Report on Aspects of Management Accounting : Tech Ltd
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Added on 2020-06-06
Report on Aspects of Management Accounting : Tech Ltd
Added on 2020-06-06
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Management Accounting
TABLE OF CONTENTSINTRODUCTION......................................................................................................................4TASK 1......................................................................................................................................4a. Explaining management accounting and its systems.........................................................41. Difference between management and financial accounting...............................................42. Stating the importance of management accounting as a decision making tool fordepartment managers.............................................................................................................53. and M1 Cost accounting system........................................................................................64 and M1 Inventory management system..............................................................................75 and M1 Job costing system.................................................................................................7b. Presenting financial information........................................................................................81 and d1 Presenting different types of managerial accounting report....................................82 and d1 Stating why information presented in managerial reports must be understandable9TASK 2....................................................................................................................................10Question and D2 Preparing income statement for Tech Ltd as per marginal and absorptioncosting system......................................................................................................................10M2 Reconciliation statement................................................................................................13TASK 3....................................................................................................................................13A and M3 Presenting different kinds of budget along with their advantages anddisadvantages.......................................................................................................................13b. Presenting budget preparation process.............................................................................15c. Stating the importance of budget as a tool for planning and control...............................16TASK 4....................................................................................................................................16Question, M4 and D3 Comparing the effectiveness of management accounting approachesundertaken by Tech Ltd in against to the other organization..............................................16CONCLUSION........................................................................................................................18REFERENCES.........................................................................................................................19
INTRODUCTIONManagement accounting is the most importance part of finance which in turn providesmanager with valuable information for decision making. It lays high level of emphasis onrecording information about business operations and functions. In the recent times, eachbusiness unit makes focus on employing management accounting tools as it enables managerto make appropriate decisions within the suitable time period. Through maintaining financialrecords pertaining to the operations manager can analyze business cost and thereby wouldbecome able to prepare internal financial reports for decision making. This report is based onthe case situation of Tech Ltd which is involved in producing special charger for mobiletelephone. In this, report will present the manner in which aspects of management accountingdiffer from the financial aspects. Besides this, it will provide deeper insight aboutmanagement accounting systems and reporting. Further, in this, how marginal andabsorption costing method helps in evaluating cost as well as profit margin will be assessed.It also depicts how tools of management accounting can be used by the business for planningpurpose and responding monetary problems. TASK 1a. Explaining management accounting and its systems1. Difference between management and financial accounting Management accounting serves relevant as well as material information and therebyassists management in formulating policies, planning, forecasting & controlling day to daybusiness operations (Macintosh and Quattrone, 2010). Financial accounting system is highly concerned with the preparation of monetarystatements such as income, cash flow and balance sheet. All such statements assist bothinternal and external stakeholders in decision making. Both management and financial accounting systems aid in the decision making aspectbut they vary in the following manner:
Basis of differenceFinancial accountingManagement accountingMotive The main objective of FA isto disclose financialperformance and position ofthe business at the end ofaccounting year. Goal of managerialaccounting is to assistsmanager in devising plan bygiving input for decisionmaking, Audience or stakeholders Information produces by FAhelps both internal andexternal beneficiaries indecision making.Unlike FA, managerialreports only assist internalparties such as manager andemployees in taking businessdecisions.Requirement On the basis of legal aspects,business unit is required toprepare accounts and sharethem with the investors. In MA, there is the absenceof legal requirementpertaining to accountpreparation (Otley, 2016).EmphasisIn this, focus is placed on theevaluation of historical orpast figures. Under MA, currentinformation is used by themanagers for makingappropriate forecast orprediction about the futureaspects. Rules Companies follow rules andguidelines such as GAAP &IFRS while preparingstatement under FA(Management accounting v/sfinancial accounting, 2018).Managerial reports are usedfor purpose so there is noneed to follow specific rules. Format Specific format is followedby the listed companies forthe preparation of accounts.No specific format exists inMA Duration of reporting Annually and semi-annuallyAs per the requirementmanagerial reports areprepared such as daily,weekly, monthly etc. 2. Stating the importance of management accounting as a decision making tool fordepartment managers Management accounting tools are highly significant in the context of Tech Ltd whichin turn assists manager in taking appropriate business decisions. For managing funds andbusiness activities manager has to take several decisions each day. In this regard, by usingcalculations generated through management accounting tools manager of Tech Ltd canimprove decision making to a great extent. Significance of management accounting as adecision making tool can be understood in the following manner.
Manager of Tech Ltd can do relevant cost analysis by taking into account managerialaccounting information. It furnishes valuable information to the company and helps indetermining products that need to be produced (Reome and Sinclair, 2017). Alongwith this, management accounting information provides assistance to the company inassessing profitable areas and thereby helps in making marketing efforts in the rightdirection. MA helps company in making forecast about income as well as expenses and therebyhelps in developing competent financial plan for the near future. Budgeting is highlyneeded within the business unit for the purpose of making optimal use of financialresources. Hence, using MA information manager of Tech Ltd can take decisionabout future cash inflow and outflows.Along with this, MA assists company in taking decision pertaining to make or buy.Usually, with the motive to save cost or reducing expense level company conductsevaluation whether they should manufacture product in-house or buy from outside.Hence, referring the outcome of such evaluation Tech Ltd can suitable decision. 3. and M1 Cost accounting systemThis management accounting enables manager of Tech Ltd in making estimationregarding the cost of product or services. It helps in ascertaining expenses incurred forproducing or generating specific output level. Using this system, manager of the companycan track the level of material in terms of raw and finished goods (Simons, 2013). It laysemphasis on measuring and recording cost individually that is associated with the production.Hence, by doing evaluation of input with output or actual results company can measurefinancial performance. This area of MA mainly includes standard costing system which inturn helps in assessing deviations. Moreover, such system of MA focuses on findingdeficiencies through comparing actual performance with the predetermined figures. Thus,considering deficiencies and associated causes Tech Ltd can formulate suitable strategies andpolicy framework. For example: Standard costing Particulars Actualfigures Standardfigure Deviation (Actual –Standard)Causes Correctivemeasures
Material costvariance 20001800(200)Due to theincline incost of rawmaterialnegativeresults areoccurred. For exertingeffectualcontrol onthe cost ofmaterial firmneeds toapproachsupplier ordistributorwho offersraw materialat lower /reasonableprices. Labourefficiencyvariance 15001700(200)Due to thelack ofhavingenoughskillslabours ofTech Ltdfailed toattainstandards. For makingimprovements in thelabourefficiencyvarianceTech ltdshould focusonconductingtraining &developmentsession. Advantages By undertaking the system of cost accounting Tech Ltd can eliminate waste, lossesand inefficiencies to the significant level.In this, focus is placed on the identification of reasons behind profit or loss. Assists management team in taking make or buy decision (Advantages anddisadvantages of cost accounting, 2018).Cost accounting system facilitates cost control and thereby helps in improving profitmarginDisadvantages In this, only past records are available, whereas management is taking decision aboutthe future aspects. For the installation of cost accounting system firm has to maintain several costingrecords. This in turn imposes high expenses and thereby impacts margin.
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