Management Accounting - Sample Assignment

Management Accounting
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Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
A) Management Accounting:......................................................................................................3
b). Presenting Financial Information:..........................................................................................6
TASK 2............................................................................................................................................8
Various types of costing methods which are use for calculating net profit.................................8
Effective use of management accounting tools and techniques................................................14
Evaluation on the basis of data collected from business activities............................................14
TASK 3.........................................................................................................................................15
a).Different kinds of budgets and their advantages and disadvantages:....................................15
b). Budget preparation process including identifying of pricing and diverse costing systems
which can be used:.....................................................................................................................16
c). Importance of budget as a tool for planning and control purpose:.......................................18
TASK 4..........................................................................................................................................18
Contribution of management accounting tools to respond financial issues..............................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................21
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INTRODUCTION
This report tells about the management accounting is very useful in
the organization which helps the manager to take appropriate decision which
is related to the organization. The tools and techniques of the management
accounting help the manager to prepare the plans from where the
organization can get the more sales from which market and also tells that
the what the consumer needs and desire in the selected market. This report
also includes various management accounting systems and their useful
requirements in the business activities which are integrated with the
management accounting reporting. The organization can measure the
performance of their business activities with the help of management
accounting methods. Further in this report includes the income statement on
the basis of marginal and absorption costing which helps the manager to
make profits by applying these methods of the costing (Bennett, Schaltegger and
Zvezdov, 2013). The report also describes the essential uses of different
planning tools which are used for budgetary control as a performance
measure for the organization. The comparison in this report is also made
which show that how the management accounting can use in organization in
responding the financial problems. TECH (UK) LTD. used the management
accounting to sort out the problems of the department managers, who give
the complained about the lack of financial information. If the flow of
information is in appropriate way, the department managers can make
decisions for their respective departments.
TASK 1
A) Management Accounting:
Management accounting involves providing and preparing timely and useful
statistical and financial information to the business managers so that they
can prepare day- to- day and useful managerial decisions. It is also known as
cost and managerial accounting. It produces reports for organization’s
internal stakeholders. The result of management accounting is regular
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intervals reports for the department managers and directors. The reports
include the details of the organization available cash, current sales revenue,
and recent state of accounts receivable and payable.
Essential requirements of management accounting systems:
1. Measures the performance of whole organization including employees’ efficiency and
working in effectiveness.
2. Another advantage of the use management accounting is that finding out the risk factors
within the organization which can be reduced by the management of each and every
department.
3. The management accounting gives the accurate and suitable presentation of financial
position of the organization with essential data and information to every department.
4. This is also helpful to manager to prepare the management accounting reports in good
and precise manner which is helpful to the each division of an organization.
I. Management accounting Vs. Financial accounting
1. Management accounting is concerned with the accounting information that is helpful to
the management of an organization whereas financial accounting covers the preparation
of final accounts, financial statements, and communication of accounting information to
the users for the interpretation (Bennett, Schaltegger and Zvezdov, 2013).
2. Management accounting emphasizes the preparation of reports of an organization for
external users whereas financial accounting emphasizes the preparation of reports for its
internal users.
3. Management accounting objectivity is flexibility whereas financial accounting objectivity
is verifiability.
4. Management accounting emphasis on the future whereas financial accounting records of
financial history.
5. Management accounting focuses on segments of a company whereas financial accounting
focuses on company as a whole.
II. The importance of management accounting information as a
decision making tool for department managers are:
1. It helps in finding out the major important performance metrics
for each division within the organization.
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2. It gathers the data and comparing it and reports the current
performance as compared to the expectations which helps the
mangers for decision making for an organization.
3. It uses some many useful High-Tec tools and techniques such as
balanced scorecard, key performance indicators and
management information system etc. for analyzing working of
the department and also employees working efficiency are
evaluated.
4. With the help of management accounting information, the
managers analysis the reasons behind such deviations which is
incurred in the operations and suggest the department manager
to take the corrective measures to solve out the problems.
III. Cost accounting systems
- It collects information to determine the production cost per unit.
- It assist the managers in set the selling price that will lead to profits,
compute cost of goods sold for the income statement and compute
the cost of inventory for the organization business activities.
- It also involves recording, measuring, reporting the product costs.
- It guides the organization in such a way that to make or buy,
introduction of new product etc.
