Managerial Accounting Techniques for Tech UK

This assignment delves into the application of managerial accounting techniques within Tech UK Limited. It examines various costing methods like marginal and absorption costing, alongside budgeting practices. The report emphasizes how these techniques can assist in balancing internal operations and achieving financial stability for the company.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A) Management accounting and requirements of management accounting..........................1
Difference between financial accounting and management accounting................................1
Importance of management accounting information to departmental managers for decision-
making....................................................................................................................................2
Various Cost Accounting Systems.........................................................................................2
Inventory management system...............................................................................................1
Job Costing System................................................................................................................1
B) Producing financial information........................................................................................2
Types of management accounting reports..............................................................................2
Information to be presented in understandable manner.........................................................3
TASK 2............................................................................................................................................3
Preparation of income statements using Marginal and Absorption Costing..........................3
TASK 3............................................................................................................................................5
Kinds of budgets and advantages and disadvantages.............................................................5
Budget preparation process and various costing systems.......................................................7
TASK 4............................................................................................................................................7
Comparison of management approach of one organisation with other company..................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is much beneficial to managers so that they are able to take
better decisions. Present report deals with importance of management accounting information in
Tech (UK) Limited which is engaged in production of special chargers for mobile, telephone and
carry-on gadgets for retail outlets. Requirements of such accounting, various managerial reports
are explained. Moreover, marginal and absorption costing methods are used to prepare income
statements. Furthermore, kinds of planning tools are discussed along with advantages and
disadvantages. Use of management accounting systems is explained for resolving financial
problems. Thus, such information is helpful for management to take enhanced decisions.
TASK 1
A) Management accounting and requirements of management accounting
Managers are quite benefited by implementing this type of accounting as it helps them to
take structured decisions in the best possible manner. Financial information is provided to the
managerial personnel so that they may analyse financial performance and take better decision so
that organisation may be strengthened internally and desired outcome can be generated in the
market by garnering profits .(Ahadiat, 2013).
Difference between financial accounting and management accounting
Financial Accounting Management Accounting
1. It is a branch of accounting which takes
monetary transactions and final accounts are
prepared.
1. This accounting not only takes information
of monetary transactions but non-monetary
aspects are also taken into account and
managerial reports are formulated.
2. Financial statements are to be prepared in
accordance to the format provided by
Companies Act 2006
2. No format is prescribed by professional
body and a firm can prepare reports of any
format as per their requirements.
3. Financial accounting imparts detailed
financials of company on various operational
segments (Bennett, Schaltegger and Zvezdov,
3. Managerial reports are summarised ones
about financial health of firm.
1

2013).
4. The financials are prepared usually at the
end of accounting period.
4. There is no specific period to prepare
managerial reports. It is formulated as when
need arises for the same by management.
Importance of management accounting information to departmental managers for decision-
making
The management accounting information is quite significant of departmental managers so
that they may be able to assess performance of units and take better decisions in order to improve
upon the same if deviations exist. On the other hand, there are various departments in Tech (UK)
Limited which are integrated with one another and required to perform well to inject overall
efficiency (Chenhall and Smith, 2011). Finance, marketing, operations, production and HR are
some departments of an organisation. A production unit provides reports in which amount of
inventory needed is listed. This is then provided to finance department to evaluate whether
resources are available to buy raw materials or not. Thus, all the units are interrelated with each
other and performance is measured with much ease and as such, management accounting
information assists departmental managers of Tech (UK) Limited to take enhanced decisions.
Various Cost Accounting Systems
Cost accounting is essentially required in the organisation so that costs can be controlled
in a better way by reducing expenditures up to a high extent. Cost accounting is helpful to Tech
(UK) Limited as it helps to minimise costs incurred in manufacturing mobile chargers and other
carry-on gadgets in effective manner. The various cost accounting systems are listed below-
2

