Management Accounting.

Management
Accounting

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P1 Management accounting and essential requirement of different types of management
accounting....................................................................................................................................1
P2 Different methods uses in management accounting...............................................................2
M1 Benefits of management accounting system and their application.......................................4
Task 2...............................................................................................................................................5
P3 Cost calculation using appropriate techniques of analyse to prepare income........................5
M2 Application of management accounting technique and financial reporting documents.......6
Task 3...............................................................................................................................................6
P4 Advantages and disadvantages of different planning tools....................................................6
M3 Uses of different planning tools and their application..........................................................7
Task 4...............................................................................................................................................8
P5 How organisations are using accounting system to respond financial problems...................8
M4 How management accounting can lead organisation to sustainable success......................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................13

INTRODUCTION
To run a business and making financial decisions management accounting is important that
is the study of accounts and financial statements helps to increase the organisational productivity.
It is uses by all business in order to know how they should be manage activities and financial
decision so competitive advantages can be get in competitive business environment (Chang and
et.al, 2014) (Gersonius and et.al, 2015). The managers are playing important role in organisation
who analysis the information and maintaining the activities in order to increase the business
performance. This report is based on Lets Grow Ltd. that is manufacturing company providing
products and services effectively. This report covers different topics such as management
accounting and its system, reports and planning tools that uses to control the budget, calculation
of cost and application of system that are uses to solve the financial problems.
Task 1
P1 Management accounting and essential requirement of different types of management
accounting
A process which is uses to identify, analyse and measure the information in relation to
accounting that should be managed properly is called management accounting. The managers of
organisation understand their roles and complete the task in order to run business effectively.
Management accounting is important for every business as it helps to prepare the financial
statement and uses systems to run the business and increase the profitability (Honggowati and
et.al., 2017) . In context to Lets Grow Ltd, different types of management accounting system that
are as defined:
Inventory management system – For every organisation in relation to manufacturing it
is important to prepare inventory management system that can helps to keep track record of their
organisation. Whenever organisation produce something in bulk then it is required to keep proper
records of inventory and manage the stock effectively. In context to Lets Grow Ltd, is
manufacturing company for tracking the inventory which are important to maintain to good
performance. Several of the approaches that can be used by the business are LIFO, FIFO and
AVCO. In the LIFO process, the product which is last bought by the client is first sold because
they assume that the last acquired inventory is higher valued than the prior one. In the FIFO
system, the product first purchased by the client will be sold first. Although the total cost of the
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goods is assumed in the AVCO setting, the calculation is assumed (Lindholm, Laine and
Suomala, 2017). Among the three, FIFO Structure is ideally suited because the drug marketed by
the organization belongs to the food sector in which it will first be distributed.
Cost accounting system – This refers as system which is related to cost and helps to
increase the business performance. Cost is important for every organisation as it manufacture
different types of products and services with the help of cost that maintain the high performance.
The managers of business organisation should be focuses on cost that can help to fill need and
wants by defining the cost. For Lets Grow Ltd., it is essential requirement to use the cost
accounting system for the purpose of determining the cost of raw material, labour, overheads etc.
that can help to increase the business activities (Otley, 2016).
Job costing system – This is one of the system of management accounting that uses to
allocate the cost in to different activities which are undertaken by the organisation. It is
required in Lets Grow Ltd. to determine the cost which are divided in to different production and
specification along with activities. This helps to maintain the high productivity and profitability
by determining the cost appropriately and managing the performance.
Price optimisation system – The aim of business organisation is to increase the profits
and attracts customers by providing products at reasonable cost. This system is uses to set the
prices of products and services which are producing by organisation and important to increase
the profitability. Lets Grow Ltd. has essential required of price optimisation system as it is
required to set the prices of their products and services that can help attracts the customers and
manage activities.
P2 Different methods uses in management accounting
Reports are important for organisation as it helps to keep records and information in order
to run business. Management accounting refers as study of financial information and statement to
know manage the activities. In context to Let’s Grow Ltd, different management accounting
reports are prepared by managers to know the financial position in competitive business
environment that helps to increase the business activities.
