Management Accounting System Analysis

This assignment delves into the comparative analysis of absorption costing and marginal costing systems within management accounting. It examines the advantages and disadvantages of each system, highlighting their impact on cost assessment and profit margin calculations. Furthermore, the assignment explores the efficacy of the Balanced Scorecard as a performance measurement tool in aligning business goals with operational activities. The report synthesizes research findings from various sources to provide a comprehensive understanding of these key management accounting concepts.

Management Accounting

Table of Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1. Explaining the following....................................................................................................3
a. Defining management accounting and differentiates it from financial accounting...........3
b. Presenting the importance of management accounting system as a decision making tool 4
2. Explaining the different types of management accounting systems that improve
reporting system.....................................................................................................................5
Preparation of income statement by using absorption and marginal costing system.............6
TASK 3......................................................................................................................................8
a. Types of budget and its advantages as well as drawbacks.................................................8
b. Defining the process of budget preparation.......................................................................9
c. Stating various types of pricing policies that can be undertaken by Imda Tech..............10
TASK 4....................................................................................................................................11
Defining balance scorecard and its implementation in the strategic decision making........11
CONCLUSION........................................................................................................................11
REFERENCES.........................................................................................................................13

INTRODUCTION
Management accounting focuses on the preparation of highly suitable report regarding
cost, profit and other financial aspects. For making highly effectual day to day decision
business entity requires information about internal performance in terms of financials. In this
regard, by undertaking suitable monetary reports business organization can frame high
competent strategies and policies. Hence, management accounting system and framework aid
in the decision making aspect to a great extent. The present report is based on Imda Tech
which is involved in the business of manufacturing as well as selling of mobile chargers and
other electrical equipments. In this regard, report will describe the manner in which
management accounting system or framework helps in evaluating internal financial
performance. Further, report will also provide deeper insight about the traditional and modern
techniques of budgeting. Besides this, the central focus of such study is to highlight the
manner in which absorption costing system helps in making suitable decisions over marginal
costing. It will also provide information about the way in which balance scorecard system
helps in making suitable decisions.
TASK 1
1. Explaining the following
a. Defining management accounting and differentiates it from financial accounting
Management accounting system is the process which lays high level of emphasis on
assessing, measuring, analyzing and interpreting financial information. By using management
accounting tools and techniques accountant prepares report that assists managers in decision
making aspect to a great extent. Moreover, it is not possible for the higher management to
monitor the performance of each department in one time. In this, reports which are prepared
by management accountant help higher authority in making competent strategic and policy
framework (Granlund, 2011). Hence, by using such system Imda Tech can enhance
productivity and profitability through the means of optimum utilization of funds.
There is significant difference takes place between management and financial
accounting in the following manner:
Basis of difference Management accounting Financial accounting

Aim The main aim of management
accountant is to furnish
information about the
departmental performance in
the form of reports which in
turn helps in devising suitable
plan for meeting the goals.
Financial accounting is highly
concerned with the disclosure of
monetary information at
specified date.
Stakeholders Managerial accounting reports
are undertaken by internal
parties such as higher
management for making highly
suitable decision that enhance
business performance.
Both internal and external
parties make use of financial
accounting reports for decision
making.
Legal obligation Management of Imda Tech is
not legally obliged to prepare
management accounting
reports.
Company has legal obligation
to prepare reports for satisfying
the information need of
investors.
Formats Under management accounting,
informal system is followed by
the managers to prepare reports.
In this, reports are prepared and
published by the firm in specific
format.
Rules and regulations Reports prepared on the basis of
management accounting used
only at internal level. Hence,
managers do have requirement
to follow specific rules and
regulations.
GAAP and IFRS contain main
standards of financial
accounting. Hence, by
following such rules suitable
reports can be prepared
(Difference Between Accounting
and Financial Management,
2017).
Frequency Managerial reports are prepared
by manager on the basis of
daily, weekly and monthly
basis.
Unlike management accounting,
manager focuses on preparing
quarterly, semi-annually and
annual basis.
Information served It serves monetary information
that helps in fulfilling the
organizational goals.
Financial accounting system
provides deeper insight about
monetary information that can
be verified through the means

