Management Accounting Of Company : Assignment

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
Management accounting system..................................................................................................1
LO2..................................................................................................................................................4
TASK 3............................................................................................................................................7
Advantages and disadvantages of the planning tools used in budgetary control.........................7
Use of different planning tools and their application...................................................................7
TASK 4............................................................................................................................................9
Using management accounting system to solve financial problems...........................................9
Analysis of how management accounting leads the organization to success............................10
Evaluation of planning tools in solving the financial problems................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the managing of the accounts any organization. It involves
recording and interpreting the data relating to company. The management accounting is useful to
all levels in organization which includes lower level to the top management staff in company.
Where management accounting involves the recording of data on the daily basis, management
reporting includes presenting of accounting reports to top management. Management report can
include budget report, job-cost report, account receivable reports and inventory management
report.
The report will include management accounting systems. Also, the various management
accounting techniques which are-margin analysis, constraint analysis, capital budgeting,
inventory valuation and product costing (Shahzadi and et.al., 2018).
Further the report includes the use of planning tools which are widely used in
management accounting and the benefits of using management accounting in the course of
business. Also, the report will study about the ways in which organization can use management
accounting to respond to companies financial problem. Also, the management accounting is used
in organization ABC Ltd. In order to achieve its organization goals.
LO 1
Management accounting system
Management accounting-
Management accounting is the process of analysing and evaluating cost of operating any
business. It relates to maintaining of records, report and accounts of business. In the management
accounting process there is management of the affairs of the company. This management of the
accounts by managers help them to take management as well as financial decisions (Bruno and
Lapsley, 2018). The management accounting involves the collection of data through the daily
recording of data, evaluation of the data and preparing reports on the given data. The
management accounting helps in the accumulation of the relevant data to assist the functions of
the company and achieve its organization goals.
Types of management accounting systems-
The management accounting system have many types which are as follows- Inventory management system- this involves the management of the inventory in the
business through the recording of the inflow and outflow of the raw material and finished
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goods. This helps in the planning of the production of goods by production department
(Hald and Thrane, 2016). Cost Accounting System- it refers to the recording of the cost of production of any
product. The flow of the goods are to evaluated so that there is proper flow of goods in
the company (Nielsen, Mitchell and Nørreklit, 2015). Job Costing System- the job costing relates to the estimation of cost of every job in the
production process to ascertain the actual cost of producing the product (Akkermans and
Van Oorschot, 2018).
 Price optimization system- this relates to the setting of the price at maximum level which
is accepted by the customer and the customer is satisfied (Shahzadi and et.al., 2018).
Also, the price is suitable to company.
Accounting reporting-
The management reporting involves the recording of the data on daily basis by the
operation management, and analysing the recording data (McLean, McGovern and Davie,
2015). After analysing the data is than interpret to the structure is required by the management.
The management usually uses this data in decision making, forming plans and policies. An
owner and manager may request reports on quarterly ,monthly, weekly and daily basis.
Methods used for management accounting reporting-
There are mainly four methods used in the management accounting reporting which are as
follows-11 Budget Report- Budget reports are prepared by mangers to evaluate the cost of incurred
in running of the business and comparing it with the estimated cost (Järvinen, 2016). The
budget reports helps in the determining the cost for the future products to be
manufactured.11 Accounts Receivable ageing reports- the accounts receivable reports shows the cash flow
within the company. With the help of accounts receivables managers can find the
problem in the collection of funds (Bruno and Lapsley, 2018). By the continuous
evaluation of the accounts receivable reports the company can handle its collections
effectively and there can be no overlooking of the debtors.11 Job cost reports- these reports are prepared in relation to a specific projects. This helps in
comparing of the actual cost incurred to estimated cost of that project (Hald and Thrane,
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2016). By evaluation of the project cost the company can acquire control on the expenses
of the projects.11 Inventory and manufacturing- companies having physical inventory can use this
accounting reporting. This makes the manufacturing process more effective. These
reports include items such as inventory wastage, hourly labour cost or per-unit overhead
costs (Nielsen, Mitchell and Nørreklit, 2015). From this manager can check the
performances of the various departments and decide whether to give bonus or direct them
to improve. This helps company in accomplishing manufacturing and inventory goals of
company.