Different types of management accounting reports are prepared by management of Let’s Grow
Ltd, that are as defined:
Inventory management report – This is important for organisation to prepare the report
in relation to inventory management and tracking the stock for the purpose of running a business
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appropriately. Stock management reports are usually compiled by organizations involved in the
procurement process. In context to Let’s Grow Ltd, this report is prepared by managers for
tracking the inventory which are available in organisation and helps to increase the production
and profitability. It allows the company to recognize the cost involved in the production process.
In this respect, the cost of raw materials is known to be specific operating costs incurred in
purchasing goods, etc (Tamandeh, 2016).
Cost accounting report – Every organisation wants to identify their cost and expenses
which arises at the time of working. It is prepared for the purpose of getting the variance
between estimating and actual amount between cost. This is a documentation which is important
for the company to plan in order to recognize the anomalies in the expected and real costs
incurred in the performance of the various business activities. It is beneficial for Let’s Grow Ltd
to involve in manufacturing process, where the ability to assign expenses and retain expense
reports is more important. This also helps to allocate the cost and make the accurate decisions
which incurred in the organisation and complete the task.
Performance report – This is important for organisation to get the competitive
advantages by managing their performance. In this, managers are responsible to identify, study,
collect, analysis and control the financial position of their business so all activities can be
managed properly and maintain the good performance. This increase the activities and
production by preparing performance report that involves all actions and financial information.
In context to Let’s Grow Ltd, managers are preparing financial report by estimating income and
expenses that helps to increase the productivities and profitability. In this, managers suggest their
employees to utilise the resources and capital in company and maintain the high profitability.
Job costing report – A management tool which is used to evaluate the production and
project performance in each department. This states the specific activities in department so all
activities can be perform effectively and manage the profits. In context to Let’s Grow Ltd,
managers are preparing job cost reports by analysing performance and financial activities that
helps to maintain the good performance (Quilty, Cosentino and Bagby, 2018).
Account ageing receivable report –This report is related to credits that should be
properly record and managed in organisation so all activities can be managed properly. In other
words, it is a vital financial accounting study that lets the corporation control the cash flow of the
business through the monitoring of the payments receivables, making it possible for the
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organization to determine whether to expand the credit to its clients. With the aid of this paper,
Let’s Grow Ltd’s administrators recognizes problems in the company's related to credits and
manage the information effectively. This also helps to receive the unpaid amount in certain
period of time so business can be run effectively.
M1 Benefits of management accounting system and their application
Management accounting system are useful for organisation that helps to manage the
activities, inventory, setting prices and defining the cost of each section so all activities can be
managed properly. Benefits of accounting system are as defined:
System Benefits and uses
Inventory management system It is beneficial for organisation to track the inventory
which are available in organisation. Let’s Grow Ltd,
is using this system to check the inventory properly
and place the order for further products and services.
Cost accounting system This is another system which give benefits of
estimating the cost on actual and budget amounts
which can helps to increase the productivity. Let’s
Grow Ltd, is using this system to get the accurate
income and expenses so all activities can be managed
properly.
Price optimisation system Companies who wants to set the prices of their
products are taking the benefits of such system which
uses to set the prices of products and attracts the
customers for the purpose of increasing selling
activities (Sadikoglu and Olcay, 2014).
Job costing system This is appropriate system which uses by Let’s Grow
Ltd. company allocate the cost in to different sections
and attain the business goals by managing
performance.
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Task 2
P3 Cost calculation using appropriate techniques of analyse to prepare income
Marginal costing – It is a costing strategy that involves only variable costs and excludes
fixed costs when calculating the overall costs. It raises the volume of income and sales in the
accounts, but it actually represents the variable expense.
Absorption costing – The type of costing is absorption accounting, which covers both
contingent and fixed costs, which also gives a detailed picture of both the losses which expenses
made by the firm in the production process. This is the popular tactic used by organizations to
determine the actual cost of production.
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M2 Application of management accounting technique and financial reporting documents
Financial reporting document are those reports which are prepared by managers in order
to manage the performance and increase the profits. To get the profits different statement are
uses such as income statement, balance sheet, cash budget, cash flow statement etc. that are uses
to calculate the cost and manage profitability. As shown in cash budget of 6 month, profits and
loss are fluctuate in organisation which helps to increase the understanding how to improve the
business performance.