- Costing systems compared:
Actual Costing Normal Costing Standard Costing
Variable Direct
Manufacturing
Cost
Actual Prices x
Actual Quality of
Inputs used
Actual Prices x
Actual Quantity of
Inputs used
Standard Prices x
Standard Quantity
of Inputs for actual
Output achieved
Variable
Manufacturing
Overhead Costs
Actual variable
overhead rates x
Actual quantity of
Budgeted variable
overhead rates x
Actual quantity of
Standard variable
overhead rates x
Standard quantity
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cost- allocation
bases used
cost- allocation
bases used
of cost- allocation
bases allowed for
actual output
achieved
Fixed Direct
Manufacturing
Costs
Actual prices x
Actual quantity of
inputs used
Actual prices x
Actual quantity of
inputs used
Standard prices x
Standard quantity
of inputs allowed
for actual output
achieved
Fixed
Manufacturing
Overhead Costs
Actual fixed
overhead rates x
Actual quantity of
cost- allocation
Budgeted fixed
overhead rates x
Actual quantity of
cost- allocation
bases used
Standard fixed
overhead rates x
Standard quantity
of cost- allocation
bases allowed for
actual output
achieved
IV. Inventory Management Systems
- Inventory management systems keep track the goods in entire
supply chain.
- It covers all things from the production to warehousing,
warehousing to retail and all the movements of inventory ((Boyns and
Edwards, 2013)).
- An organization can use the inventory management software’s to
reduce the work load and it also improves efficiency and
effectiveness in the work.
- Tech (UK) LTD. can be integrated with this system to improve the
efficiency of the manufacturing systems.
- With the help of this system Tech (UK) LTD. can achieve the
effective flow of inventory in the manufacturing process without any
delay.
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V. Job Costing Systems
- In a job costing system, the cost object is an individual unit, batch
or lot of distinct product or service called as job.
- A job costing system includes the process of gathering useful
information about the costs of particular job. This information is
useful to the customer while placing the order and investigates the
each job order cost.
- Tech (UK) Ltd. can use this system to allocate the production cost to
each and particular product while keep tracking on expenses.
- The organization can use this system when the jobs are similar and
keep track all the order expenses of the jobs.
b). Presenting Financial Information:
I. Different types of managerial accounting reports
The following reports are prepared by the management of the
organization to take the appropriate decisions for achievement of
future goals. While preparing these reports following benefits
which are discuss below:
1. Budgeting Reports: This report is include all the
performance and evaluation of the departments working in a
particular projects. The budgeting reports are utilized to
prepare the budgets for the upcoming years. All the past data
are a stored in these reports; the managers use these reports
for estimation the expenditure and income in the past budget.
The future budgets are based on these reports which help the
organization to prepare the budgets for the each department
to achieve the goals.
2. Job Cost Reports: Job cost reports are used to find out the
cost, expenses, and profits of each and different jobs. These
reports are used by the customer for the evaluation. The
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manager can use these reports for evaluation the earning
aspect of the particular job and reducing their efforts on less
profitable jobs. The past jobs are recorded in these reports
which show the achievement of the organization in each job.
3. Inventory and Manufacturing Reports: The organization
business activities involved in the manufacturing process,
prepare these kinds of reports so that the entire supply chain
works in more efficient manner without any delay. The
managers use these kinds of reports for the comparison in
between the various dissimilar assembly lines and search out
the opportunity in it. The inventory and manufacturing reports
assists the manager to prepare the effective plan for the
inventory and manufacturing process so that the each division
can attain their targets on the time.
4. Performance Reports: Under these reports, the manager
assess the overall performance of the organization by
gathering all the data which financial and non-financial. With
the help of performance reports the manager is able to
prepare the effective useful strategies in an appropriate
manner. By using these reports, the investors and other
stakeholders investigate the organization performance and
achievement in the entire markets and afterwards take
decision of the investment in the company.
II. It is necessary to present the information which is important for
the entire organization in an appropriate manner which is easily
to understandable to each department of the organization. The
information is useful to prepare the strategies for the
organization to achieve their goals and targets on the time. The
management information system used by the department for
fulfills the targets without any delay. The user of the
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management information system utilized the information to
prepare the records and these records are also submitted in
these systems. The information which is available should be in
the understandable form which can be easily utilized in the
organization whether it is used in internal and external purposes.
TASK 2
Various types of costing methods which are use for calculating net profit
In each and every business organisation, there is paramount role of cost in numerous
procedure of organisation including manufacture of services and products. This is fundamental
for a business enterprise to create and undertake proper optimisation of assigned cost in more
adequate manner in order to reduce the amount of expense of organisation (Quattrone, 2016). It
is fundamental for the service manager to ascertain the utilise of microeconomic components on
regular basis in context of generating more authentic and reliable results. It is an efficient part
that can help in setting whether the company resource are used effectively or not. In regard of
getting more efficient results within certain period of time, firm may need to monitor their weed
expenses and cost those which are incurring on consist production cost.