Benefits of management accounting
Management accounting is the major function in company which makes working of
company easy and effective. These are the benefits of management accounting- Planning- through the use of management accounting the management can make plans
by using data and execute the plans by checking it regularly (Akkermans and Van
Oorschot, 2018). Controlling- as the management accounting requires the preparation of reports on timely
basis there can be tight control on the operation of the superior staff by management
(McLean, McGovern and Davie, 2015). Service to customers- good and improved services can be acquired by management to
customers by making the accounting system strong (Shahzadi and et.al., 2018). Organizing – as the management accounting involves the division of work between
various authorities it helps the authorities in knowing the responsibility and acting
accordingly (Järvinen, 2016). Coordinating- it is the process of working together in organization. Thus there is perfect
coordination between production, purchase, finance, personnel and sales department. Improvement of efficiency- by the recording and reporting of data on proper time there is
data availability at any time when needed which increases the functionality of task there
by improving efficiency of organization (Bruno and Lapsley, 2018). Motivating- it helps to maintain high degree of motivation in organization. The report of
operation of company is submitted to management periodically which determines the
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working of employee (Hald and Thrane, 2016). Based on this report management
promotes good working staff which motivates them to work. Communication- through the management accounting there is two way communication
system. The top management plans and delegates work to lower staff. Also, lower staff
prepares reports and submit it to top management (Nielsen, Mitchell and Nørreklit,
2015). This two way communication induces sense of responsibility and also improves
work conditions. Regulation of Business activities- proper planning, organizing, coordination and
motivation can bring systematic regularity in business activities (Akkermans and Van
Oorschot, 2018).
 Maximization of Profit – there is systematic management of work, improved morale of
employee and proper action by management helps in maximising profit of organization
which is good for its progress and achievement of goals (Shahzadi and et.al., 2018).
Thus the reporting and accounting functions in business are important. There is easy flow
of information through reporting and accounting and there can be achievement of goals by
company. This improves responsibility, accountability and present-ability in organization.
LO2
a) Marginal Costing
Budgeted Income Statement
Particulars Amount
Sales (16000 units @ £50 per unit) £800000
Less- Variable Cost @ £35 per unit (£560000)
Contribution £240000
Less- Fixed Cost (£100000)
Profit £140000
Actual Income Statement
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Particulars Amount
Sales (16000 units @ £50 per unit) £800000
Less- Variable Cost @ £35 per unit (£560000)
Less- Closing Stock (3000 units @ £50 per
unit)
(£150000)
Contribution £90000
Less- Fixed Cost (£100000)
Loss £10000
Interpretation: On the basis of above measured income statement on the basis of budgets
and actual costing for the marginal statement. However, in relation with the budgets units of
products the firm has retained gains as net profit of 140000 while as per the actual production
units and closing stock on which firm had losses on the outcomes such as -10000. Moreover, in
this case it can be said that budgeted outcomes were quite favourable to the organisation while
actual represents losses. In this case firm has to control over cost of production which would be
effective for them in retaining gains at the upcoming period.
b) Absorption Costing
Calculation of Absorption Cost
Particulars Price Per Unit
Direct Material £10
Direct Labour £20
Variable Production Overheads £5
Fixed Production Overheads £5
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Total Cost Per Unit £40 per unit
Budgeted Income Statement
Particulars Amount
Sales 16000 units @ £50 per unit £800000
Less- Cost of Goods Sold @ £40 per unit £640000
Gross Profit £160000
Less- Selling & Administrative Expenses -
Operating Income £160000
Actual Income Statement
Particulars Amount
Sales 16000 units @ £50 per unit £800000
Less- Cost of Goods Sold @ £40 per unit (£640000)
Less- Closing Stock (3000 units @ £50 per
unit)
(£150000)
Gross Profit £10000
Less- Selling & Administrative Expenses -
Operating Income £10000
Interpretation: As per the above analyse budgeted as well as actual cost income statement
for absorption costing techniques on which it can be said that there have been use of various
methods and techniques which would be adequate as per mitigating the challenges and
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ascertaining the appropriate gains. Absorption is the technique where all costs have been
considered while analysing outcomes. However, in relation with the budgeted analysis have
represented gains of 160000 while in actual it also has received gains of 10000 GBP. Thus, in
relation with this, on which it can be said that, absorption costing technique is being helpful and
adequate for the firm in retaining appropriate gains in both situation such as budgeted as well as
actual outcomes.
