Management Accounting and Techniques for Budgetary Control

This document provides an overview of management accounting and its essential requirements. It discusses different methods used for management accounting reports and evaluates the benefits of management accounting systems. It also covers the calculation of costs using appropriate techniques and the range of management accounting techniques. Additionally, it explores the advantages and disadvantages of planning tools for budgetary control. The subject is Management and the document type is Accounting.

Management
Accounting
1

Table of Contents
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................4
Task 1...............................................................................................................................................4
P1 Management accounting and giving essential requirement....................................................4
P2 Different methods uses for management accounting report...................................................5
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context..................................................................................................................6
Task 2...............................................................................................................................................7
P3 Calculate cost using appropriate technique of cost analysis to prepare income statement....7
M2 Range of management accounting techniques and produce appropriate financial reporting
documents..................................................................................................................................10
Task 3.............................................................................................................................................10
P4 Advantages and disadvantage of planning tools for budgetary control...............................10
M3 Analyse the use of different planning tools and their application for preparing budgets and
...................................................................................................................................................13
forecasts.....................................................................................................................................13
Task 4.............................................................................................................................................13
P5 Compare how organisation are responding the problems....................................................13
M4. Responding of financial problems leads to sustain success through managerial book-
keeping.......................................................................................................................................15
REFERENCE................................................................................................................................17
Books and journal......................................................................................................................17
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INTRODUCTION
Accounting refers as action which are performed by management for identifying, keeping
and maintaining the records of accounts and financial information that are important to run a
business and increase productivity. Management accounting is a profession that is related to
accounts and other information for the purpose of increasing organisational productivity. This
involves partnering in decision making, planning and performance management system that
operated a business successfully (Gao and Zhang, 2019). This is important for organisation to
focus on management accounting and bring innovation as well as improvement in their business
so profitability can be maintained. To increase and knowing about management accounting City
Technology Limited has been selected that is medium size organisation. This is manufacturing
company specialises in gas sensing units by operating business. This report covers system of
management accounting, reporting and tools of controlling the budgets. Management accounting
to respond the problems are also defined.
Task 1
P1 Management accounting and giving essential requirement
Management accounting refers as activities in relation to business that can help to operate
the business and increase the performance. This is important for organisation to manage the
performance and activities for the purpose of running business and maintain productivity. It uses
to identify, gathering, collecting information for running business and improving profitability. In
context to City Technology Limited, management are using different accounting system for
managing the activities and performance that are as defined:
Inventory management system – This system is related to inventory management that
uses to keep record and tracking the stock which are available in organisation and maintaining
the good performance. The managers of organisation should uses different system that can help
to keep records of stock and managing the activities that helps to run the business. In context to
City technology Limited, this system is uses to keeping track of gases and other stock that helps
to operate the business and maintain the performance. This can help to increase productivity and
profitability by managing the raw material and other items so all activities can be maintain and
increased (Goh, 2019).
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Essential requirement – Inventory management system is essential for tracking the
inventory which is available at multiple location in store. This is also required to auditing of all
inventory movement that can help City technology Ltd. To make right decisions.
Cost accounting system – This system is related to cost that can help to manage the
costing and increase the performance. By using this this system, managers can set the cost of
each product and services which can help to maintain the activities. Such system is uses by firms
for estimating cost of their products for the purpose of taking profitability analysis. In context to
City technology Limited, cost accounting system is uses to set the cost of products and services
which can help to manage the activities. This can help to increases to manage the activities by
running and estimating cost in relation to business (Semikolenova and et. al., 2020).
Essential requirement – Cost accounting system is essentially required to recording and
classification of cost in relation to a business and maintain good performance of a business. This
is essential required in organisation for estimating the cost and managing the all activities.
Therefore, City technology Ltd is using this system for estimating cost and manage the activities.
Price optimisation system – Such system is related to setting the prices and cost of
products which are available in organisation and increase the number of customers. For
organisation it is important to have right prices so they can manage all business activities and
maintain the good performance. For City Technology Limited, it is essential required to set the
prices of gases and other items which help to run business successfully. This organisation is
retaining their existing and new customers which helps to enhance the business and maintain
high profitability (Ravenda and et. al., 2019).
Requirement essentially – The requirement of price optimisation system is essential as
deciding the prices of products and services which are providing by organisation and helps to
increase the sale by setting right prices.
Job costing system - This system states that cost of each section should be divided and
classified according to specific department so accurate income and expenses can be record and
manage the high productivity. It is essential required for City Technology Limited to determine
the different batches of product and services so profitability can be maintain effectively. This
also helps to maintain the quality of products and services so a business can be run properly.
