Introduction to Management Accounting INTRODUCTION

It is helpful for analysing expenses and costs and in preparation of internal financial reports, that helps in evaluating and measuring financial performance of organization and process in order to achieve business goals. However, Report will explain the use of planning tools used in Management accounting andwillalsoexplainthe disadvantages of different types of planning tools used in budgetary control. TASK 1 1 Management Accounting It is the method of managing the organization by the use of accounting, this accounting is help to identify the financial performance of business.

Management Accounting

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INTRODUCTION
Management Accounting refers to managing overall accounting and financial statement
of company. It helps in obtaining information and financial statistics. It is helpful for analysing
expenses and costs and in preparation of internal financial reports, that helps in evaluating and
measuring financial performance of organization and process in order to achieve business goals.
The Project report will explain various types of accounting systems Further, it will
outline different methods used for management accounting reporting. Thus, the assignment will
evaluate the benefits of management AS and will showcase how the system report and integrate
within business process.
However, Report will explain the use of planning tools used in Management accounting
and will also explain the advantages and disadvantages of different types of planning tools used
in budgetary control. It will compare how organisations are adapting management accounting
systems in order to respond to financial problems. Lastly the report will critically evaluate how
planning tools for accounting respond appropriately fore solving financial problems in the
business.
TASK 1
Management Accounting
It is the method of managing the organization by the use of accounting, this accounting is
help to identify the financial performance of business. (Curry, Hersinger and Nilsson, 2019).
This accounting is help to managers for decision making also helps to making planning and
manage performance system, also expertise of the organization makes the financial report in
order to identifying the financial position of the company, they formulating this strategy and
implementing the strategy in the organization.
1.
The system refers to confidential internal reports that aids managers in decision making
process. This system is used in all business units, Information technology, Human resource, sales
and operations. There are various types of system such as:-
Cost accounting system
It is used as a tool of estimate the cost of production. It is the framework which measure
the cost, inventory valuation also analysis the profitability of the company. Cost accounting is
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helps to ABC limited for analyses and estimating the cost of product which describe the overall
production cost of the company (Haldand Thrane, 2016). So every organization must know
about that which products are more profitable for the company. Company. In Addition, a cost
accounting system helps to analysing cost of raw materials, machinery, etc.
Inventory management system
This system is help to manage the inventory of the company. This system is managed the
inventory by tracking the supply chain or also analyses the overall business operations
(Järvenpää and Länsiluoto, 2016). The inventory management include all the production
departments such as retails, warehousing, etc. so company will sell their product by use the
different supply chain so that is the reason company will use the inventory system in their
organization to make better decisions.
Job costing system
It is a system that manage the manufacturing costs separately of each job. Job costing is
helps to company for analyses the cost of each departments. It is help to identify the cost of
production of particular departments of ABC limited. Moreover, system of management
accounting which identify the cost of production on each departments (Warren Moffit and
Byrnes, 2015). For example, event management company, also mange their financial position
with the help of job costing so company calculate the each cost of departments such as a
production, manufacturing, etc.
2.
Management accounting reports provide an insight of business performance. It analysis
the performance indicators and defines overall efficiency of the organization. Through analysing
the accounting reports the business enterprise can do improvements in their financial plan.
Various methods are as follows -
Cost report
Management accounting is help to identifying the particular cost of the production. Cost
report will describe the overall cost of the 'ABC limited'. Such as product cost, overhead, wages,
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and other cost of the company (Andersén and Samuelsson, 2016). In the cost report that is
described the whole data of the production cost. So this final cost helps to identify the price of
the product and also identify the income limits.
Budgets
Main component of Management Accounting is the planning, organizing, evaluating, and
implementing of plans. Budgets are also helped to ABC limited for managing the plan according
to available resources of the company. Budget is evaluate for the purpose of managing the future
projects of the company. Budget is help to identify and balancing the expenses with the income
of ABC limited.
Execution report
Management accountants help to identify the each cost of production. Management
accounting makes the monthly report which identify the monthly cost of production (Van der
Stede, 2017). Also, this report makes the new budgets in every year which helps to identify the
performance of the ABC limited. This report helps to analyse the future demand of the product
also analyses the cost of product in each year.
3.
A business need to manage their accounts so that they are able to evaluate their financial
status. It build bridge between finance function and other essential parts of entity. Therefore,
beneficial aspect of management accounting defined in following manner as-
 Management Accounting helps in measuring the actual performance by comparing with
budget.
 It helps in increasing capital employee through rate of return.