TASK 3
Advantages and disadvantages of the planning tools used in budgetary control
There are a lot many advantages of the planning tools. These tools are more or less
performs same functions only that is zero base budgeting and the flexible budgeting
(Wickramasinghe, 2015). The major advantages of these types of planning tools that is flexible
and zero base budgeting are as follows-
 The use of these planning tools helps in the efficient and effective use and allocation of
the available resources and it is based on the needs of the organization and the benefits
which they derive with the help of such tools (McLean, McGovern and Davie, 2015).
 Another advantage is that these planning tools helps the top management in identifying
the key areas or departments where earlier there was a wasteful expenses going on.
 These tools provide a predefined structure which provides the budgets makers and
planners with different types of features in tracking the expenses, helping the companies
to get the full overview of the budget and the forecasts (Malina, ed., 2018).
Like every coin has two sides, in the same way every topic have advantages and the
disadvantages. The disadvantages of these planning tools are as follows -
 The major disadvantage of using these planning tools is that it is very expensive and
costly to install and implement this software and tools in the organization (Järvinen,
2016).
 The major disadvantage of using planning tools and software for Unilever is that all these
tools requires highly skilled and knowledgeable persons and this is not possible in a
manufacturing industry that there are much skilled employees (Bruno and Lapsley,
2018).
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 The another disadvantage is that it is difficult to the whole budget because there are many
categories included in the budget and all these activities are linked to each other if thee is
change in any one of the factor then it affects the business as a whole (Hald and Thrane,
2016).
Use of different planning tools and their application
Budgetary control refers to a process with help of which the budgets are made for future
and controls the budgets by comparing the actual performance with planned performance (Grosu,
Almășan and Circa, 2014). Planning tools refers to as some planning tools and instruments which
helps and guides the organization in combining the raw data and converting it into some form of
meaningful and informational budget. The different types of planning tools used by ABC Ltd are
as follows -
 Zero base budgeting - it is also known as ZBB. It refers to as a step by step process of
creating a budget from nothing that is without using the past and previous years budgets
and data (Robalo, 2014). It refers to a method or techniques which is used in developing
the budget from a scratch or a zero base by examining each and every expense and cost
which is essential for the company's operations without considering the previous years
activities (Nielsen, Mitchell and Nørreklit, 2015). It helps the top level management in
making strategic goals which are to be implemented into the budgeting process by linking
them to specific functional areas of the organization.
 Flexible budgeting - it is also known as variable budget. It is defined as a financial plan
consisting of the expenses and the revenues which are based on the actual current amount
of output (Senftlechner and Hiebl, 2015). In simpler terms flexible budget makes the use
of the current expenses and the revenues by keeping them as base and then estimating
that how these expenses and the revenues will change based on the changes in the output.
This type of budget helps the organization in predicting its performance and the income
levels for a certain level of sales and production.
 Activity based budget- this is a type of budget wherein all the activities of the business
which leads to cost involvement are recorded, analysed and evaluated. Using this method
helps in reducing the cost and increase the profits for the company.
 Rolling budget- this is type of budget wherein the existing budget is only incremented or
extended and not a new budget is made.
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Type of budget Advantages Disadvantages
Zero based budget This type of budgeting aims at
keeping the profits over the
expenses and this approach
helps in increasing the profits
for the company.
This type of budgeting needs
to be made with more attention
and this may not be possible.
Flexible budgeting This budget restructure itself
on the basis of the levels of
activity which helps in the
evaluation and analysis of the
performance of the manager.
The major problem with this
type of budget is that many
costs are variable and keeps on
changing which affects the
prepared budget.
Activity based budgeting With help of this budget more
accurate costing is done
related to all the products and
the services.
The data generated through
this budget can easily be
manipulated and
misinterpreted (Kaplan
Atkinson, 2015).
Rolling budget These types of budget reduce
the uncertainty because it
focuses more on planning and
controlling (Grosu, Almășan
and Circa, 2014).
This type of budget is more
time consuming and
expensive.
