Management Accounting Report for Tech (UK) Limited

This report covers the importance of management accounting, cost accounting, inventory management, job costing, budgeting, and planning tools for Tech (UK) Limited. It discusses the differences between financial and management accounting, various types of budgets, and the role of the balanced scorecard in overcoming financial challenges.

Management accounting report for Tech
(UK) Limited
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Table of Contents
Introduction....................................................................................................................................3
Task 1..............................................................................................................................................4
Introduction................................................................................................................................4
a) (I–V) (M1, D1)........................................................................................................................4
b) (I-II)........................................................................................................................................5
Conclusion..................................................................................................................................6
Task 2..............................................................................................................................................7
a) (I –II) (M2, D2)......................................................................................................................7
Task 3..............................................................................................................................................9
a. (b, c) (M3, D3)........................................................................................................................9
Introduction................................................................................................................................9
Conclusion................................................................................................................................11
Task 4............................................................................................................................................12
a. (M4, D3)................................................................................................................................12
Conclusion....................................................................................................................................13
References.....................................................................................................................................14
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Introduction
The assignment consists of the report consisting of the management accounting importance along
with the cost accounting system, Inventory management system, job costing system. There is a
short description of the differentiation between the management and financial accounting along
with the managerial accounting report and presentation of the same in an understandable way.
Marginal and absorption costing are also being included in the assignment along with the income
statement and analysis. The various types of the budget along with their advantages and
disadvantages and the process for preparation is stated. The importance of budget in the
company as planning and the strategic tool is also included in the assignment. Various planning
tools and the use of them in tackling the financial problems are stated. There is also the inclusion
of the balanced scorecard technique and the comparison of the same with the management
accounting tool benchmarking.
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Task 1
Introduction
The report consists of the brief about the management accounting system and it's important in the
decision making of the company along with detail about the cost accounting system, Inventory
management system and Job Costing. There is also the inclusion of the types of managerial
accounting reports and importance of its presentation in an understandable way.
a) (I–V) (M1, D1)
Management accounting can be defined as the interpretation and recorded of the data in a way
that it helps the managers in the decision making of the company. Management accounting
consists of both the financial accounting and cost accounting depending upon which the
managers analyse the data available. Management accounting systems are the system established
by the company for the internal process and analyse the statements and data (Surum, 2018). The
Tech (UK) Limited can be benefitted with the help of the management accounting and systems
by reducing the cost and expenses through analysis of the quality of the resources. It can also
facilitate the decision making of the company by forecasting and analysis of various factors.
The difference between the financial Accounting is to provide the information and interpretation
of the transaction recorded for the external stakeholders of the company whereas the
management accounting is for the internal members of the company for an effective and efficient
use of the resources and working (Francis, 2018). The financial accounting of the company must
be prepared and presented depending upon the guidelines issued by governance bodies whereas
the Management accounting is a mere estimation or guess made for the decision making of the
company. The management accounting will help Tech (UK) Limited in better controlling and
coordination through plans.
The Management accounting follows various techniques and analysis on the basis of forecast and
historical data available to the management. It acts as a decision-making tool as depending on the
results and data available they make the plans and policies of the company (Freedman, 2018).
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The management accounting can help in deciding the Tech (UK) Limited about the decision
regarding the selling and production of the product in a way that can be best profitable to them.
There are various cost accounting systems for the analysis by the management. The cost
accounting system is used by the manager for the analysis of the cost and profitability of the
company. There are three types of costing Normal, Standard and Actual. In case of the Normal
costing, the cost is calculated on the basis of actual cost incurred which is based on the overhead
rate anticipated by the managers (Accounting Coach, 2018). In case of the standard costing, it is
based on the anticipated cost of the labour, material, and manufacturing. The actual cost values
the product on the basis of actual cost incurred on the product.
Inventory management system is the effective and efficient use of the available stock along with
a better allocation of the stock. It is important to maintain the cost of the stock as the money is
blocked in the inventory of the company. A high amount of stock in the warehouse can lead to
increase in the variable cost of the company. It will help Tech (UK) Limited in determining the
optimum stock level that can be best suitable in terms of profitability and the cost of the
company.
Job Costing system can help in assigning the cost that is incurred by the company to the
particular job or process that is carried on. It is important for any company irrespective of its
nature and size. Tech (UK) Limited can be benefitted as there are a lot of processes involved in
producing the special charger for mobile telephone etc. It will be helpful for them to analyse the
cost and apportion them to particular jobs and in reducing the cost of continuously (Ingram,
2017).
b) (I-II)
The different types of management accounting reports are as follows:-
i) Budget Report – There are various budgets that are prepared based on the forecasting and
different factors as well as on the basis of assumption for the decision making.
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ii) Divisional, Departmental reports – The Divisional report consist of the cost report, revenue
report, investment report on the basis of the department. There is the various method adopted for
the preparation of these reports.
iii) Cost and Sales report – The cost and sale report consist of the price and volume that the
company has prepared along with the variances for the difference in the results
iv) Investment appraisal report – The Investment appraisal report includes various techniques
through which the profitability of the project can be judged and decision can be taken by the
management (Sartori, et. al., 2014).
It is important that the financial information must be relevant and the representation must be
made faithfully. It can be beneficial for the company as they will be easy to understand and
interpret by the managers. The relevance in the preparation of the statement and information will
result in determining the trend and comparison of the firm performance with the rival companies.
The Tech (UK) Limited will be benefited with the help of it as they will be able to formulate the
plans and policies of the company more effectively and efficiently (Vitez, 2018). The usefulness
will be increased with the better representation along with the reliability as they will be able to
understand the report that is being provided.