Cost can be termed as the value or amount which is charged in regard of achieving or
getting certain service or product. These are indirectly and directly associated with the service es
and foods produced by company, It can emphasise the productivity of worker to deliver their best
services that tend to increase the profitability of enterprise within genuine period of time. This
has been noticed that without carrying out proper funds management and flow of cash,
administration cannot enable valuable decision in order to execute further projects. It can make
certain major role or influence used through UK Tech Ltd in their activities of business to set
whole organisation's profitability. Here are discussed few of them as beneath:
Cost volume profit (CVP): This is one of the fundamental techniques that is being
utilised in order to measure numerous modification or changes in regard of whole volume and
cost which can influence organisation's overall earnings along with net flexible components or
aspects.
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Flexible budgeting: It can affirm as more adjustable tools or methods which change in
more dependable way and ascertain static budget utilisation. This can alter with the modification
in output which are flexible.
Cost variance: This is paramount, effective and simple techniques to create a relevant
comparison between the budgeted amount as well as actual value of cost. It will assist
organisation to develop an evaluation of entire those alternations which incur during the process
of production.
Marginal costing: It can be considered as one of those methods of techniques i.e.
optimise for the additional unit production. These are majorly summarised as variable cost which
are not fixed due to its nature. It can be state as the period costing technique. Mainly investors
utilise this to undertake those methods which are more reliable to outline the valuable decision of
projects of UK Tech Company.
Absorption costing: This can be defined as the one of the fundamental costing method
that are implemented to entire manufacturing associated cost. These cost can be utilise to carry
out proper account of fixed as well as variable cost of organisation. Due to its nature, these are
also termed as the full costing technique. Including entire reliable criteria but it cannot undertake
in the decision making procedure for further period.
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Effective use of management accounting tools and techniques
Numerous different accounting methods and techniques that assist the organisation to
carry out proper use of revenues or earning in more relevant purpose in order to get better
outcome for present and future purpose out of the generated amount of organisation (Suomala
and Lyly-Yrjänäinen, 2012). Techniques of product costing are one of the major used and vital
costing types that include variable and fixed costs. Historical as well as standard costs can be
considered as some other types of tools that are assisting for the company's development. This
would help the firm in evolving the relationship with shareholder along with emphasising the
interest. It can also lead to the development of financial performances of organisation. Here are
mentioned some of the core used methods:
 ABC costing: By complying or following the certain method of costing, organisation can
deliver authentic information which can be assisting in the upcoming process of decision-
making in context of referred of firm.
 Performance measurement: This can be termed as one of the major performance
valuation procedure in which the fundamental part of controlling and planning procedure
is undertaken which can help the manager in evaluating organisation's market value. This
is also one of the effective methods that can be used by UK Tech Limited.
Evaluation on the basis of data collected from business activities
In regard of assessing more reliable outcome by manager of UK Tech Limited, this will
be needed for organisation to make certain the utilisation of both marginal and absorption costing
methods. These are deliver more distinct outcome in their entire net revenues or profitability.
Due to the fixed treatments expenses, the difference between the sum of both costing methods
can be observed. But the marginal cost outcome are outlines as more essential elements of
undertaking the core or crucial decision of enterprise.
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
After analysing the following statement, this can be observed that after the closing stock
valuation, an adjustment of 2500 can be noticed. The benefit under the marginal costing method
can crate more settlements in terms of fixed cost which comes approximate 2125. Hence, both of
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the above mentioned methods are appropriate on the grounds of different circumstances and net
loss as per absorption costing is considered is better option as this would consider the optimum
tool for considering this as a best tool.
TASK 3
a).Different kinds of budgets and their advantages and disadvantages:
Budget is the estimation of the future revenues and expenses for a particular period time in an
effective manner. Now, this can be rightly said that the budget can be said there is a strong need
to have budget for making the business sustainable and reliable (Sisaye and Birnberg, 2012).
With the help of budgets, the cite company would get to know about the future revenues and
expenses for a particular period of time. As per this, the cited organization is required to adopt
this as per the organization’s need and requirement. Here are some of the examples of the
budgets are mentioned hereunder:
Operational budget: This is the budget which consider all the operational related expenses and
revenues for a certain period of time. Now, this can be rightly said that the management of the
cited organization would need to predict revenues and expenses and make the decisions in an
effective manner. This would ultimately help out to make the decisions accordingly.
Advantages:
 The main advantage of this budget is that this would help out to make the decisions as per
the forecasted figure which would help out to make the business objectives attainable and
sustainable.
 Budget will help out to have the variance analysis which would ultimately assisting for
making the comparison between actual and forecasted data and then fix the strategy in an
effective manner. Now, this would be rightly said that the management of the cited
organization would compare the aforesaid data make the decisions accordingly.
Disadvantages:
 The main drawback of this is that this would not always render the forecasted figure
accurately and correct.
 This also the time consuming process as this takes much time to prepare it.
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Static budget: This is a kind of budget which considers all the forecasted figure which does not
change once the budget is made and can’t be changed (Hansen, 2011). Now, this is the chance to
make the strong decisions as per the business requirement as per the need.
