Management Accounting: TSR

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION..............................................................................................................1
TASK 1 ........................................................................................................................... 1
P1: Define management accounting and various types of management accounting
systems....................................................................................................................1
P2: Discuss various methods utilised in managerial accounting reporting .............2
TASK 2.............................................................................................................................4
P3: Calculating cost of techniques and preparation of profit and loss account........4
TASK 3.............................................................................................................................7
P4: Merits and Demerits of different types of Budgetary controls............................7
TASK 4.............................................................................................................................8
P5: Using management accounting techniques in responding to financial problems8
REFERENCES...............................................................................................................10

INTRODUCTION
Management accounting is one of the branch of accounting is related with the
process of preparation of the accounting reports which is prepared so that the internal
management of company can make decision regarding the Objectives of the company
and determine the policies according to the future trends of the market. Managerial
accounting reports are prepared by the accountants of company by utilising financial
statements of the company such as Balance sheet, Statement of profit and loss account
and cash flow statement. These reports also consider the future economic and Non
economic activities of market that will be prevalent in future.
This report is prepared on TSR pvt. Ltd. and discusses about the significance of
management accounting and techniques. Various planning tools used in management
accounting process and the use of accounting tools that assists in responding to
financial problem.
TASK 1
P1: Define management accounting and various types of management accounting
systems
Management accounting is the process of accounting which deals with the
preparation of managerial accounting reports so that the internal management of the
company can determine the objectives and formulate policies for the company by
utilising those reports. Managerial accounting reports make use of the financial
statements of the company and also considers the future economic and non economic
activities of the market that will be prevalent in future so that the managers can make
decision effectively and it does not impact the operations of the company in future.
Types of management accounting system and their need in organisation:
The system of management accounting are formulated in such a manner that
help the managers to prepare the accounts and reports so that the managers can take
effective decisions for the company.
 Product Costing: This process of costing is utilised to make the estimation
about the all over cost that is used in the production of a specific product. This
assist the managers in making estimation about the expenses that is incurred in
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the process and allocating those overheads. This system can be implemented in
the small business organisation which have simple business operations.
 Cost accounting system: This system of accounting is used to estimate the
overall cost and expenses that will be incurred in the operation of business. This
system assists the managers in making an estimation about the expenses that
will incurred in future, which makes the easy in allocating the funds accordingly
and in turn also helps the company in determining the profitability of the
business.
 Inventory management system: The Inventory management systems is
adopted by every organisation no matter what is its size, as every company has
the responsibility to efficiently manage the stocks of the company. This system
deals with the management of inventory level of the company in such a manner
that manufacturing department and final consumers get the goods as and when
required. Different companies use the different systems of Inventory
management for efficiently managing their stock levels. The different types of
inventory management systems that are adopted by the companies include
LIFO, FIFO, weighted average system etc. as per the nature of the products of
organisation.
 Job costing: Under this costing methods the managers of the company get an
estimation about the cost of the similar units of the product or regarding the
particular job function. This helps the internal management in estimating the
profitability from the specific job function, so that they can invest the funds of the
company in those job function which are most profitable.
P2: Discuss various methods utilised in managerial accounting reporting
The reports that are made under managerial accounting are formulated for the
purpose of supporting internal management in the decision making process and making
policies for the company. These reports include financial as well as non financial
transactions that has been adoptedtaken in the companies. This is the reason why it is
so significant to prepare these reports. The various reports prepared under managerial
accounting are as under:
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Budget reports: The budgets are preparedin process . The budgets are
prepared for the purpose of estimating the expenses that will be incurred in the process,
the amount of funds that will be utilised in the process and the profitability that will be
generated from the operation. The budgets that are prepared in the companies include
Sales Budget, Purchases Budget, Production Budget etc. The preparation of budgets
also helps managers in setting the performance standards for the company and then
taking corrective actions if there are any variations.
Accounts receivable reports: This report is prepared to manage the Accounts
receivable of the company. Under this report the estimation is made regarding the
debtors that the company currently have and when the payment is to be received from
them. This report also identifies those debtors from which the company have not
received the payments on time and debtors have gone bad or are doubtful. This assists
the managers in tightening or loosening the credit policy of the company as per the
results.
