Management Accounting : Bright Star Financial Consultancy

Management Accounting

INTRODUCTION
Management accounting refers to preparation accounts and reports which will render
exact and timely statistical as well as fiscal data that is requisite by management for making day-
to-day short- term decisions. It arranges financial along with non-financial information within
organised way (Laudon and Laudon, 2015). Accounting system is referred to accounting process,
that will furnish reports to managers by which they can formulate plans as well as policies with
respect to future. This report is based on Bright Star financial consultancy, they are responsible
for serving various organisations such as Stitchland Ltd. This report also deals with different
management accounting systems, costing methods for presentation of income statements. Along
with this, usage of planning tools & management as well as accounting systems for measuring
financial crises has been elaborated.
TASK 1.
P1 Explicate management accounting as well as necessary obligations of diverse accounting
systems.
Management accounting: It refers to system which is related to internal governance of
organisation by which usage of resources can be maximised. With respect to Stitchland Ltd
organisation, utilise these accounting system while carrying out their manufacturing operations.
Management accounting system: It is a kind of a system that is liable for arrangement of
monetary as well as non-financial data of organisation within effectual way with an aim of
formulation of decision (Plumb and et. al., 2017). It is necessary for Stitchland Ltd to have
knowledge associated with management accounting.
Significance to incorporate assorted accounting systems in firm: Various kinds of
accounting systems assist within computation of cost along with inventory management system
that are beneficial for Stitchland Ltd for effectual management of stocks. It also renders price
optimisation which will furnish a framework for identification of prices.
Origin, role and principle:
Origin: It can be monitored through revolution within time frame in organisations of
England. Along with this conceptual framework of accounting is evolving from years.
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Principles: The accounting system comprises of major generalities, they are value,
relevance, influence & trust (Hilton and Platt, 2013). All these principles have significant
importance and assist to attain effectual results with respect to these.
Distinguish among management & financial accounting system:
Basis Management accounting system Financial accounting system
Significance Internal stakeholders of Stitchland
Ltd are aided by management
accounting.
This system will assist both external
and internal shareholders of
organisation.
Duration of time There do not exist any peculiar time
for formulation of records within
this accounting system.
In this case Stitchland Ltd, prepares
financial statements of peculiar fiscal
year in its relevant end.
Management accounting types:
Cost accounting system:This denotes accountancy systems. This renders a framework for
estimation of cost associated with products (Hopper and Bui, 2016). It will assist organisation
like Stitchland Ltd to calculate entire cost associated with manufacturing as well as services. It
aids organisation that operates within manufacturing sections. Organisation has executed this
accounting system for managing as well as controlling entire cost associated with manufacturing
of clothes.
Inventory management system:It is associated with finding out goods within
manufacturing process or supply chain. It negotiate with quantity of raw materials as well as
finished goods through which organisation can take effectual steps respectively (Stein and et. al.,
2015). This the reason that, organisation formulate decisions with respect to purchase of raw
materials. Bright Star financial consultancies, client organisation Stitchland Ltd can utilise these
scheme to carry their activities.
Price optimisation system:It renders basis for determination of price at an effectual level.
It is responsible for assigning prices by taking into consideration cost as well as profit acquired
by organisation and satisfaction level of their customers. This accounting system is responsible
for fixture of appropriate prices of services as well as products offered by Stitchland Ltd as they
need to furnish clothes at appropriate price to their customers.
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Job costing system: It is liable to assign as well as compute job of cost associated with
diverse operations separately. Finally, this system is utile for those entities in which various jobs
as well as activities are allotted for every operation (Turban, Volonino and Wood, 2015). Like
Stitchland Ltd get details of price associated with fabrication operations through this system.
Advantage of management accounting systems:
Cost accounting system: It is important for organisation, figure out value associated
with different activities as well as operations. It is necessary for Stitchland Ltd to make use of
accounting system as by this they will be able to get entire cost associated with clothes
fabrication.