of evaluation.
b. Presenting the importance of management accounting system as a decision making tool
In the recent times, decision making aspect is highly based on the information that is
provided by management accountant department. System of management accounting is
highly significant in the following manner:
 Evaluation of departmental performance: Managerial accounting reports provide
information about the level to which each department is performing in a well manner.
Report clearly presents that which departments have performed activities according to
the predetermined plan or not. Hence, by evaluating such aspect manager of Imda
Tech can identify the training requirements of personnel. In this way, by conducting
training business unit can enhance productivity as well as profitability. Along with
this, standard costing reports help in framing suitable salary, incentive and bonus plan
for each department as well as personnel.
 Make or buy analysis: Imda Tech can take suitable decision about cost and profit by
conducting make or buy analysis. Sometimes, business unit faces difficulty in relation
to taking decision whether they need to manufacture product in house or outsource it
from others (Zimmerman and Yahya-Zadeh, 2011). In this, by doing such analysis
manager can make effectual decision which in turn helps in managing cost and
enhancing profit margin.
 Relevant cost analysis: Reports which are prepared by management accountant helps
company in determining the products which they need to sell. Further, it also assists in
evaluating the manner through which business unit should sell its products or
services. For instance: Imda Tech can avoid common cost which is associated with
the marketing or advertisement of products or services. Hence, accounting manager
can assess the cost that differs between advertising alternative related to each product.
Hence, by evaluating the management accounting system firm can assess whether
they need to add product in line or not.
 Along with this, by applying the tools of management accounting system Imda Tech
can assess the units which they need to produce for attaining the situation of no profit
no loss (Ferreira, Moulang and Hendro, 2010). Furthers, marginal costing system also
enables firm to identify the units which they need to offer for attaining the desired
level of profit margin.

All the above depicted aspects clearly shows that management accounting system is
highly important which in turn aids in the strategic planning or decision making.
2. Explaining the different types of management accounting systems that improve reporting
system
By undertaking the below mentioned tools or systems Imda Tech can improve
reporting system or aspects to the significance level in following way:
 Cost accounting system: Standard costing system is highly effectual which in turn
helps in assessing the deviations that exists between the actual outcome and planned
output. In this, standard costing system helps in assessing the efficiency and
performance aspect of each department. Thus, such reports help company in setting
suitable standards or benchmark for the upcoming times period.
 Inventory management system: Imda Tech can ensure better inventory management
by using software. Such software contains detail regarding raw and finished
inventory, waste material, price etc. This in turn helps company in identifying
whether they should place for the inventory (Macintosh and Quattrone, 2010).
Holding and ordering are the main costs which in turn closely influences the
profitability aspect of firm. Hence, by assessing the inventory level which business
unit should maintain smooth functioning can be ensured by reducing the holding and
ordering cost level.
 Job costing system: This system assists in tracking the cost of material that is
associated with the specific job. Along with this, job costing system also assists in
identifying the level of scrap that occurred during the job. In other words, job costing
system helps in assessing the cost that is associated with the performance or
accomplishment of specific job (Baldvinsdottir, Mitchell and Nørreklit, 2010). Hence,
by identifying the cost level Imda tech can easily determine suitable price per unit. On
the basis of this aspect, by dividing total cost from number of chargers manufactured
firm can determine cost per unit. Hence, by adding profit margin in cost per unit firm
can assess suitable price.
 Price optimizing system: This system helps in making evaluation of price which will
offer benefit to firm in both financial and non-financial terms. On the basis of this
aspect, by making evaluation of customers response at different price level Imda Tech
can get information regarding the money which customers are ready to pay for the
chargers (Ward, 2012). Hence, by evaluating such aspects firm can determine suitable