1. Actual costing-
As the name suggests, actual costs incurred on manufacturing items are recorded in this
system. The costs such as raw materials, labour and quantities used in production is effectively
assessed by the manager and as such, actual cost can be ascertained (Laudon and Laudon, 2016).
2. Standard costing-
Standard costs on various manufacturing activities are ascertained by the organisation. It
is used to compare planned costs with actual costs so that deviations may be analysed in periodic
basis.
3. Normal costing-
Normal costing is another effective method used to assess cost of production. Normal
costs incurred such as materials, overheads costs, labour are ascertained in effective manner.
Inventory management system
Inventory is required by Tech (UK) Limited in order to achieve desired production in the
best possible manner. Organisation uses such system so that inventory can be managed in
effective way and spoilage may be observed. On the other hand, if stock is ordered ion excess,
additional handling cost is incurred for keeping the same in warehouse (Quattrone, 2016). To
overcome this, inventory report is prepared by production department in which requirements are
listed down and provided to top management. Thus, desired stock is purchased to meet demand
of department and hence, no spoilage occurs. Types of inventory management systems are
tracking with barcode and RFID (Radio Frequency Identification). Tracking with barcode system
implies that stock gets updated as soon as it is scanned. Thus, level of inventory available to
company is clarified quite effectually. On the other hand, RFID implies that when stock is
availed, the software recognises it and the same is recorded. Hence, organisation is benefited by
such systems.
Job Costing System
Job costing is a way to assess cost incurred on various manufacturing jobs which are
engaged in generating desired level of production. In simple words, cost of manufacturing is
assigned to particular product. Three types of information are accumulated by job costing system
such as direct labour, direct materials and overheads. Thus, Tech (UK) Limited may be able to
1

analyse manufacturing jobs and efforts can be made to minimise expenditures on various jobs
which are unproductive. Hence, more production may be achieved in an effective manner.
B) Producing financial information
Types of management accounting reports
The different types of management accounting reports are described below-
1. Segmental Report-
This report provides a way to analyse information regarding various operational segments
of the company (Broccardo, 2014). It is attached in the financial statement and provides clarity
about the performance of segments whether they are performing good or not. This helps to
evaluate overall financial condition of firm and as such, stakeholders can easily access
information and they can take enhanced decisions by relying on this information.
2. Performance Report-
It is prepared to analyse employee's performance in effective manner. Tech (UK) Limited
can easily assess whether workers are highly productive or not. If deviations are analysed in the
actual output with that of planned one, corrective actions can be taken so that productivity can be
enhanced in a better way. Thus, this report is helpful in analysing performance and taking
corrective action to improve upon the same.
3. Accounts Receivables Ageing Report-
Sales are made by company on cash or credit basis. The payment is paid afterwards by
the debtors on goods purchased by them on credit. In relation to this, accounts receivables ageing
report is prepared in effective manner which lists down unpaid invoices of credit customers.
Along with this, names of customers and outstanding amount are listed in such report. Thus,
pending amount can be analysed in a better way and customers may be contacted to make
payments. If outstanding amount is more, then it is required to implement strict credit policies to
avail payment from debtors within stipulated time.
4. Inventory Management Report-
It is prepared by the production department which lists down requirement of inventory
for achieving desired production. The report is forwarded to top management which scrutinises
this report and orders desired stock as per needs of production department and customer's orders
2

are effectively met. Moreover, it reduces wastage of inventory and as such, maximum production
can be accomplished.
Information to be presented in understandable manner
The information should be presented to financial users so that they may analyse financial
statements and take better decisions. Understand ability concept states that information must be
easily understandable by external users of accounting information and all the disclosures and
accounting treatments must be understood by them. Thus, reliable information can be
accomplished by them and as such, stakeholders can take enhanced decisions.
TASK 2
Preparation of income statements using Marginal and Absorption Costing
Income Statement Under Marginal Costing For Tech (UK) Limited
Particulars Amount
Revenue 1500*35 52500
Less: Marginal Cost Of Sales
Direct Labour 2000*5 10000
Direct Materials 2000*8 16000
Variable Overheads Of
Production 2000*2 4000
Less: Closing Stock
Direct Labour 500*5 2500
Direct Materials 500*8 4000
Variable Overheads Of 500*2 1000 22500
3