Inventory management system: This denotes monitoring stocks accessibility within
their warehouse. With respect to Stitchland Ltd they can pull off the stock with respect to
designed clothes through their usage.
Price optimisation system: It will aid in determination of prices of services which are
offered by firm (Lavia López and Hiebl, 2014).
Job costing system: It is usable within rendering info associated by cost for peculiar task
respectively. Along with this, it will aid to have information related with value within diverse
operations allotted for production processes within Stitchland Ltd.
P2. Explicate diverse activities of management accounting reporting.
Information system attributes:
 Reliableness: This dimension of information system which will make sure certain info is
furnished according to operations carried out within organisation.
 Accuracy: It is crucial for organisation to furnish appropriate information with respect to
internal reports associated with management accounting without any kind of error.
 Updated : Financial and non fiscal information must remain up to date with respect to
day to day to activities and transactions that are carried out.
Significance of existing informations: Information needs to be apprehensible for the purpose
associated with formulation of intrinsic records (Leitner, 2013). Apart from this, these
information will render framework through which better decisions can be made.
Types of reports:
Management accounting reports: They denotes crucial unit as through this
management can formulate inner determination. Along with this, reports are developed by
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assistance of financial and non-financial transactions which have occurred within organisation
(Modell, 2014). For an instance within Stitchland Ltd organisation can prepare various reports
that have been illustrated below:
 Cost accounting reports: This comprises of info associated with entire value of diverse
operations and activities. Like Stitchland Ltd organisation furnish reports which aids
them in maintenance of cost associated with manufacturing processes.
 Account receivable ageing report: In this entire information is contained with respect
to collecting from debtors present within market. Along with this, it includes time period
at which transaction has been taken place.
 Inventory management report: It furnish information related with quantity of stocks
that are made acquirable within warehouses (Nielsen, Mitchell and Nørreklit, 2015).
Within Stitchland Ltd, management formulate crucial decisions with respect to
manufacturing of fresh products according to information furnished by report.
 Performance report: It comprises of information associated with employees
performance as well as diverse activities. Due to this organisation can access
performance of diverse factors independently. Like Stitchland Ltd can control execution
of these reports in an effectual manner.
TASK 2.
P3 Compute costs through usage of specific tools associated with cost analysis.
Cost: It denotes entire cost associated with expenditures that took place in between
diverse operations and activities within organisation. They can be divided into variable, fixed,
indirect, direct cost, etc. For an instance within Stitchland Ltd, various kinds of cost occurs such
as labour, material and many others (Senftlechner and Hiebl, 2015). Cost analysis denotes a
process in which entire cost associated with diverse activities is computed so that individual
monetary value is identified.
Cost volume profit analysis: It is analysis method, related to identification of deviation
in between profits and value. Its objective includes measure of fiscal situations according to
fluctuations within volume and cost. With respect to Stitchland Ltd they determine difference in
between these factors by carrying out analysis.
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Flexible budgeting: It is associated with budgets that might be altered with respect to
varying volume and gross sales (Soin and Collier, 2013). With respect to Stitchland Ltd, utilises
these methodologies for changing relation in terms of sales of clothes.
Cost variance: This refers to alterations or variance within calculated cost and actual
cost of services. In context of Stitchland Ltd they identify variance in between cost associated
with manufacturing as well as approximated cost.
Marginal as well as absorption costing:
Absorption costing: In this type of technique, fixed as well as variable costing are taken
into consideration with respect to cost of product.
Marginal costing: It is associated with diverse form of absorption costing techniques. In
this, variable cost will be taken as unit cost but fixed cost is considered as period cost.
Cost allocation: It refers to process of allocation of overheads according to entire
operations (Ward, 2012). In context of Stitchland Ltd, they are responsible for assigning
expenditures according to diverse manufacturing activities.
Fixed cost: This is not associated with output level. It is a kind of a cost that do not alter
with respect to alterations within quantity of sales or production. Fixed cost is in the form of
telephone charge, rent, etc.
