 Balance scorecard approach to face the financial problems within Tech..............................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting and budget management will help organisation to manage and
control their cost and resources to respond financial problems in the firm. The report will cover
the management accounting and essential requirements. Income statement of Tech using
marginal and absorption costing method is also assessed with managing the budget in this report.
The balance scorecard approach to respond the financial problems within Tech will be discussed
in this report.
P1 Management accounting and essential requirements
MANAGEMENT ACCOUNTING
It is also known as cost and managerial accounting. Management accounting is useful to
make internal financial reports, accounting and decision making by analysing the costs of
business operations. This will also help management accountants at Tech to prepare costing and
financial data and translate it into useful information. This will help to control and achieve the
better planning for business activities (Armstrong, 2014). It also enhance the value of customers
and shareholders and help managers to use the resources effectively.
Importance of management accounting information for department managers as a decision
making tool: Management accounting information is crucial for managers in order to improve
their decision making for long terms with data driven inputs. For an example, Cost techniques
based on activity, information utilisation and relevant cost analysis etc.
 Identify the performance metrics for managers in Tech.
 Collect information and data to report the current performance of Tech to manager as
compared to the expectation.
 Evaluate the deviation reasons and suggest appropriate measure.
Distinguishing financial accounting from management accounting
BASIS MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
DEFINITION A process which help manager by
providing essential information for
making plans, policies and
strategies.
It prepares financial statements Of
Tech to provide financial information
effectively.
INFORMATION Monetary and Non-monetary Monetary information only.
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information.
TIME FRAME Reports are prepared according to
the needs.
Financial statements are prepared at
the end of year in accounting period
of time.
REPORT Complete and detailed information
for the reports.
Prepare summary report including
financial information at Tech.
Cost accounting system (actual, normal and standard costing): Cost accounting system will
help managers in Tech to evaluate the cost of services and products offered by them. The cost
data will help managers to control and manage the business resources with the help of plans and
strategies for future needs as well. Normal costing, actual costing, direct labour cost and
manufacturing overhead cost are related to the product cost which is used in cost of goods sold.
 It will help manager to determine the actual selling cost of a product and service.
 Manager can determine the profitability and able to meet the competition.
 Identify the product and services cost which helps to manage the resources and decisions
accordingly.
Inventory management system: Inventory is includes the stock of products and resources such
as finished goods, raw materials and work in progress (Chandra, Menon and Mishra, 2016).
Managing the inventory will help manager in Tech to control and manage the resources which
help them to determine the availability, quantity and quality of stock effectively. Inventory cost
also involves cost of storage such as insurance, capital cost, taxes and facilities cost efficiently.
 Inventory management system help managers to protect against shortage of resources and
uncertainties.
 The system will also help to take advantage of economy scale which support the policies,
plans and strategies efficiently.
Job Casting system: Job casting is a process of cost recording and accumulation in which the
manger identify the present work cost to manage and control it easily and effectively. The system
is mostly used by those organisations where the production of product is 'one off' and also
different for a consumer. It is also used for the special demands of a customer towards a product
or service in a short period of time comparatively and effectively.
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 It helps to establish the cost of planning, controlling and decision making of managers.
 The system helps to calculate the product selling cost and also determine the profit and
loss effectively.
P2 Various types of managerial accounting reports to present financial reports
 Job cost report: Job cost reports help managers in Tech to identify the cost of a project
or work. The job costing reports are usually combined with estimate revenues that helps
to determine the profitability from work done by employees. The report also help to
evaluate the cost while the work is in progress effectively and efficiently.
 Inventory management report: Inventory management system which should be
physical is useful for Tech in order to manage and control the different inventory levels.
The different level which should be evaluated and managed by the manager such as,
quality, quantity and stock availability for products and services effectively and
efficiently.
 Operating budget report: The operating budget analysation will help Tech manager to
evaluate the performance of various departments which will help to manage and control
the business operational costs under the budget effectively (Chiwamit, Modell and Yang,
2014). Operating budget is also helpful to provide rewards for the employee for the best
performances.
 Accounts receivable ageing report: These reports will help manager to manage the cash
flow in Tech effectively. It is a critical tool that break downs the consumer balance at the
time thwy owned the organisation. It will also help to overlook the Tech previous debts.
 Performance report: Performance report will help managers to assess the improvement
of product and services in the market. This will also help to analyse the profitability and
production from different departments. It will help manager to increase the overall
performance of employees to enhance the profits effectively.