Job cost reports: These reports make an estimation regarding the total
revenues and cost that is being generated from undertaking or manufacturing a batch of
product or a specific product. This assists the internal management of the company in
making the estimation regarding the profitability that is generated from the production of
those products, so that managers can allocate the funds in the process accordingly.
Significance of information collected from managerial accounting reports:
Decision making: The reports that are made under managerial accounting helps
the managers of the company in making efficient decision for the company. These
reports make use of financial statements as well as economic and non economic
activities of market so that it provides the complete information to the mangers of TSR
Pvt Ltd. essential for decision making .
Cost reduction: The managerial accounting reports helps the company in
determining objectives and Formulating policies for the company. This helps the
managers in the managing the operations effectively and thus reduces the cost of
operations by identifying and eliminating the problems in advance.
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TASK 2
P3: Calculating cost of techniques and preparation of profit and loss account
Marginal Costing: The marginal cost refers to that amount which is incurred
when the company produces one more additional unit of output. The marginal cost of
the company only takes into consideration variable cost of production and does not
takes into account fixed cost of production. The company is beneficial in the production
of additional units until the Marginal revenue does not exceed the marginal cost of
production.
Absorption costing: This method of costing takes into consideration both the
variable and fixed cost while calculating the profitability of the product. The Absorption
costing also considers the Fixed cost of production in estimating the cost related to
product which is why the profit calculated under this method is less then the profit
calculated under marginal costing.
Calculation of cost of radiators
Direct material 50000
Direct Labour 30000
Variable manufacturing cost 20000
Fixed manufacturing cost 40000
Total Cost 140000
Total number of units produced 10000
Cost Per Unit 14
Income statement using Marginal costing
Revenue( 10000*25) 250000
Less: Cost Of goods sold (10000*14) 140000
Contribution 110000
Less: Variable Selling and administration
expenses 30000
Gross profit 80000
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Income statement using Absorption costing
Revenue( 10000*25) 250000
Less: Cost Of goods sold (10000*14) 140000
Contribution 110000
Less: Variable Selling and administration
expenses 30000
Less: Fixed Selling and administration expenses 30000
Gross profit 50000
Calculation at 5000 Units
Income statement using Marginal costing
Revenue( 5000*25) 125000
Less: Cost Of goods sold (5000*14) 70000
Contribution 55000
Less: Variable Selling and administration
expenses 30000
Gross profit 25000
Income statement using Absorption costing
Revenue( 5000*25) 125000
Less: Cost Of goods sold (5000*14) 70000
Contribution 55000
Less: Variable Selling and administration
expenses 30000
Less: Fixed Selling and administration expenses 30000
Gross profit -5000
Calculation at 5000 Units
Income statement using Marginal costing
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Revenue( 5000*25) 125000
Less: Cost Of goods sold (5000*14) 70000
Contribution 55000
Less: Variable Selling and administration
expenses 30000
Gross profit 25000
Income statement using Absorption costing
Revenue( 5000*25) 125000
Less: Cost Of goods sold (5000*14) 70000
Contribution 55000
Less: Variable Selling and administration
expenses 30000
Less: Fixed Selling and administration expenses 30000
Gross profit -5000
Calculation of Labour variances
Labour cost variance: (AH*AR) - ( SH* SR)
Actual hours: 3400 Hours
Actual Labour cost: 17680
Actual Rate: 17680/3400= 5.2/ hour
Budgeted Labour Hours: 3000 hrs
Budgeted Labour cost: 15000
Standard rate: 15000/3000 = 5/ Hour
LCV= (3400*5.2) - (3000*5)
= 17680- 15000
= 2680(F)
According to the calculation it has been seen that, labour cost variance of the
given data is calculated as 2680 which is a favourable amount.