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Essential requirement – This system is essential required for dividing and classifying the
cost of material that are used and scrapped while course of job. This also uses to dividing the
cost in to specific department which can help to run business and mange the activities.
P2 Different methods uses for management accounting report
Management accounting report is considered as managerial accounting report that are
related to financial information and helps to increase the organisational brand image. For running
and maintaining business activities reports are important which is prepared by management in
order to understand the activities, transaction, gathering information and maintaining high
profitability. In context to City Technology Limited, management are preparing different type of
management accounting reports that are as defined:
Inventory management report – This document is related to inventory and stock which are
providing by organisation. If a person is running business of selling products then it is require to
keep records and tracking the inventory properly so products which are going to finish expiry
and other information can be taken that helps to manage and control the orders of products. This
is important for organisation to manage and maintain the raw material and finished products so
all activities can be performed. The management of City technology Limited company is using
this report for tracking the gases and raw material so all activities can be run and maintain the
performance in competitive environment. This also help to state the which items are required to
reorder and which one is existing in warehouse. These all activities are under the supervision of
management that help to operate the business and increase the productivity by tracking and
accessing the raw material. All information regarding raw material and products are managing
and tracking through software that help to keep records and managing all data (Zadorozhnyi,
2019).
Cost accounting report – This is another report which related to cost accounting, help to
increase the business performance. In other word, cost accounting is a continuous process of
recording, analysing and reporting company’s cost that helps to make the better decisions. For
organisation it is important to have good relations with employees and customers so business
activities can be maintain properly. In regards of City Technology Limited, management are
preparing cost accounting report for the purpose of maintaining income and cost of products and
organisation through a report and software. This helps to increase the business performance and
productivity by managing the cost properly and attaining the business goals and objectives. By
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using this, managers make right business decision and increase the activities by calculating right
cost (Pankov, 2019).
Account receivable report – This is another document which is prepared by management
for running business by managing all credits. As a business is mainly depends on credit which is
given by business owners to its customers who regularly buys products so they keep maintain a
records of creditability. The credit period are given for 30 days, 60 days and 90 days that provide
time period to get the amounts. In context to City Technology Limited, management are
preparing account receivable report that help to keep records of unpaid customers with time
period so amount can be taken at right time and manage the performance (Nazarova and et. al.,
2020).
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context.
Systems Applications and uses
Inventory management system This system applicable in manufacturing organisation
that helps to record the inventory and raw material
which increases business performance. City technology
Limited is using this system to keeping records of all
inventory and raw material. This can help to increase
high profitability.
Cost accounting system This system is related to cost management that helps to
keep record of all income and expenses that uses to
maintain the high profitability. The City technology
Limited uses cost accounting to maintain the cost by
involving all income and expenses that increases
performance.
Job costing system This system is uses by management to accumulate the
cost in small units and maintaining the activities
regularly. This can help to manage the activities and
improve the organisational performance.
Price optimisation system To setting the price and cost of products which
increases number of customers. The managers of
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selected organisation is using price optimisation system
for setting the prices and increasing customers.
Task 2
P3 Calculate cost using appropriate technique of cost analysis to prepare income statement
Cost - This is defined as cost value which spent by organisation for producing products,
managing activities, increasing performance and profitability by keeping proper records of cost.
This is important for organisation find the cost of products and services which are important to
make the right business decisions.
Absorption cost - This methodology is uses to get the profits by absorption of all accost
which arises in organisation and maintain the production. In this fixed and variable cost are
changes time to time.
Absorption costing
Particulars
Sales 401500
Marginal cost for sales
Direct material 69350
Direct labour 109500
Direct overhead 14600
Fixed manufacturing costs 900000 1093450
Gross profit -691950
Administrative expenses 4500
Salary 13800
18300
net profit before interest &
tax -710250
interest 355
net profit before tax -710605
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Tax 220
Net profits -710825
Marginal cost – This is a costing method which uses to change the total production cost
that comes from making the additional unit of production. This helps to optimise the production
through by economies of scale. In this, fixed cost are constant that increases productions
(Chandra, 2020).
Marginal costing
Particulars Amount
Sales 401500
Marginal cost for sales
Variable costs
Direct material 69350
Direct labour 109500
Variable overhead 14600 193450
Gross profit 208050
Fixed costs
Fixed overheads 900000
Administrative expenses 4500
Salary 13800 918300
net profit before interest &
tax -710250
interest 355
net profit before tax -710605
Tax 220
Net profits -710825
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M2 Range of management accounting techniques and produce appropriate financial reporting
documents.