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Task 3
P4 Advantages and disadvantages of different planning tools
Budgets – This is the statement of involving income and expenses which incurs in
organisation and needed to perform well and increase the business profitability. The finance
manager of organisation should analysis the activities and estimate the amount which incurs at
the time of working. This is important for all organisations to prepare budgets by estimating the
cost and productivity. Lets Grow Ltd, is using different budgets by estimating cost and income
that can help to run business and making the profitability. This organisation is preparing different
types of budgets that are as defined:
Capital budget – This is a type of budgets which should be prepared by all companies in
order to maintain their financial position for long period of time. The management of company
prepare this by involving capital receipts and payment which are necessary for business concern
and helps to improve the business profitability. in context to Lets Grow Ltd, managers are
preparing capital budget for the purpose of setting the long term profits by estimating long term
income and expenses such as machine, building, infrastructure, training to employees etc. helps
to get the long term profits (Singh and Verma, 2018).
An advantage – This budget facilitate the Let’s Grow Ltd to identify risky activities and
helps to prepared the statement by involving income and expenses that helps to solve the
problems. This helps to provide the business opportunities and choose investment wisely. This
also helps to make the right informed decision.
Disadvantages – Decision may be irrelevant for chosen organisation. In this, managers
assumes techniques which are not real and creating the expenses for organisation while running
business and preparing capital budget.
Operating budget – This is a budget which list the income and expenses that arises in
business after start-ups. This is important for organisation to focuses on different activities in
relation day to day that helps to maintain the good performance. In context to Lets Grow Ltd,
managers are preparing the operating budgets by analysing sales, variable cost and production
labour that helps to increase the business performance. This is a financial plan which designed to
meet with company’s debt obligation and sustain for long period of time.
Advantages – The benefits of operating budgets which are taken by Let’s Grow Ltd is
tracking of entire business. by tracking the operating budget managers can track the financial
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information in relation to business and getting higher profits. This also help management to
prepare for financial responsibilities that are needed to take in business activities (Grabner,
Posch and Wabnegg, 2018).
Disadvantages - This can create the confusion between activities as it is recorded on
daily basis which also involves credits. The management of Let’s Grow Ltd, are needed to spend
the high investment and skills of employees who can prepare the financial statement by
understanding operating budget effectively.
Zero base budget - This is budgeting method in which all expenses are needed to
justified and approved for each new period. It is mainly prepared by managers in order to
establish new business who do not have any past information and managing the activities
accordingly. In context to Lets Grow Ltd, management are analysing needs and cost of every
functions in organisation by allocating funds that helps to manage the activities (Welsh, 2018).
Advantages – This budgeting emphasis on making right business decision for current
period. Its aim is cost benefits analysis that focuses on changes and expenses which are incurred
in organisation that helps to maintain the good performance. In context to Lets Grow Ltd, zero
base budget is uses to allocate the resource which are available in organisation, bring
improvement for next period and drive benefits.
Disadvantages – This is not appropriate for organisation and existing organisation which
can reduce the organisational productivity. It is not stick budget for all situations and there is
chances of arising conflicts between skills and conflicts of employees.
M3 Uses of different planning tools and their application
Planning tools are the techniques and preparation of budget which are uses by organisation
by formulating different types of budgets and estimating the profitability. It is important for
organisation to use different types of planning tools such as capital budget, operating budget and
zero base budget that helps to estimating the cost and increasing productivity. In Let’s Grow Ltd.
managers are responsible to formulate the budgets and estimate the position of their business so
all activities can be maintain effectively. Capital budget helps to get the long term benefits by
keeping records of income and expenses of fixed assets, zero base budget is beneficial to get the
accurate information regarding productivity and profitability. operating budget is uses to keep
information accurate and relevant for making right business decisions (Suljović and Meta,
2017).