LEV= (Actual hours- Standard hours for AO)* Standard rate per hour
= (3400-3300)*5
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= 100*5
= 500(F)
Calculation of Material variances:
Material cost variance = (AQ*AP) – (SQ*SP)
Actual Quantity= 2200
Actual Price= 9.5
Standard Quantity= 2000
Standard price= 10/ Kg
MCV= (2200*9.5) - (2000*10)
= 20,900-20000
= 900(F)
Material Usage variance= (Actual Quantity- Standard Quantity) * Standard Price
Actual Quantity= 2200
Standard Quantity= 2000
Standard price= 10/ Kg
MUV= (AQ – SQ) * SP
= (2200-2000)* 10
= 2000(F)
TASK 3
P4: Merits and Demerits of different types of Budgetary controls
There internal management of the company prepares various budgets to
increase the overall efficiency of the organisation. The budget that the company
prepares under this system include Forecasting tools, Contingency Tools, and scenario
Planning. The detailed discussion about these budgets are as under:
Forecasting Tools: This is considered as an efficient technique which is
adopted by the company for the purpose of analysing future trends of the market. This
tool is considered as accurate and reliable by the managers of the company as the
data is collected from both internal and external sources.
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 Advantages: The major benefit of the preparation of this tools is that it creates
value for which every person (Budgetary Control, 2017).
 Disadvantages: Under this tool, it is very difficult to properly and accurately
predict the future. Because the nature of information is qualitative.
Contingency Tools: This is considered as an normal process for the analysis of
business performance. This is undertaken in order to determine the risk that is
associated with the overall profitability of the company. In order to deal with these types
of issues the managers are needed to formulate these contingent strategies for making
an analysis of the risk (Maher, Stickney and Weil, 2012).
 Advantages: The benefit of this Tool is that it helps the small sized organisations
in measuring growth and profitability.
 Disadvantages: The main drawback of this tool is that it is rigid and very costly
as well as time consuming.
Scenario Planning: This is considered as a technique which is systematic and
faced by many organisations so that flexibility can be achieved at the time of the long
term planning. The scenario planning is the process of the company which deals with
the adoption of techniques that are much helpful in generating better outcomes.
 Merits: This is the most important tools which is used by the company for the
analysis of uncertainties that are affecting the company's profitability.
 Demerits: By using this method it is very difficult to efficiently predict the future.
The alternatives cause many issues in this.
TASK 4
P5: Using management accounting techniques in responding to financial problems
The company should various management accounting tools because these tools
helps the internal management of the company in responding and resolving the financial
issues that are faced by the company during the course of the operations. The tools that
the company can adopt to solve the issues include benchmarking , key performance
indicators , corporate government etc. These will be discussed in brief as under:
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KPI: It is such an effective tool which help in measuring performance of workers
through making comparison between their actual with standard performance. This
enable management to identify the actual skills and capabilities of employees on the
basis of which roles and responsibilities are easily assigned (Renz, 2016).
Financial governance: It refers to guidelines formulated by top authority of
company which need to be essentially followed by employees so as to avoid the
problems that may arises in execution of business activities. It is more helpful for TSR
Ltd. To deal with future conflicts and create healthy environment at workplace.
Benchmarking: It is the technique which direct employees to work hard through
setting target towards them. It brings motivation towards employees to achieve allotted
targeted within given time frame so as to achieve better position in company. The
management need to first analyse rival's strategies and on the basis of which
benchmark are set (Management Accounting, 2016).
Comparison of TSR Pvt. Ltd. with other enterprise
TSR Pvt. Ltd. company Haier company
It deals in manufacturing electronic items
such as fan, radiators etc. at small scale.
It is operated at large scale deals in
providing electronic appliances.
TSR Pvt Ltd. must required to use
benchmarking tool in order achieve
competitive advantage. It will help them in
identify what changes are required which
support employees in achieving desired
goals and objectives.
As company is large in size thus required
to use financial government tool which
guide and direct the employees to perform
in right direction so as to help company in
achieving good financial position of
company.
It has wider scope. It has narrow scope.
CONCLUSION
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It has been concluded from the above project report that it is essential for an
organization to maintain financial reports and books of accounts in order to know the
actual financial position of company in market. It can be done with the help of adoption
of management accounting and reporting systems which assist management in making
an effective decision regarding achievement of growth and expansion of business.
According to the net profitability, it is must required for TSR Ltd. to use marginal costing
method as compared with absorption costing method. KPI is considered as an effective
financial tool which need to be adopted by company in order to resolve financial issues
and attain strong financial position of company in competitive market world.
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