Production
30000
Less: Other Variable Expenses 52500*15% 7875
Contribution Per Unit 22125
Less: Fixed Costs
Selling Expenses 15000
Administrative Expenses 10000 25000
Net Loss -2875
Marginal Costing is computed for an organisation. It can be interpreted that revenue
generated by firm is 52500, having 1500 units sold at price of 35. Various costs of labour,
materials and variable production of overheads are computed and deducted to get contribution
per unit of 22125. After carrying out variable expenditures, fixed costs like selling and
administrative expenses collectively 25000 is deducted. Finally, net loss is arrived amounting to
2875. It can be analysed that firm is not able to initiate control on fixed and variable costs by
which loss is computed. Thus, it is required to reduce expenditure to earn profit.
Income Statement Under Absorption Costing For Tech (UK) Limited
Particulars Amount
Revenue 1500*35 52500
Less: Cost Of Sales
Direct Labour 2000*5 10000
Direct Materials 2000*8 16000
4

Variable Overheads Of
Production 2000*2 4000
Fixed Costs Of Overheads 2000*5 10000
Less: Closing Stock
Direct Labour 500*5 2500
Direct Materials 500*8 4000
Variable Production Overheads 500*2 1000
Fixed Costs Of Overheads 500*5 2500 30000
22500
Less: Under-Absorption 5000
Gross Income 17500
Less: Total Cost Of Production 17875
Net Loss -375
Absorption Costing is computed above that shows revenue of 52500 achieved by the firm
in an effective manner. Direct labour is 10000, direct materials are 16000 and variable overheads
are 4000. After that, all variable and fixed expenditures are deducted. Moreover, under-
absorption of overheads of 5000 is deducted as well. Furthermore, gross income is 17500 which
is less than total cost of production of 17875. Thus, it can be analysed that net loss of 375 is
attained. It is required that Tech (UK) Limited should reduce manufacturing costs so that profits
can be accomplished and as such, firm will be able to produce more items by considerably
reducing overall expenditures in effective way (Senftlechner and Hiebl, 2015). Hence, loss can
be recovered by minimising expenses and profits can be achieved quite effectually.
TASK 3
Kinds of budgets and advantages and disadvantages
To bring up the financial stability in organisation there is requirement of having
appropriate analysis over the industrial activities. Moreover, there are various kinds budgetary
techniques which in turn will be fruitful for collecting the relevant financial information as well
5

as present the appropriate outcomes. Such derived analysis will be summative to bring accurate
changes in the operational activities of business. Therefore, there will be analysis of veracious
budgetary techniques on the basis of their advantages and disadvantages.
Incremental budgeting: This budgetary technique comprises with the methods that it
considers the past transaction as well as pat records of the business which in turn will have
effective and incremental costs in the current time. Moreover, it will be assumed by the
professionals that the costs as well as revenue of the operational activities will be increased in the
coming time. Therefore, they increase the costs or funds of budgets which will be bring them the
favourable returns in the coming time. Tech UK Limited will be helpful to the business as the
managerial professionals analyse the merits and demerits of this budgetary system.
Advantages:
 It has the increment in the funds for operation on a constant level while changes incurred
in the operations is gradual.
 It is not complex for the managerial professionals to understand the main reasoning
behind the budgets.
 It will be easy to develop the co-ordination among the budgets of various departments.
Disadvantages:
 It only focuses on increasing the funds for operations while the level of activities remains
content. Moreover, there are no changes into the operational level of entity as there will
be no implication of any technique of strategies to make improvements.
 It does not make reduction in the costs and a fund implies in each industrial units.
 The irrelevant application of costs will be over useless activities.
Zero based budgeting: these are the budgets which are variable in nature as there will be
flexibility in the costs implied in each activity. Thus, there are various operations which in turn
will be effective as well as helpful to the firm as to have favourable gains. This starts with the
zero balance of budgets as there will be no influences form the past and previous year budgets
for the operations. Thus, it will be very easy and promptly prepared by the professionals.
Similarly, there are various merits and demerits to this budgeting technique which will be helpful
to the managerial personnel of Tech UK Limited.
Advantages:
6