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Task 4
P5 How organisations are using accounting system to respond financial problems
Financial problems – This means lack of finance and problem arises while running a
business due to improper financial resources, increases expenses, late payment by customers, and
having high debts that are reducing the profitability in organisation. The management of
organisation should focuses on their activities and make efforts to improve the business
profitability. In context to Lets Grow Ltd. is providing products and services by running
business. This organisation is facing different problems that are as defined:
Increases in debt – Debt is the obligation on business which are taken by business
concern in order to run, expand and other activities in relation to business that reduces the
productivity. It is important for management to focuses on their activities and use money on
required thing that can help to save from high amount of loan. In context to Lets Grow Ltd.,
business is running by managers which are creating problems to increment in debt that reduces
the organisational performance (Robalo and Gago, 2017).
Not receiving credit on time – The business is depends on credit which is given by
business concern to its regular customers. for running business it is important to have proper
records of credits and it should be received on time so all activities can be performed effectively.
Lets Grow Ltd. is running business by providing products and services on credit that increases
business performance and maintain the profits. A financial problem is faced by managers as it is
not receiving the payment on fixed time such as 30 days, 60 days and 90 days. Sometime
customers become insolvent so all amounts goes in debts which are affecting the business
negatively (Al-Mawali and et. al, 2018).
Techniques are uses in financial problems.
KPI – This is a technique which is uses by business organisations to know their financial
and non financial information. KPI Means, Key performance indicator which states the
performance of business in competitive business environment. Lets Grow Ltd. is using KPI
technique in order to identify which are financial and non financial activities. This helps to states
what problems are facing by organisation and how they can manage the activities.
Balance scorecard – This is strategic management tool which is uses by business organisation
identify the problems and improve their performance by making right decisions. This is a
efficiency measure that lets companies define and develop the company's internal operations. It
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might help Lets Grow Ltd to improve its performance and address the issue of sudden costs. By
using such techniques a business can be maintain good performance and outcome.
Financial governance – This is a subset of rules and regulation set by government in
order to understand financial problems and get solution. In this, all information in relation to
business are collected, manages, monitors and control the financial information so each activity
can be managed properly and maintain the performance. This provide understanding about fraud,
material errors, regulatory penalties, credit policy and misappropriation that can help to keep
continue the activities and increase profitability.
Comparison between Let’s Grow Ltd and TPG Process
Basis Let’s Grow Ltd TPG Process
Problems This organisation is manufacturing
products for customers and has been
facing the issue of credit. This means
creditors are not paying the unpaid
amount on time which is reducing the
business activities (Dauth, Pronobis
and Schmid, 2017).
This organisation has been facing
the problem and issue of debt as it
is getting loans from bank, friends
and others that need to pay with
interest that impacts on profits and
business activities.
Approach Balance scorecard is an approach
which is uses by Let’s Grow Ltd to
identify the Credit problems as it has
many clients who are buying
products and services on credits and
promise to pay on time which they do
not. Therefore organisational
production decreases continuously.
KPI approach is uses by TPG
organisation to identify the
financial and nonfinancial
problems by analysing their
performance and dealing with
different activities that states
which are profitable activity. This
also helps to know about debts and
amount exactly.
System For this, price optimisation system
should be use by organisation that
helps to set the prices of products,
enhance productivity by receiving the
amount which was unpaid. Financial
Cost accounting system should be
use by this organisation that can
help top set the cost of products
and services which are produced
by organisation and maintain the
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government supports this
organisation to tighten their credit
policy and receive payment on time.
profitability. This helps to keep
records of all debts and ensure all
payment will be done in certain
time.
M4 How management accounting can lead organisation to sustainable success
The success of business organisation depends on proper monitoring and controlling the
financial information. For all activities and financial records managers are responsible who
evaluate the budgets with income and expenses for the purpose of maintaining high productivity.
Financial problems are identified in Let’s Grow Ltd which are required to solve, so managers are
using management accounting system for overcoming the problems (Horvat and Mojzer, 2019).
CONCLUSION
Management accounting is main activities which plays by managers in order to manage their
financial information and increase the business performance. These also continue to devise
various plans for the business that can drive them towards their aim and goals. Management
accounting plays a vital role in addressing the financial challenges of an enterprise with
assistance from various structures, such as market optimisation, accounts payable, etc. Different
planning tools are uses to monitor and control over excess budgets and manage the activities.
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