 The Management accounting is helpful in improving the relationship between the
management and the Labour.
 It is helpful in managing the business activities by using the application of both budgeting
and planning (Salterio, 2015).
 The management accounting make plans of the business using past results and by
evaluating past performance of the business.
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 It refers to the process of development it is in state of evolution.
4.
Management Accounting refers to the use of money that is planned and controlled. The
Management accounting facilitating the business. It controls the budget through generating and
comparing actual revenues and expenses. The Management accounting Systems helps in
focusing the future planning that is helpful in managing and controlling organizational resources.
Management Accounting Systems and reporting is integrated within Organizational process in
this way -
 Continuous Improvement – This is helpful in measuring the efforts it drives the
continuous betterment in the enterprise. The Management accounting is helpful in
preparing budget which is helpful in eliminating waste and helpful in enhancing the
productivity of Organization.
 Cost Management – The Management accounting Systems contributes to improving the
Organizational efficiency by integration of Cost Management system (Coad, Jack and
Kholeif, 2015). The Cost Administration and Management Accounting combined
facilitates the inventory purchasing of the Organization and convenient in charge and cost
acquiring procedure. The Organization measures the reimbursement of inputs and cut
down the expenses of operational activities within the Organization.
 Quality Management - The Management accounting systems and reporting measures
and monitors the quality related costs of Organization. The Management accounting
system is focused on improving the product quality of an Organization by evaluating and
analysing past reports and data.
TASK 2
1.
Production cost per unit is incurred due to production process is divided by the number of
units produced and derived from the variable costs and fixed costs
TPC can be derived as adding total labour cost, total direct material cost and total
manufacturing overhead cost for time.
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Total cost of sales refers to the accumulated total of all the costs that are used to create
products and services for the purpose of sales.
2.
Budgeted profit and loss statement contains all the line items that found in normal income
statement. It is useful for testing whether the projected financial results of the company are
appeared to be reasonable.
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Interpretation: On the basis of the above table it can be interpreted that actual profit is less than
the budgeted profit as because of the reason that company estimates to produce the less unit that
is 18000 unit but in actual they produce more units of 19000 unit which directly increases their
cost of production and hence net profit decreases. in this case it can be said that budgeted
outcomes were quite favourable to the organization while actual represents less profits. In this
case firm has to control over cost of production which would be effective for them in retaining
gains at the upcoming period.
3.
Financial reporting defines as the communication of financial information like investors
and creditors. Financial reports includes Profit and loss account and balance sheet.
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TASK 3
1.
Planning tools helps in monitoring and controlling the finances of the business
organization. Different types of planning tools used in budgetary control are as follows -
Activity Based Budgeting – Activity Based Budgeting method draws attention to overhead
activities and their associated costs (Klychova and et.al, 2015). It is a system that records and
analyses the activities that lead to costs for the business. Each activity that incurs costs is
scrutinize for potential ways in order to create efficiencies. Budgets are prepared on the basis of
results. It adjust previous budgets to account for inflation in the business.
Advantages of Activity Based Budgeting
 It provides realistic costs of the manufacturing for the particular products.
 It allocates manufacturing overhead that accurately processes the use of the activity.
 It identifies inefficient processes and targets that can be improved.
 It determines the product profits and margins in more precise form.
 It discovers the processes that are unnecessary and have wasted costed.
Disadvantages of ABB
 This process is time taking it requires time for preparation and collection of data.
 It costs more to accumulate and this analysis the information.
 The Source of data is not readily available from accounting reports. This requires more
efforts in order to gather the data.
 The reports from Activity Based Budgeting are generally acceptable by accounting
principles that cannot be used for the purpose of external reporting.
Zero Based Budgeting – ZBB is that type of method which includes budgeting of expenses
starting from beginning of the year and not considering last year’s budget (What is Zero Based
Budgeting (ZBB)?, 2018). This will be allowing management level people for making strategic
decision so that implemented into process of budgeting. It specifies functional areas of the
organization. This will be starting from taking zero as base that too on each and every function of
organisation.
Advantages of ZBB
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 It is useful in service and non-profit organization.
 It saves the costs through identifying inefficient operations in the business.
 Zero base budgeting better utilize resources. Resources are allocated on cost benefit
terms.
 ZBB will be providing clarity about till what extent the finance need to be available
within business.
 This method promotes operational efficiency.
Disadvantages of ZBB
 Zero base budgeting is the time consuming process.
 It can create many critical problem like there is involvement of more paper work in
preparation of this budget.
