Management Accounting and Net Profit Calculations
Added on 2020-11-06
17 Pages3594 Words41 Views
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ManagementAccounting
ContentsIntroduction......................................................................................................................................1LO1-Demonstrate an understanding of management accounting systems......................................1P1 Explain management accounting and give the essential requirements of different types ofmanagement accounting systems.................................................................................................1Question 1- Management Accounting and The role of Management Accounting in anOrganization............................................................................................................................1Question 2- The scope of the role of management accounting and the part it plays withineach function of the business...................................................................................................2Question 3- Key differences between management accountant and financial accountant andareas where two disciplines may overlap................................................................................5P2 Explain different methods used for management accounting reporting.................................7Question 4- Different types of cost report in Management Accounting Reports....................7LO2 Apply a range of management accounting techniques............................................................8P3 Calculate costs using appropriate techniques of cost analysis to prepare an incomestatement using marginal and absorption costing........................................................................8Question 5- Income statement using Marginal costing and Absorption Costing....................8Question 6- Break Even Analysis and its importance...........................................................11Question 7- Net Profit Calculation and Its importance.........................................................13Conclusion.....................................................................................................................................14References......................................................................................................................................15
IntroductionManagement Accounting is nothing but a means of achieving organizational goals by makingsustainable decision with the help of relevant information. Management accounting helpsmanagers to take correct decision in their daily activities as well as helps them to developstrategic planning and operational planning for their business by analyzing various types offinancial data, reports etc. prepared by the financial managers. In this report the scope andapplication of management accounting in business functions have been discussed with somepractical examples that will add value in our learning regarding management accounting and itsprocess.LO1-Demonstrate an understanding of managementaccounting systemsP1 Explain management accounting and give the essential requirements ofdifferent types of management accounting systemsQuestion 1- Management Accounting and The role of ManagementAccounting in an OrganizationManagement Accounting: Management accounting is also called managerial accounting whichis the process of identifying, measuring, analyzing, interpreting, and communicating informationto managers for the pursuit of an organization's goals (Horngren, C. 2016).Basically theprocess helps managers to make day-to-day and short-term decisions by preparing managementreports and accounts that provide accurate and timely financial and statistical information.Thesereports show the amount of available cash, amount of orders in hand, sales revenue generated,outstanding debts, state of accounts payable and accounts receivable, raw material and inventoryetc.1 | P a g e
The role of Management Accounting in an Organization:Management accounting helps those persons in an organization who are liable for anytype of financial decisions by providing necessary information required for any type ofdecision making. It basically serves the internal users of the organization.Management accounting helps to predict the future by providing answers of variousquestions like should the invest in the market or should the company diversify theirinvestments by analyzing the financial reports.Management accounting also helps an organization by predicting the cash flows and theimpact of the cash flows in the organizational activities. As this process involves budgetsand trend charts which help managers to analyze from where the revenues will comefrom and will the company is going to have more or less revenue in the future.This process helps to analyze the variance between the expectation and the reality interms of costs, revenues, inventory management etc.It also helps in making the decision of whether the company should buy materials fromother company or make it. As the cost functions and resource allocation is related to themanagement accounting system, an insight of the analyzing of these elements will help inmaking the decision also.Question 2- The scope of the role of management accounting and thepart it plays within each function of the businessThe main objective of management accounting is to provide necessary information to themanagers of any firm for planning and controlling. The scope of management accounting is verywide and it covers almost all of the sides of any business’ operations.i.Financial Accounting:Financial accounting refers to analyse financial data andpreparing financial statements of an organisation. It contains a lot of data that is used bythe management team for any kind of decision making. Without a proper financialaccounting system in an organization management accounting can’t be fully effectivebecause management accounting contains only some tools and techniques but it analyses2 | P a g e
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