Management accounting techniques are those methods which uses to make profits and
increase productivity. They are uses to maintain the high performance by calculating cost and
recording them properly. Such as Marginal and absorption costing are techniques which uses by
City Technology Limited that helps to use the appropriate methods for determining the profits.
The management of such organisation are focusing on activities which increases activities and
delivering better quality of services (Mokhnenko and et. al., 2019).
Task 3
P4 Advantages and disadvantage of planning tools for budgetary control
Budgetary Control – This is important for organisation to prepare a budget and set the
income as well expenses that help to operating the business. Budget refers as system which
involves income and expenses which are prepared by management for running business. The
management of City Technology Limited, are preparing budgets that helps to manage the
performance and profitability. The managers should understand the income and expenses of their
organisation then should prepare budgets so all task can be completed right time. For controlling
budget planning tools are uses by organisation that can help to maintain the performance and
activities properly. In context to City Technology Limited, managers are preparing different
types of budget for controlling the expenses that are as defined:
Zero base budget – This is a methodology, uses to operate the business and run it
continuously. This budget is preparing every year that has no previous records and helps to run
the business. This mainly uses by newly established company as they do not have any past
records and financial information so accurate cost is determined by management which helps to
maintain the profitability. City Technology Limited is can use zero base budget by involving
income and expenses of every financial year (Nasiri and Darabi, 2019).
Advantages – Zero base budget is a technique that uses to run the business appropriately.
This provides efficiency and accuracy. Budget inflation and coordination is another advantages
for organisation that can help to maintain the good performance and activities. City technology
Limited is taking the advantages of preparing the budget by adding the information of current
period.
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Disadvantages – This may be expensive for organisation because it is not involving any
past information and making budget. Lack of expertise and high man power id required to
prepare the zero base budget which does not provide right making decisions (Abdullah, 2020).
Cash Budget – This is a budget plan which is prepared by management by involving
expecting cash receipts and disturbance during period. It is important for organisation to focuses
on all cash related activities and receipts which help to maintain high profitability. In City
Technology Limited’s managers are preparing cash budget by understand the receipts and
payment which help to maintain the high productivity (Rueger, 2019).
Advantages – Profitability can be calculate accurately by using the cash budget which
increases performance and maintain good performance. This helps to provide the records of all
income and expenses which occurred at the time of preparing activities. City technology Limited
is preparing cash budget by consider all income and expenses that related to business and
managing performance.
Disadvantages – Cash budget have some drawback as it consider cash receipts and
payment only which is related to business and reduced the activities. This does not involves other
taken cash items which may provide in appropriate results. Low customers and productivity can
be face due to improper management of cash.
Capital budget – This budget is related to allocating the money for acquisition and
maintaining the fixed cost such as land, building and equipment that helps to maintain the
profitability. In other words, capital budgeting and investment appraisals are determined
planning process which uses to run the business. In context to City Technology Limited,
managers are using capital budget that creates accountability, productivity and measurability that
seek to go ahead and maintain the profitability. The manager should be prepare capital budget
by investing amounts and controlling the expenses in relation to business (KIT Etim, 2019).
Advantages – City Technology Limited can understand the risk and its effects in
organisation which arises in organisation. This helps to choose investment and controlling the
expenditure by involving income and expenses. In chosen organisation, it increases shareholder
wealth and advantages in market. Managers can improve their organisational productivity by
managing the performance.
Disadvantages – This can be challenge for organisation to prepare the capital budget as it
invo0lves all income and expenses that incurred in organisation. To prepare this budget there is
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need of availability of skilled and talent employees which is difficult for organisation. In this,
techniques which are uses by organisation are assumed not real.
Operating budget – This is related to maintaining day to day activities and performance
in relation to business so all activities can be performed at right time. This is considered as
forecast of revenues and expenses expected for future period. This can help to maintain to good
performance by operating day to day activities. In context to City Technology Limited, operating
budget is prepared by managers that helps to perform the day by day activities and increase the
organisational profitability (Schroeder, Clark and Cathey, 2019).
Advantages – This is consider as a plan which is prepared to meet with company’s debt
obligations and getting sustainable advantages. This states how a company spend its money
where business areas needed most cash for running activities. This also provide a long range
planning budget flexibility for improving the business performance. The manager of City
Technology Limited keep and provide the accurate information and data that increases
production.
Disadvantages – This is time taken budget that required more time for preparing and
collecting the information. It make allocation of expenses difficult and increases expenses of
organisation that reduces organisational image. This mainly focuses on income and expenses that
are associated with long term (Shi, 2019).
M3 Analyse the use of different planning tools and their application for preparing budgets and
forecasts.