price and thereby would become able to enhance customer base as well as
profitability.
TASK 2
Preparation of income statement by using absorption and marginal costing system
Marginal and absorption costing system are the one which provides high level of
assistance to the firm in evaluating profitability aspect. However, there is one significant
difference takes place between such two systems in terms of fixed cost (Modell, 2010).
Marginal costing is also known as variable cost because it avoids fixed expenses. Along with
this, absorption costing method also termed as full method which undertakes both fixed and
variable expenses for the determination of profit level. Hence, it is advised to Imda Tech to
lay emphasis on undertaking absorption costing method which entails that fixed cost can be
recovered. On the other side, absorption costing method provides overestimated information
regarding profit or loss. Hence, by using suitable method such as absorption costing Imda
Tech can take suitable decision about manufacturing and selling of mobile chargers.
Income statement according to absorption costing
Particulars
Figures (in
£)
sales revenue 52500
Production expenses 40000
Gross profit 12500
Fixed selling & Administration 10000
Variable selling and administration expenses 7875
Net profit or loss -5375
Marginal costing method for income statement
Particulars Figures (in £)
Sales revenue 52500
Less: Variable cost
Variable selling and administration
expenses 7875
material 16000
Labor 10000
variable production overhead 4000
Total variable expenses 37875

Gross profit 14625
Less: Fixed expenses
Fixed production overhead 15000
Variable selling and administration
overhead 10000
Total fixed expenses 25000
Net profit or loss -10375
TASK 3
a. Types of budget and its advantages as well as drawbacks
Budget may be defined as a framework which furnishes information regarding income
and expenditure pertaining to the specified time period. Manager of the firm has
accountability to make proper estimation of monetary aspect that is required to carry out
activities more effectually. Budget is highly significant which in turn provides deeper insight
to the personnel about the amount which they need to spend while performing business
activities. Imda Tech can prepare highly suitable and competent framework by employing
one of the following technique. In addition to this, firm can also undertake combination of
techniques for setting highly suitable financial plan.
Zero base budgeting: In this, manager of the firm starts with zero base and starts making
allocation of funds according to the activities required to perform. At the time of budget
preparation manager makes assessment of alternative ways of performing tasks and make in-
depth assessment of cost associated. In this way, by doing in-depth investigation of cost and
income manager of the firm drafts budget.
Advantages
 Facilitates optimum allocation of funds according to the activities and alternative
options identified
 Each level of expense is clearly justified and thereby helps in preparing suitable
budget
Disadvantages
 It is highly time consuming process.

 To prepare budget according to zero base techniques finance personnel require
support from the higher authority of each department (McMillan, 2017).
Activity based budgeting: Under ABB technique, business unit makes allocation of cost by
identifying the relevant cost driver (Hansen, 2011). In this, by dividing the total amount
according to the level of activities manager of finance can determine suitable cost.
Advantages
 Appropriate allocation of money according to the cost driver and activities
 Helps in preparing highly realistic budge
Disadvantages
 To prepare budget according to ABB business entity requires highly talented
personnel.
 For the preparation of budget on the basis of activity based technique firm needs to
conduct training session.
Incremental budgeting: In this, manager prepares budget by taking into account the previous
year framework (Ferry and Eckersley, 2012). Hence, in this concerned authority adds some
percentage in past year budget to prepare the new one.
Advantages
 Easy to formulate
 Less time requires to prepare budget as compared to other methods
Disadvantages
 Totally based on past years framework
 Under incremental budgeting, manager does not consider current trends or activities
Hence, it is suggested to Imda Tech to employ zero base budgeting tools which in turn
help it in framing highly effectual and realistic budget. By evaluating the each area of
expense corporation can decide the fund required to perform activities more effectively and
efficiently.
b. Defining the process of budget preparation