 These are the most flexible and variable budgetary techniques which in turn will be
helpful to the business as to have satisfactory amount of funds for the activities at the
time of requirements.
 It is the easiest method as it starts form zero balance and no records of past will help in
favourable preparation of the data set.
Disadvantages:
 In accordance with the flexible nature of this budgeting technique there will be chances
of having huge manipulation of funds.
 No records of past activities and costs would not bring accurate estimation as well as
analysis to auditors in determining the level of funds requires in job.
Activity based budgeting: this method insists the process that it comprises with the past
records of all the business activities. Thus, information relevant with revenue, costs, profits and
losses incurred in operations. There is mainly ascertainment of the expense incurred in activities
like manufacturing, branding etc. Therefore, the outcomes bound professionals to re-think and
make strategic plans to alter the costs of activities. Moreover, this budgeting will help in
managing the operational activities as well as costs incurred in them.
Advantages:
 It allocates costs to each business activities which will be helpful and beneficial as to
bring appropriate efficiency and ability to perform the tasks.
Disadvantages:
 It will require much time and consideration of accounting professionals to analyse the
past records and plan the new budgets for the period.
Budget preparation process and various costing systems
To plan the financial structure and costing methods for Tech UK Limited there will need to
have proper information relevant with the process of preparing the forecast table. However, there
are various techniques which in turn will be helpful to the managerial professionals as well as
accountant of the entity in terms of analysing the costs incurred in business activities and the
allocation of capital funds in a suitable manner.
7

TASK 4
Comparison of management approach of one organisation with other company
The use of various management accounting techniques which in turn help in overcoming with
the financial drawbacks in the organisation. Tech UK Limited needed to implicate such
techniques and approaches which in turn bring them the ability to improve the financial strength
of the business.
Balanced scorecard: this the strategic implication of the targets which will encourage
the workforce to make productive efforts in attaining the business targets in the right time
(Balanced Scorecard Basics, 2018). Thus, it ensures that the proposed work will be managed by
the professionals in the required time and manner. Therefore, it will be helpful and beneficial to
overcome with the financial problems in the business.
Variance analysis: the difference between actual and budgeted costs of the business is
known as variance. Moreover, this analysis will bring the adequate determination of the factors
such as the costs implied in each business activities will requires attention of professionals to
make qualitative decision.
Key performance indicators: These are the performance categories of the business
which records all the efforts made by employees in elation wit attaining the industrial goals. On
the other side, it will be motivating and encouraging the professionals as they will have
monetary benefits in return as well as revenue gains against their efforts.
Financial governance: assigning the duties to the most talented and skilled personnel in
relation with handling the accounting operations in the entities. It comprises with the activities
like allocation of funds, capital utilisation, managing the investments, dividend payments as
well as balance between trade payables and receivables. Thus, such implication will lead the
firm in resolving any financial issues.
CONCLUSION
On the basis of above report which comprises with the managerial accounting tactics and
concepts. Therefore, implication of such techniques which will be assistive and helpful in
balancing the internal activities of entities. The report emphasis various costing and budgeting
techniques which will be helpful in manage the operation in Tech UK Limited. There has been
8

measurement of marginal and an absorption costing technique which helps brings the accurate
outcomes to the proposed data base.
REFERENCES
Books and Journals
Ahadiat, N., 2013. In search of practice-based topics for management accounting
education. Available at SSRN 2355853.
Bennett, M. D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in
management accounting for sustainability (pp. 1-56). London: ICAEW.
Broccardo, L., 2014. Management Accounting System in Italian Smes: Some Evidences and
Implications1. Advances in Management and Applied Economics. 4(4). p.1.
Chenhall, R.H. and Smith, D., 2011. A review of Australian management accounting research:
1980–2009. Accounting & Finance. 51(1). pp.173-206.
Laudon, K. C. and Laudon, J. P., 2016. Management information system. Pearson Education
India.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: past accomplishments and future opportunities. Journal of Accounting
& Organizational Change. 11(4). pp.573-606.
Online
9