IMPORTANCE
Management accounting reports are very useful for the Tech manager in order to make
effective and informed decisions for firm operational activities. Reports provide job cost, cost
and budget, performance and inventory management from which manager is able to take
appropriate decisions to increase the production and profitability. Financial and non-financial
information also help manager to manage and control the cost under the budget. Management
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accounting reports are necessary to make effective strategies, plans and policies for the firm in
order to manage the performance of employees and organisation effectively and efficiently.
TASK 2
P3 Income statement using absorption and marginal costing method for Tech
Sales revenue 52500
1500
Labour 7500
Material 12000
Variable production overhead 3000
Fixed production overhead 7500
Sales fixed expenses 10000
Sales variable expenses 7875
Sales revenue 52500
Labour 7500
Material 12000
Variable production overhead 3000
Sales variable expenses 7875
Sum 30375
Net profit 22125
Sales revenue 52500
Labour 7500
Material 12000
Variable production overhead 3000
Sales variable expenses 7875
Sum 30375
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Fixed production overhead 7500
Sales fixed expenses 10000
Net profit 4625
From the above analysis it can be said that marginal costing system shows 22125 net amount of
profit and absorption costing method is generating a net profit amount of 4625 effectively. Thus,
it can be justify that both methods are showing various amount for calculating net profit
efficiently. The absorption costing method is showing high amount of net profit as compared to
marginal costing system that the procedure is little bit different from each other to calculate the
net profit amount. Marginal costing system includes only variable expenses to calculate the
overall cost for Tech effectively (De Baerdemaeker and Bruggeman, 2015). Apart from this,
absorption costing system include both variable and fixed expenses to calculate the product and
service cost effectively and efficiently. The difference showing between them is occurred due to
the various expenses in calculation. In respect to this, it is important to understand the expenses
first that they are divided in three parts such as fixed, variable and semi-variable expenses
effectively. Fixed expenses are those which is fixed for the firm such as employees and managers
salary is the best example of fixed expenses. Variable expenses are those which changes
consistently and effectively such as price of raw materials and machineries are the best example
for variable expenses. Semi-variable expenses are those in which some part of the expense
changed and some remain unchanged or same effectively. In order to calculate the net profit
amount all three expenses should be considered by the firm. Both methods works in different
conditions that it is difficult for the manager to select the best and appropriate method to
calculate the net profit effectively. The fixed expenses in the marginal costing system is not even
directly connected with the3 production of product and services (Gopalakrishnan, Libby,
Samuels and ed.al., 2015). Marginal cost-based method also help to determine the profit amount
which considered only those expenses which contributes in the process of production effectively.
Thus, it can be said that both marginal and absorption costing method are useful for Tech to
maintain the appropriate evaluation of expenses and also to make effective decision which helps
to improve and develop the operational activities effectively and efficiently.
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TASK 3
P4 Budget for planning and controlling purpose
To,
The Director
subject: Budget for planning and controlling purpose Date: 15-02-2018
FINANCIAL BUDGET
Financial budget is a expectation of Tech which refers to improve the cash revenue for
future time periods and also the plan from which it can be spent as a benefit effectively.
 Cash budget: Cash budget help manager of Tech to control the cash in terms of
incoming and outgoing monthly and effectively. Cash budget also help to determine the
availability of cash in the firm to manage the resources efficiently (Warren Jr, Moffitt
and Byrnes, 2015).
 Capital expenditure budget: The capital expenditure budget help firm or manager to
focus on some major assets such as machineries, plant and land which may be useful for
the organisation effectively. This will be acquired from securities and long term bonds.
 Balance sheet budget: Increasing the balance sheet of Tech is called the proper
management of balance sheet and this will be done by meeting all the needs. It helps to
control and manage the budget mesh.
OPERATING BUDGET
 Sales and revenue budget: The budget focus on income which Tech receive from the
operational activities effectively. In respect to this, managers should understand the
financial position of Tech.
 Expense budget: This budget will help manager in Tech to underline the anticipated
expenses in a particular time. Expense budget also help manager to prepare for future
expenses which can be increased in operational activities (Ibanichucka and Aca, 2014).
 Project budget: Project budget is based on difference between expenses and sales
profit. In respect to this, in case the anticipated profits are low than some necessary
actions are required by the manager to increase the sales from which business can
control the expenses.
FIXED AND VARIABLE BUDGET
 Fixed cost: Fixed cost are the expenses which is necessary for the firm to control and
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manage the business activities. For an example, salary of managers and employees is a
fixed expense for Tech effectively.