 It involves more expenses in case of large scale business organization.
Incremental Budgeting - It is a another budgeting method based on the previous period's
budgeted results or actual results. It is best and easy apporoach of budgeting where organization
not spending high money for making this budget (Incremental budgeting, 2017). The profits pull
out to be keep from the period to period in this method. It constructs the budget by doing detailed
investigation of expenditures.
Advantages of Incremental Budgeting
 this method is based on financial results. It is the easiest method among all.
 Funding is stable under this method. It is method to ascertain that funds will maintain
fluent in the organization.
 It provides operational durablity by ascertain that departments are operated in a
compatible manner for protracted periods of time.
 It provides ease in operating the various departments of the company's on the consistent
basis.
 This budgeting method is static and variation in it is continuously.
Disadvantages
 It only suppose minimum changes from the last period
 It fosters overspending. Expenditure under one period is reflected in future period too.
 This Budgeting method tends to Budgetary slack. The managers increase the low level of
revenue and intense expenses.
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 No incentives is present under this budgeting method in order to decrease operational
cost.
 It stimulate high expenses to the budget so budget is prepared for the new year.
 It is highly risky method because it distribute most funds in the same year.
2.
Financial prediction refers to the preparation of detailed projections of expected revenues
that quantifies future exceptions of the organization. Various preparation tools are as follows-
Cash Budgeting
This is budget of financial gain and cash income that is incorporated both receipts and
superior items. It prepares in a way in which actual position should be presented in a same
format. This budgeting reflects the changes between opening and closing balances of debtors.
Thus, it is consists of liquidity. Cash budget reflects alteration between closing and opening
balances of creditors. (Schaltegger and Burritt, 2017.). It focusing on inflows and outflows of
cash. The prior objective of organization is to earn probability. Thus, through doing financial
budget objectives of enterprise can be achieved. Working Capital is effectively managed by
through preparation of cash budget. Budget will open out approaches for efficient management
of components that goes into operating cycle.
There are three methods in Cash budgeting
 Adjusted Income Method - The annual cash flow is measured by modify the sales
revenues and cost figures for making changes in receipts and payments. It also helps in
eliminating non-cash items like diminution.
 Adjusted Balance sheet Method – Budgeted Balance sheet is foreseen by expressed each
type of liability and assets as the percentage of anticipated revenues.
 Increase in owner's equity can be foretasted by the adjusted balance sheet method.
 Receipts and payments – The expected revenue and cost for budget period are reasoned
under this method. Total cash inflow and outflow considers capital income budgets are
reasoned. Accumulation and change in financial statements not impacts the cash flow
budget. Expected cash influx is added to the opening balance of cash and all the expenses
are decreased to obtain the closing balance of cash.
Sales Budgeting
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Sales Budgeting refers to a primary forecast of sales that is used to built out the projected
income statement for the business. The projected sales is compared with the actual sale. The
forecasts divest from the income statement and includes planning for variables such as direct
costs of goods sold and indirect costs of marketing. Sales has been forecasted and budgets takes
many forms and serve many purposes under this method. Sales budgeting is estimate of
company's sales for future period (Maas Schaltegger and Crutzen, 2016).
For preparation of sales budget past year sales and figures is required. It has downside
when availability of raw material is short and the sales budget is prepared on the basis
availability of raw material. It sets the departmental goals and estimate earnings to forecasts the
production requirements. It effects operating budget as well as the overall budget of the
company. Objective of this budgeting is to make plan and control the business expenditure such
as raw materials, money, facilities and the people. It helps to achieve desired objectives of the
business. It aims for leveraging and maximise the profits.
Operating Budgeting
Operating budgeting shows projected revenue of the Company and also indicates
associated expenses for the upcoming year. It starts with revenue and shows every expense of
business. It is often presented in an income statement format. It includes variable costs and the
cost of raw materials. This budget also includes operating expenses such as interest on loans and
non cash expense of depreciation (Incremental budgeting, 2017.). These items helps the
company to compute its net projected income. It includes variable costs and the costs vary with
sales.
Operating budget includes fixed costs and the monthly rent of the space and the monthly
payment for a photocopier lease. It includes expenses such as interest on business loans and non
cash expense of the depreciation. It is efficient to construct at high level budget. Purchasing
department of company would be familiar with the cost of raw material under this budgeting
method. It showcases the company's projected income and associated expense for the next year
(Maas Schaltegger and Crutzen, 2016).
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TASK 4
1.