Manager of Imda Tech is required to follow below mentioned process to prepare
budget as follows:
 Assessment: Goal and objectives assessment is one of the first and main steps of
budget preparation. Moreover, meeting goals within the suitable time frame is the
main goals of firm.
 Analysis: In the second stage, manager analyzes activities which they need to perform
for achieving the business goals. This in turn helps in aligning goals with the activities
to a great extent.
 Preparation: At this stage, manager prepares budget by allocating expenses to each
activity on the basis of requirement. By making in-depth evaluation of activities
manager makes estimation of income as well as expenses.
 Evaluation: In the fourth stage, finance personnel makes evaluation of actual
performance with the budgeted figures (Ferreira, Moulang and Hendro, 2010). This in
turn helps company in assessing the deviations that take place in financial aspect.
 Action: In the last stages, manager makes effort to assess the causes due to which
deviation occurs in the monetary aspects (Granlund, 2011). In this, by keeping in
mind the causes business unit undertakes significant action for improving the
financial aspect or performance.
c. Stating various types of pricing policies that can be undertaken by Imda Tech
Price implies for the money which is charged by the retailer for the products or
services offered. Cost per unit and profit margin is one of the main elements that are
undertaken by manager for setting suitable prices. Imda Tech can set appropriate price of
mobile charger and other electronic gazettes. Hence, pricing strategies which are widely used
by the retailers are as follows.
 Mark up pricing: According to such pricing strategy, by adding mark up in the cost
per unit Imda Tech can determine suitable price. Moreover, mark up pricing helps in
making assessment of price which business unit needs to charge from the customers
for getting desired level of margin.
 Competitive: In the present times, individuals or customers make purchasing decision
by evaluating the price that is charged by other manufacturers. Hence, after making
evaluation of price, quality etc. customers take decision about purchase (Burritt,
Schaltegger and Zvezdov, 2011). In this, by setting price in line with the competitors

firm can entice the decision making aspect of customer and thereby generates high
profit margin.
 Penetration: Such pricing strategy directly contributes in the long term growth and
success of firm. On the basis of penetration strategy, business unit requires to set
lower prices at initial level which in turn helps in evolving high level of satisfaction
among the customers. Once customer satisfaction has been built thereafter by
charging appropriate prices Imda Tech can attain success.
 Skimming: This strategy works only for short duration and focuses on attaining profit
margin. Under this, business unit sets and charges higher prices for the products or
services offered.
Hence, by considering all the pricing strategies it can be stated that Imda Tech should
employ either competitive or penetration strategy. By following this, firm can enhance
customer base and thereby profit margin.
TASK 4
Defining balance scorecard and its implementation in the strategic decision making
Balance scorecard may be defined as a performance management tool that is
undertaken by the manager to evaluate the activities executed by staff. Along with this, such
system is also used by the firm to assess the outcome of employee’s action. Thus, manager of
Imda Tech can identify and improve various internal functions of business and their external
outcomes. Hence, such system focuses on the evaluation of performance and providing
feedback to the higher management which in turn may result into competent strategic
framework. Tool of balance scorecard is highly significant which assists firm in
communicating to staff what business unit wants to achieve (Balance Scorecard, 2017).
Hence, it helps in aligning day to day activities with the strategic framework. By using
balance scorecard Imda Tech can prioritize projects, products or services.
In addition to this, financials, customers, internal process improvement and
organizational growth are the main four perspectives of balance scorecard. Hence, by
evaluating and measuring performance in against to such aspects firm can identify the level
and causes of deviations. In this way, balance scorecard system helps in taking strategic
action in line with the goals as well as objectives. This in turn helps company in gaining and
sustaining competitive edge over others. Moreover, optimum utilization of fund and meeting

customer satisfaction is one of the main objectives of firm (Marcos, Rouyet and Bosch,
2012). Besides this, improvement in quality and efficiency level is another main objective of
Imda tech. Thus, by making continuous evaluation of performance in against to such
standards Imda Tech can take action for performance improvement. By considering all such
aspects it can be said that Balance scorecard aid in decision making and thereby helps in
achieving success.
CONCLUSION
By considering the above report, it can be concluded that by undertaking the system
of management accounting Imda Tech can reduce cost and maximize the profit level.
Moreover, such system helps business organization in taking suitable decision and thereby
makes contribution in the attainment of goals. By using system of job costing, inventory
management business unit can meet goals significantly. Besides this, it has been articulated
that by employing the tools and techniques of budgeting Imda Tech can restrict high
spending. This in turn enables firm to make high profit margin by using money in an
appropriate manner. It can be revealed from the report that absorption costing system is
highly effectual rather than marginal. Moreover, absorption system considers both fixed and
variable cost for the assessment of cost as well as profit margin. Further, it can be
summarized from the report that balance scorecard is the most effectual systems which in
turn helps in aligning goals with the business activities.

REFERENCES
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