 Variable cost: The cost of variable expenses is depended on operations and scope of
Tech effectively. Raw materials in production is the best example for variable cost.
ADVANTAGES DISADVANTAGES
Budget help manager to convert plans and
strategies into action.
Lack of employees participation which produce
demotivation in the firm.
Budget preparation also help manager to keep
record of organisational activities and
operations.
Budget can be also a reason for producing
perceptions of unfairness.
Budget improve and develop the employees
communication level in the firm (MacMillan,
2014).
Budget can make competition for politics and
resources effectively.
Budget help manager to justify all the develop
resources and allocation in the business.
Budget reduce the innovation and initiatives at
lower level if used mechanically or rigidly.
Budget help managers to formulate strategies
and plans to manage the cost under the budget
of firm.
Time consuming and reduce flexibility in plans
and developments.
BUDGET PREPARATION
 Obtaining estimates: Obtaining estimates is important for preparing a budget such as
estimate of sales, cost of each department, resource availability and production level etc.
it is the responsibility of manager to provide estimates of future conditions which has an
impact on Tech. Discussion and participation would be informal or formal and the plans
will be reported to the budget department for an approval.
 Coordinating estimates: The budget department formulate different plans and
strategies which is provided by various organisations to find the best and appropriate
between them effectively. This will help manager to get an idea of available resources
(Rahimi and Kozak, 2017).
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 Budget communication: In this stage, budget is communicated between managers and
other members of departments effectively. This will help them to understand the
resources used in budget which helps to provide a approval on it. In addition to this,
Changes and modifications are evaluated by the managers.
 Implementing the budget plan: Finally, the budget is reported to the manager of Tech
which is formulated as an plan or strategy to manage and control the business
operational activities. The budget should be carried by the manager by providing
essential materials, resources, labour and facilities effectively and efficiently.
BUDGET IMPORTANCE
Budget can be defined as a Plan or strategy to control the numerical form for the future
time period. The budget also help organisation to manage its resources and financial activities.
In respect to this, there are four procedure of controlling budget discussed below:
 Manager are able to manage and control the resources coordination (Reddick, Chatfield
and Puron-Cid, 2017).
 It help manager to determine the control system standard effectively.
 Create guidelines about organisation expectation and resources.
 It help managers to evaluate the overall performance of organisation and employees.
Cost-based pricing: The cost-based pricing will help business to calculate the price in which
the products should be offered in the market effectively. There are two form of cost-based
pricing such as full cost pricing and direct cost pricing which will help business to manage the
price of products to increase the profits.
Cost plus pricing: In this stage the business and management evaluate the cost of direct
material, direct labour and overheads which will be add in the product price in order to derive
the product price effectively.
Profit pricing: It is a strategy used by the organisation in order to make money on each sale of
products in the market. In this the manufacturing cost is determined which will be add in profit
percentage.
Transfer price: In this the price divisions of a firm transact with each other such as labour
between departments and trade of suppliers. This will help business to manage the product cost
under the budget and towards increasing the profits.
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TASK 4
P5 Balance scorecard approach to face the financial problems within Tech
The better financial planning, controlling and management will help business to improve
the cash position in the firm and will decrease the waste cost and lower costs. This will help
business to reduce the financial loss of £1.5m. Customer relationship management will also help
to improve the loyalty of customers, revenues from enhance purchasing by customers, reduce the
return of goods which help management to save their money and improve the financial activities.
Reducing wastage, staff turnover, customer anger and slacks will also help to manage the
financial activities. In addition to this, learning and development of staff will improve the
products quality, creativity, innovations and better process which helps to increase an effective
production to enhance the profitability, which will help to reduce the financial expenses and will
help to solve the financial problem of Tech which is in a loss of £1.5m effectively and
efficiently.
Management of Tech must design a realistic BSC and monitor it to achieve better results
and turn around the loss into profit.
BALANCE SCORECARD APPROACH
Balance scorecard is a approach which helps in strategic management to evaluate and
develop the Tech internal functions. The traditional method of balance scorecard evaluate the
initiative with the help of different perspectives such as financial, growth and learning and
process of organisation. The activities are related with collection, Data, targets, objectives and
analysation. It can be concluded that Tech has a financial loss of £1.5 million at the end of year.
Management accounting will help Tech to solve the financial problems and balance scorecard
method is to respond the financial problem effectively (Rieckhof, Bergmann and Guenther,
2015). The perspectives such as learning and growth in which the manager evaluate the
performance and provide training accordingly which will help to increase the growth effectively.