Planning tools are those methods which uses by organisation for identifying the needs and
wants of organisation so all activities can be completed on time and maintain the good
performance. Planning tools such as operating budget, zero base budget, cash budget and capital
budget are prepared by management in order to manage the activities and increase the business
performance in competitive business environment (Pankov, 2019) . In context to City technology
Limited, capital budget help to set and attain the long term goals which helps to increase profits.
Zero base budget are prepared from new accounting period and cash budget involves all cash
items that uses to maintain the profitability by keeping records of cash. Operating budget is helps
chosen organisation to focus on day by day activities that helps to operate the business.
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Task 4
P5 Compare how organisation are responding the problems.
Financial problems are those issues which can be occurred anytime that reduces
organisational productivity. This is important for organisation to run the business and increase
the profitability by operating a business successfully. Financial problems are considered as
financial pressure that has impacted on mental health of person which reduces organisational
productivity. In context to City technology Limited, financial problems are faced by organisation
while operating business that are as defined:
Low income and high spending – This means when a business concern starts their
business then lots of amounts are needed to invest on necessities in relation to business that helps
to operate the business and increase profitability. In contrary, if expenses are more than income
and increasing continuously that create problems for organisation as no command on business
activities. In context to City Technology Limited, spending are high in other activities which are
creating expenses for company and financial problems.
Lack of proper management of cash – If someone is running business then there is need to
manage the cash and its equitant items which can help to operate business and increase the
productivity. This can be difficult for management to keep records of all transactions and cash
items that are related to business which create problems. In context to City technology Limited,
managers are facing lack of cash management and not proper records of creditors which affected
the productivity and profitability (Nazarova and et. al., 2020).
For solving such financial problems by using appropriate approach are as defined:
Key performance indicator – This is a too that is uses by organisation while running a
business to analysis the performance of employees who are working in organisation. This
tool helps to attracts the employees and get completion of task in certain period of time by
solving the problems. In City Technology limited management identified performance of all
employees and provide the direction and maintain the good performance which helps to operate
the business successfully.
Balance scorecards – This is considered as performance measurement tool that uses by
organisation for knowing the performance and financial problems so improvements can be taken
at right time. In context to City technology Limited, managers are performing their actions by
using this technique in which they get information how employees are performing and how they
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can be maintain good performance. This can help to manage the finance and other problems
which are facing by organisation (Chandra, 2020).
Financial governance – This determined as governmental rules and ethics code which
are formulated by governmental body for those who are running their own business and needs to
follow such regulation so business can be operated and manage the successfully. In other
wor5ds, referring set of code and ethics that uses to identifying, gathering and tracking the
financial information which helps to focus on problems and reduced them.
Comparison and responds towards financial problems which are facing by different
organisations:
Basis City technology Limited Bentley Motors
Financial problems This is manufacturer and
sale of reliable and innovative
gas sensor for person use and
fixed life safety system facing
improper cash management
problem that reduced
organisational profitability
(Mokhnenko and et. al., 2019)
.
Bentley Motors is car
manufacturing company that is
facing the problem as high
spending and mow income. The
managers are spending high
amounts on design, structure
another unnecessary items that
impacted on business.
Identification of
problems
This problems was
identified by using KPI tool that
can help to manage the
performance and bring changes
accordingly (Nasiri and Darabi,
2019).
Problem which are facing by
company by using balance
scorecard that can help to
maintain the activities and keep
records of all items.
Application of system
and responds
For solving financial problems
price optimisation system is uses
by organisation that can help to
operate the business by setting
the right prices and maintain the
good performance.
For this problem management of
Bentley motors should use cost
accounting system that help to
solve the problems and maintain
the activities and performance.
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M4. Responding of financial problems leads to sustain success through managerial book-keeping
Financial problems are faced by all organisation while running a business that should be
solve out by using proper management system. Book keeping refers as a system which uses by
organisation to keep the records of all accounts and financial inofmr5ation so all activities can be
perform at right time. In context to City Technology, improper cash management problems are
facing because bookkeeping system should be uses to keep records of all items and expenses so
changes can be taken. For solving the problems, price optimisation system is uses that help to set
the right prices of their products and maintain the performance (Abdullah, 2020).
CONCLUSION
From the above discussion it has study that management accounting is relatively term that is
important for managing the accounts and financial information in relation to a business. Different
system and reports are uses by management such as inventory management, cost accounting,
price optimisation, job order costing and account receivable reports that helps to increase the
productivity by managing cost and information. This also help to increase the organisational
productivity by pertaining and recording the income and expenses. Planning tools are those
techniques which are uses to control over budget by reducing cost and increase the profits by
recording and controlling all expenses. Financial problems are those problems which arises while
running the business and needed to responds properly so all task can be complete at time and
maintain the good performance.
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