Variable cost: It denotes cost that is associated with fluctuations within productivity &
gross revenue quantity. By this, entire value has diverse quality with respect to fixed cost. Some
examples are material cost, overhead.
Standard costing: This signify cost that can be foreseen with respect to future time
period with respect to diverse activities (Wickramasinghe and Alawattage, 2012). Along with
this, it acts as major basis for making comparison in between actual performance. In context of
Stitchland Ltd organisation, they can make use of cost for analysing entire exact cost.
Activity based costing: This is associated with costing system in which cost is defined
with respect to diverse operations respectively.
Inventory cost: It is a kind of cost which comprises of price of storing, ordering,
carrying, etc. With respect to Stitchland Ltd, they determine cost associated with inventory for
managing entire cost.
Valuation methods:
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LIFO: In this the resources which bought by Stitchland organisation at last were used at
beginning of their processes.
FIFO: This denotes stock which has been bought first is used initially by employees of
Stitchland organisation (Maas, Schaltegger and Crutzen, 2016).
Overhead: They includes expenses that leads to direct impact on labour as well as
material.
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Income statement under absorption costing method for month of May & June
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Income statement under Marginal costing method for month of May & June
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Valuation of closing stock using LIFO and Weighted average method:
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TASK 3.
P4 Explicate benefits and drawbacks of contrary planning tools.
Budget: It is elaborated formal document that is formulated by organisation with respect to
future expenditures as well as income that will take place with respect to specified time duration
(Leitner, 2013). For attaining maximal these factors associated with production must be full
proof, detailed as well as planned budget that comes handy that will assist for management
within planning of occurrences that may owe to macro economic factors and internal short
comings. Budget minimises risks associated with failures with respect to peculiar function that is
faced with respect to financial deprivation. Here some types of budgets have shown which are
used by Stitchland Ltd:
Master budget: It refers to integration of diverse budgets that are formulated by diverse
functional departments within organisation. There exist, different departmental functions like
marketing, production, legal, HR, finance works as a single unit within organisation. Each
department comprises of determination of expenses and revenues along with master budget and
mega budget that is developed after accumulation of inputs from different departmental budgets
that are taken collectively.
Advantages: It aids in generation of wider perspective with respect to organisation that
will assist them in improvisation. As it is a appropriate budget that assist within determination of
both short as well as long term goals in advance.
Disadvantages: There are complications within alterations as this is a prolonged process.
It often leads to short sightedness for management.
CAPITAL BUDGET:
It is the investment of resources within disposition or acquisition of fixed assets such as
machinery, plant, immovable property, heavy machines, etc. that are of higher significance to the
organisation. The financial gains as well as losses are taken into consideration as capital gains
and expenditures. Stitchland Ltd formulates capital budgets for identification of net income
inflow as well as outflow and overall expenditure (Leitner, 2013). It also includes revenues that
are made by capital transactions within budgeted year.
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Advantages: It renders insight with respect to practicality of investment decisions with
respect to organisation. It further aids them to categorise best investments along with diversified
decisions for entities that make loss.
Disadvantages: As they are long term within nature, it makes them rigid as well as
irreversible. Along with this, they are uncertain as they are completely dependent on
assumptions.
CASH BUDGET:
It denotes entire inflow as well as outflow associated with cash transactions for a
specified time period. It is defined for crucial operational activities of business that took place
with respect to everyday basis within an organisation that is crucial for generation of revenue. It
is prepared for determination of flow related with liquidity and measure liquidity position for
specific duration. Stitchland Ltd is responsible for preparation of cash budget for keeping
operational expenses as well as revenues in a check for identification of cash flow as it is needed
for continual generation of revenue.
Advantages: It assists in controlling of position of liquidity position within organisation
along with this, it will aid in financing requirements of funds.
Disadvantages: It limits allotment of resources along with this ability is limited of the
firm for building credit rapport.