TASK 4
Using management accounting system to solve financial problems
Management accounting also known as the managerial accounting refers to the step by
step process of analyzing the different types of the business costs and operations in order to
prepare the financial reports, accounts and records which helps the manager in the process of the
decision making (Bruno and Lapsley, 2018). There are many types of the different accounting
methodologies and techniques which are used in solving the financial problems. Some of these
methods are discussed below -
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 Bench marking- it is defined as the process of measuring the performance of the
company's products and services as compared to the another business which is best in the
industry. The main aim of bench marking is to identify the company's own internal
strengths and convert them into opportunities so that it improves the business of the ABC
Ltd by comparing it with the competitors (Morden, 2016). Bench marking helps in
improving the employees understanding about the cost structure and the internal process
because it is compared with the other firm so it can now differentiate between the cost
structure of the ABC Ltd as compared to the other competitors.
 Key performance indicators- it refers to a measure or method which demonstrates how
effectively and efficiently the company works in achieving the business objectives and
the goals. This method evaluates the rate of success of the organization or for a particular
activity (Siverbo, 2014). There are basically two types of the KPI that is financial and
non- financial KPI.
Analysis of how management accounting leads the organization to success
Management accounting refers to as the application of the professional skills and
knowledge for preparing the accounting information in such a way that it helps the management
in the process of formulation of the policies and strategies and also helps in the planning and
controlling of all the operations and working of the company (Bruno and Lapsley, 2018).
Advantages of management accounting in achieving success
The following points are the major advantages of the management accounting which helps in
successful accomplishment of goals and objectives of the business-
 The use of management accounting helps in increasing the efficiency of the company
because everything is done with help of scientific systems for evaluation and comparison
of the performance of the organization and the employees (Akkermans and Van
Oorschot, 2018).
 These methods help the organization in measuring the actual performance of the
organization as compared to the planned performance.
 It also helps the business in managing the activities of the business and to maximize the
rate of return on the capital employed (Kaplan and Atkinson, 2015).
 It also helps the management in outlining the future requirements and plan of action to
meet the future requirements on the basis of the past performance and results.
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Disadvantages of management accounting in achieving success
The following points are the major disadvantages of the management accounting which helps in
successful accomplishment of goals and objectives of the business-
 The management accounting does not follow the specific set of rules and regulations,
policies and procedures so it fails to provide the accurate information and data in lack of
proper principle (Ahmad and Mohamed Zabri, 2015).11 The major disadvantage of using planning tools and software for ABC Ltd is that all
these tools requires highly skilled and knowledgeable persons and this is not possible in a
manufacturing industry that there are much skilled employees (Shahzadi and et.al., 2018).11 Another major disadvantage is that it is very expensive and costly to install and
implement this software and tools in the organization.
Evaluation of planning tools in solving the financial problems
The management accounting system involves the internal system of the organization
which uses this system in measuring, analyzing and evaluating the organization's management.
All these managements accounting techniques and systems helps in solving the financial
problems and gaining success (McLean, McGovern and Davie, 2015). For this the above
mentioned techniques like bench marking and key performance indicators are used.
This company also uses the bench marking method in order to know its competitors so
that it can make strategies to overcome the cut throat competition (Van der Stede, 2015). It is so
because bench marking helps in comparing our performance with that of the competitors.
Another measure is used for solving problems arising from the performance of the employees.
This problem is solved by using the technique of key performance indicators (Järvinen, 2016).
For improving this the company tries to connect the employees with the goal of the organization
so that the employees work in the direction of goal accomplishment.
CONCLUSION
The management accounting refers to the art of presenting the accounting information in
such a way that it helps the management and the managers so that they can make policies,
strategies, rules and regulations to achieve the objective of the firm and to maintain the day to
day operations of the company. The report outlined the management accounting with its meaning
and the essential requirements. Further it explained the different methods which are used for
management accounting reporting. After that it evaluated the benefits of the accounting system
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along with the critical evaluation of the accounting system and management accounting reporting
as integrated within the organization (Shahzadi and et.al., 2018). Further it discussed some
advantages and disadvantages of the planning tools used in budgetary control along with the use
of these different planning tools and their application. Next it highlighted the use of management
accounting system in solving the financial problems. Also, it analyzed that how the management
accounting leads the organization to success. At last it evaluated that how planning tools helped
in solving financial problems.
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