In order to cope up with the financial problems organizations are adapting various ways
such as benchmarking, key performance indicators and budgetary targets.
Benchmarking
This refers to process of measurement that identifies the performance of organization
through production, work and processes. It helps in identifying the internal opportunities for the
purpose of improvement. Hence, there are two kinds of improvement opportunities namely,
continuous and dramatic (Chenhall and Moers, 2015). The dramatic consist of small adjustments
and its improvement is incremental somehow continuous improvement re-comprises all the
internal work of management. It improves perceptive of cost construction and internal
processes. It also helps to promote squad structure and function. It heightens acquaintance with
the key performance metrics and provide opportunities for making improvement in the
organization at wider level.
Key performance indicators
This helps to demonstrate that business enterprise is achieving its objectives or not,
basically it measures the value of performance. Organisations are using Key performance
indicators at multiple levels to evaluate their success and for reaching towards their business
targets (Quattrone, 2016). High level of KPIs focuses on the overall performance of the business
whereas low level of KPIs are focused on the processes in departments like sales, marketing,
production and human resource. It typically determines how best to fine tune with the company's
core practices in order to achieve best results.
Budgetary targets to identifies variances and problems
Budget variance refers to the periodical measurement used by organization in order
determine the difference between budgeted and actual figures. It can either be favourable or
unfavourable for the organizations (Maas Schaltegger and Crutzen, 2016). Favourable budget
variant means optimistic variant and profits of the business while unfavourable budget variance
describes the negative variance or losses of the organizations. Forecasters are unable to predict
the future costs and revenues which results into budget variances. It can be occurred from
controlled or uncontrolled factors.
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2.
Management Accounting helps to develop a budgeting techniques that connectes
sustainable issues in order to ascertain that contingent non financial and financial information is
disclosed in the forms . It makes budgets that includes information on sustainability impacts that
helps to introduce budgeting and taking major pricing decisions, investment appraisals and helps
in doing strategic planning (Otley, 2016). Accounting support to take major financial decision
and improves the business performance. This method is helps to internal organizing and controls
business costs in orders to mantain the sustainability. It facilitates managers to improve the daily
basis operations of the business and helps to make best decisions in order to increased the
financial performance of the firm. it is the method of managing the activity of the firm such as
Activity based costing and benchmarking provides sustainable information which helps to
improve the performance of the firm and also helps to enhance the profits and excecution of the
organization. Through using this methods in the fitrm it gives supports to enhance the profit
margin and helps to achieve the martial and sustainable goals of the organizations. Accounting
methods assess to integrated suitability matters into decision making process of the firm . such
as scenario planning of natural resource availability and life cycle costing provides the helps to
increse the profit of the firm.
3.
Planning methods in management accounting are very helpful in terms to solve financial
problems related to the business enterprise. Hence, it can be evaluated that
Cash budgeting estimates the total cash outflows and cash inflows in the business. Cash inflow
includes the results from sales, the sale of assets and the accumulation of total accounts
receivable and paybles etc. (Kaplan and Atkinson, 2015).
Cash outflow includes debt repayment and asset acquisition and disbursements of raw
material purchase. It highlights the firms potential income and loss for the period. It identifies
company's future financing needs. Sales budgeting derives expected sales for the coming
accounting budget of the financial year. It showcase the expected gross revenue for the sales
plan. It compares actual budget with the project budget and helps to make business plan.
Planning and budgeting helps to fulfil the short term financing requirements of the business, it
provide helps to manage inventory and facilitates organization to pay monthly expenses.
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CONCLUSION
It is concluded from the above project report that Management Accounting is the method
of making management budget and financial accounts that gives purity in financial and statistical
information. Therefore, Profit & Loss and balance sheet account is an essential financial
statements. The budget are analysed for different period. It is summarise that cost accounting
system is a techniques that calculates the cost of production. It refers to the framework which
measures the costs, inventory valuation and also analysis the profitability of the company.
Furthermore, report has been concluded that the financial planning tools such as Activity based
budgeting, zero base budgeting and incremental budgeting are helpful in budgetary control. It is
interpreted that while preparing cash budget same format is being followed in which the original
position of business is presented. Cash budget reflects the changes between opening and closing
cash balances.
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REFERENCES
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Incremental budgeting. 2017. [Online] Available through
<https://www.accountingtools.com/articles/what-is-incremental-budgeting.html>
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What is Zero Based Budgeting (ZBB)?. 2018 [Online] Available through :
<https://www.myaccountingcourse.com/accounting-dictionary/zero-based-budgeting>
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