Alternative methods of budgeting:
Activity based budgeting: It is a method for preparation of budget in which activities
leads to cost for organisation that vis examined, evaluated as well as researched with respect to
budget activities within preparation of keeping a view of operations that influence costs
associated with specified activities like budget is formulated with preparation of keeping a view
of activities with respect to cost incurred by organisation (Turban, Volonino and Wood, 2015).
Stitchland Ltd is responsible for making activity based budget that is controlled through diverse
operations that prevail within business processes such as designing, manufacturing, tailoring, etc.
that directly costs to organisation as well as matter is addressed in an appropriate manner.
Advantages: It will assist for gaining enhanced control within budgeting process. As
expenditure and revenue occurs at systematic levels that are useful within formulation of future
projections in appropriate manner in an appropriate manner.
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Disadvantages:It is time consuming as well as expensive method with respect to
formulation of traditional budgets. This needs to attain more insight from management that will
be responsible for causes associated with adversities at specific time.
TASK 4
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.
In order to gain high competency and utilise the resources more efficiently, every
company concerns on introducing the concept of management accounting (Hopper and Bui,
2016). This would help in managing entire resources, developing and controlling budget and
more. But sometimes, mismanagement in utilisation of resources etc. leads to arise a number of
financial issues. Therefore, in order to respond towards different financial crises, Stitchland Ltd
can use following main techniques -
Benchmarking:
It refers to procedure of identifying internal capabilities of business through which a
company can overcome from financial problems easily. Thus, using benchmarking process,
managers of Stitchland Ltd. can evaluate if current performance is stronger or not, than its
competitors (Hilton and Platt, 2013). This would help in developing more improvement in
business functions, so that capabilities of respective organisation can be increased for resolving
financial issues. Benchmarking process also aid in analysing how much this company needs to
spend on staff training, marketing and other activities, so that high competences can be
developed.
Key Performance Indicator:
This tool is mainly used to boost business performance so that any kind of financial
issues can be resolved in given period of time. It mainly concerns on factors that contributes to
achievement of business objectives like staff engagement, sales performance, customer turnover
and more, that have an huge impact on organisational finances. Thus, this concept can be used by
Stitchland Ltd. to concern on these factors to resolve financial issues.
Variance analysis: This concept of management accounting also seems to be beneficial for a
company in resolving the financial issues (Laudon and Laudon, 2015). It helps in evaluating the
deviations within actual financial performance and budgeted data, to showcase such areas where
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improvement is necessary. Using this tool, managers of Stitchland Ltd. can identify the factors
that causes variations or reasons behind fluctuations in expenses, so that risk of financial issues
can be minimised in future.
Thus, from all over the techniques, managers of Stitchland Ltd. used the concept of
variance analysis in order to evaluate which area, modifications need to be done for improving
performance of company and minimising the financial crises.
Difference between Companies on basis of Accounting System
Basis Stitchfield limited Sewport company
Financial Problem Due to mismanagement in
utilisation of resources and
allocation of funds
appropriately within different
activities, financial problem
has been faced by Stitchland
Ltd.
Sewport Company has faced
financial issues due to increase
in price of raw materials that
directly affects its production
cost and raise the price of
products or services as well.
Accounting System To reduce the given financial
problem, its managers have
used the variance analysis
technique that helps in
identifying areas where
management is essential to
optimise the use of financial
resources.
The respective company has
used the concept of
benchmarking to determine the
internal capabilities of
business by which cost of
production can be controlled.
CONCLUSION
From all over the discussion, it has been identified that management accounting is the
most essential technique that helps a company in optimisation of resources more effectively. It
provides various methods like inventory management, price optimisation, reporting techniques,
different types of costing and more, by which a company cannot only reduce the wastage but
also increase the return on investment. Along with this, by using different planning tools,
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accounting concepts such as benchmarking, KPIs and variance analyse, organisations can also
boost the performance and internal capabilities of business to earn high profitability.
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REFERENCES
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