Advantages:
 The main advantage of this budget this considers the forecasted figure at the beginning of
the framing of the budget.
 Decisions are taken on the basis of the static budget which ultimately help out to make
business sustainable and reliable.
Disadvantages:
 The main drawback of this is that it cannot be changes once it was made which is the
main drawback.
 This does not always produce the actual figure that could ultimately help out to gain the
accurate decisions accordingly.
b). Budget preparation process including identifying of pricing and diverse costing systems
which can be used:
Budget formation, trade offs and prioritization among partners is required to be done in
order to make sure that the budget is made as per the government policies. Apart from that,
most cost effective variants is chosen. In the end, means of enhancing operational
efficiency in the government is needed. None of these could be fulfilled unless financial
constraints are made into the process from the beginning. There are four stages under
which budget is made. These are:
 Fixing fiscal targets and level of expense compatible with these targets. This is the
main aim of forming budge, incorporating expenditure policies.
 Allocating resources in conformity with both of the policies and fiscal needs. This
is the key objective of the core process of the making a budget.
 Addressing operational efficiency and performance issues.
Price can be identified of the product as this would highly help out to make the business
objectives in an effective manner. An effective pricing strategy would identify the pricing point
through which organization could optimse the profits on the sales of the product or services.
While fixing the price, an entrepreneur is required to adopt wide range of issues covering
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organization’s manufacturing and distribution costs, competitor offerings, positioning strategies
and organization’s target consumer base.
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c). Importance of budget as a tool for planning and control purpose:
A budget is the tool which is made as per the planning and controlling aim. This is not an
easy task to make the budget and made the strategy. As, this requires highly talented staff to
formulate the business in an effective manner (Kihn and Ihantola, 2015). Now this can be said
that the management of the cited organisation would need to adopt a strong tool which would
ultimately help out to make the strategy as per the planning of the budget. By using budget,
actual and forecasted figure can be compared and find the variance if the adverse budget report is
made. If the actual figure is favourable then there is no need to make the variance analysis but if
the actual figure does not fit as per the actual fugure, then in that case, variance analysis is done
in an effective manner
TASK 4
Contribution of management accounting tools to respond financial issues
Tech (UK) is manufacturing organisation which produces special chargers for the retail
outlets. They also build many special gadgets to cater the needs of customers. It is observed that
there are many aspects which impact the financial performance of organisation. Such different
aspects are related to low quality of products, lack of management, low involvement of
employees in organisational activities etc. Due to which the performance of organisation is
diminished through which they are not able to accomplish the targets of organisation within
stipulated period of time. It is observed that organisation incurred the loss of 1.5 billion in last
financial year.
Management accounting is important concept which includes different type of tools
through which manager of organisation to assess the actual issues behind the loss in past year.
Also, improve the understanding of manager about the application of the provisions which helps
to align the activities all the departmental activities towards achievement of organisational goals.
It is provided by the financial advisor of cited organisation is to use Balance Scorecard approach
to improve the actual performance of employees to gain profits.
Balance Scorecard approach
Balance scorecard approach is a strategic procedure in an organisation which is used to
make effective and appropriate improvement in internal functions. Main objective of this process
is to getting beneficial results and outcomes. This is a analysis procedure that helps to measure
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each and every activity of organisation. In this process, manager of firm uses quantitative term
for data collection. This term helps to enhance decision making approach of them in effective
manner. This methods uses to reduce effects of losses by making impactful strategies and plans
as well. These activities enhance internal strength of an organisation properly (Burritt and et. al.,
2011). The different aspects which are improved after application of Balance Scorecard approach
in Tech (UK) are defined below:
 Provide direction to employees to gather results
 Determination of targets
 provide focus on profitable aspects
Four different perspectives of Balance Scorecard approach
 Financial: This includes the process where more emphasis is provided on profitable
aspects to improve their earnings.
 Customer and stakeholder: This will includes improvement of the quality of products
to satisfy the different needs of customers.
 Internal process: Need to strengthening internal aspects to get better results. In this
regard need to innovate new things.
 Organisational capacity or learning and growth: Strengthening the different aspects of
organisation such as human capital, technology, infrastructure etc.
IMDA tech also analysed loss through their business operations. The management
decided to adopt just in time approach to take better results.
Just in time
This method includes the approaches which helps to effectively manage the inventories in
organisation. As per this method, only such amount of stock is ordered condition of organisation.
CONCLUSION
From the above mentioned report, this can be simply said that the management of the
Tech UK is required to adopt various management accounting systems and made the
reports accordingly which would ultimately help to make the decisions accordingly.
Now, this can be rightly said that the management of the cited company calculates the net
profits as per the absorption costing and marginal costing method. Various budgets are
made and their advantages and disadvantages are also discussed. Financial problems
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which are related to the business, are resolved by using various accounting tools such as
BSC, just in time and others.
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