Profitability and margins will reduce the financial problem that Tech should focus on factors
which enhance the profits and production such as employees performance etc. in respect to this
financial objectives should be made by the manger to achieve them which will help to reduce the
financial problems from the firm. Customer perspective and feedbacks are also important to
develop the organisational activities.
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 Determination of vision: Vision of the firm should be placed in the centre of balance
scorecard. The vision is to increase the profitability and revenues from sales to respond
financial problems. The vision also should be clear for employees so that they can also
make contribution for the activities (Smith, 2017).
 Add objectives, perspective and measures: The four perspective, organisation process,
customer, financial and growth and learning should be in a circle of vision. Perspectives
should have their objectives, initiatives, measures and targets to make a solution for
financial problems within Tech.
 Share and communicate: The balance scorecard method will help to demonstrate action,
short term plans and strategies as well as different initiatives and their contribution for
long term strategies and objectives. Sharing and communicating will help manager of
Tech to measure the long and short term conditions and their contribution.
Just-in-Time JIT: The just-in-time is an strategy towards inventory which helps to increase the
efficiency of workers and also decrease the wastage by receiving goods which are useful for the
firm in the production. This will help Tech to reduce the cost of inventory and the method also
requires the producer to forecast the demand appropriately and effectively.
Apart from this, Balance scorecard is a approach which helps in strategic management to
evaluate and develop the Tech internal functions. The traditional method of balance scorecard
evaluate the initiative with the help of different perspectives such as financial, growth and
learning and process of organisation.
CONCLUSION
It can be concluded from the above report that management accounting is very crucial for
Tech in order to measure and evaluate different factors such as cash, inventory and costs for
products and services effectively. It will also help to manage the financial problems in the firm.
Income statement using marginal and absorption costing method will help firm to account net
profit amount. Budget will also help to reduce financial problems and Balance Scorecard method
to reduce financial problems within Tech which has a financial loss of £1.5m effectively. Thus,
the JIT and Balance scorecard approach will help them to reduce the wastage which will increase
the financial activities such as capital and cash.
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REFERENCES
Books and Journals
Armstrong, P., 2014. Limits and possibilities for HRM in an age of management
accountancy. New Perspectives On Human Resource Management op. cit. at, pp.154-166.
Chandra, A., Menon, N.M. and Mishra, B.K., 2016. Budget Adjustments and Spending Patterns:
A Transaction Cycle View. Journal of Information Systems.
Chiwamit, P., Modell, S. and Yang, C.L., 2014. The societal relevance of management
accounting innovations: economic value added and institutional work in the fields of
Chinese and Thai state-owned enterprises. Accounting and Business Research 44(2)
pp.144-180.
De Baerdemaeker, J. and Bruggeman, W., 2015. The impact of participation in strategic planning
on managers’ creation of budgetary slack: The mediating role of autonomous motivation
and affective organisational commitment. Management Accounting Research 29 pp.1-12.
Gopalakrishnan, M., Libby, T., Samuels, J.A. and Swenson, D., 2015. The effect of cost goal
specificity and new product development process on cost reduction
performance. Accounting, Organizations and Society 42 pp.1-11.
Ibanichucka, E.A.L. and Aca, O.K.J., 2014. A critique on cash basis of accounting and budget
implementation in Nigeria. Eur J Acc Auditing Financ Res 2(3) pp.69-83.
MacMillan, D., 2014. Calculating cost savings in utilization management. Clinica Chimica
Acta 427 pp.123-126.
Rahimi, R. and Kozak, M., 2017. Impact of customer relationship management on customer
satisfaction: The case of a budget hotel chain. Journal of Travel & Tourism
Marketing 34(1) pp.40-51.
Reddick, C.G., Chatfield, A.T. and Puron-Cid, G., 2017, June. Online budget transparency
innovation in government: A case study of the US state governments. In Proceedings of
the 18th Annual International Conference on Digital Government Research (pp. 232-241).
ACM.
Rieckhof, R., Bergmann, A. and Guenther, E., 2015. Interrelating material flow cost accounting
with management control systems to introduce resource efficiency into strategy. Journal of
Cleaner Production 108 pp.1262-1278.
Smith, M., 2017. Research methods in accounting. Sage.
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Warren Jr, J.D., Moffitt, K.C. and Byrnes, P., 2015. How Big Data will change
accounting. Accounting Horizons 29(2) pp.397-407.
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