The management accounting system and reporting are integrated into the organisation process as
the transactions are recorded in the system based on which the reporting is being carried out. The
reporting helps in analysis of the information that is being recorded in the system. It can also be
stated that mere recording of the transaction is not enough it is important to analyse them and
take preventive steps to decrease the expenses and increase the profit of the company which can
be done only with the help of the Reporting.
Conclusion
It can be concluded with the help of the report that the management accounting is essential in the
system. It will help the Tech (UK) Limited in better controlling and decision-making process. It
will also lead to decrease in the cost of the company and better allocation of the process. The
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conclusion can also be derived that the presentation of the information must be in a way that is
understandable to all for a better decision making.
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Task 2
a) (I –II) (M2, D2)
Marginal Costing – The marginal costing is a technique in which there is the only
apportionment of the variable cost to the cost per unit of the product whereas the fixed cost is
considered as the period cost and is charged fully for the period. The marginal costing is used to
determine the contribution that that is being generated with the sale of the product. It is used for
the purpose of internal decision making (Lakmal, 2014).
Income statement for the month of
September as per marginal costing:
Particulars Amount
Sales (35*1500) £52,500.00
Less: Marginal or
variable cost
Variable production
cost (15*2000) £30,000.00
Variable selling cost
(52500*15%) £7,875.00
Cost of Goods Sold £14,625.00
Less Closing Stock (5x
1500) £7,500.00
Contribution £22,125.00
Less: Fixed production
cost £15,000.00
Less: Fixed selling cost £10,000.00
Net profit or loss -£2,875.00
Absorption Costing – The absorption costing is a technique in which the variable, as well as the
overhead part of the fixed asset, is also considered while calculating the cost of the product. The
fixed cost is not taken and charged as period cost and fully written of but instead used for
calculating the cost (Lakmal, 2014).
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Income statement for the month of
September as per absorption costing:
Particulars Amount
Sales (35*1500) £52,500.00
Less: Cost of sales
Opening stock £0.00
Production cost
(20*2000) £40,000.00
Closing stock (20*500) £10,000.00
Gross profit £22,500.00
Less: Variable selling
cost (52500*15%) £7,875.00
Less: Selling expenses £10,000.00
Net profit or loss £4,625.00
Calculation of under absorption:
Profit as per marginal
Costing Technique -£2,875.00
Overhead cost
difference in inventory £7,500.00
Profit as per Absorption
Costing Technique £4,625.00
Interpretation
It can be interpreted with the help of the income statement that the profit in case of absorption
costing is higher as compared to the Marginal costing technique. The Marginal costing technique
is generally used for the internal purpose and analysis whereas absorption costing technique is
used for the statutory requirement. The difference that is there in the profit of the company is due
to the fixed cost that is being charged to the closing stock in case of absorption costing whereas
in case of marginal costing the fixed cost is charged as a period cost thus resulting in a loss.
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Task 3
a. (b, c) (M3, D3)
Introduction
The report consists of the various types of budgets that can be made within the company along
with the advantages and disadvantages. There is also the inclusion of the importance of budget
and the preparation process for an effective budget. The report also includes the various planning
tools that can be used for forecasting along with their use in overcome the financial problem that
can lead to sustainable success.
Content
The different kind of budget along with their advantages and disadvantages are as follows:-
Master Budget – The master budget is the accumulation of all the small budgets. The master
budget is prepared as a whole and for the organisation. It is an overall budget of the company. It
is useful in determining the problems that are faced by the department or any sector and plan
accordingly. It has a disadvantage also as it is difficult for the managers to analyse the same and
read it along with modifying it (Jane, 2017).
Operational Budgets – The operational budget is used to analyse the amount of cash required at
different sector along with the sustainable growth. It can be used for allocation of the resources
effectively and efficiently depending upon the need and preference of the company but it has
some disadvantage also as it is important to revise the budget as per the needs but if it is not done
it may lead to a shortage of cash due to the wrong allocation of resources (Lister, 2018).
Cash Flow Budget – The cash flow budget helps in determining the cash inflow and outflow
that the company may have in that particular time period. The cash flow budget can help in better
investment decision making along with the optimal utilisation of the cash. The cash flow budget
might show a possibility of cash crunch or negative cash balance due to the excessive payment
on the basis of cash flow budget but in actual, there was a delay in the cash flow resulting in
negative balance.
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The process that can be used for the preparation of budget is
Step 1 – Estimation – The managers need to analyse and forecast the future market condition
that can affect the business process.
Step 2 – Coordination of the Estimates – Based on the Estimation the best plans are chosen on
the basis of profitability and achievability.
Step 3 – Communication of the budget – The Budget is then passed on to different managers
and departments of the company along with the plans.
Step 4 – Implementation – The next plan of the Budget plan is to implement the same in the
small unit and then in a whole organisation effectively and efficiently.
Step 5 – Progress towards achievement – After the implementation of the budget is too
important to monitor the same. If the budget is not achieved or there is no growth in it then it is
necessary to revise the same or taken preventive measures to achieve them.
The budget helps in the planning process of the company as the managers are already aware of
the spending that they can be done. The budget is prepared after analysing the available data
along with the historic events and results that are being achieved by the organisation. The plans
and strategies are then made keeping in view the budget available (Henttu-Aho, and Järvinen,
2013). It is useful as a planning tool as it helps to identify the variance that is there between the
actual and budgeted results along with the reason for those variances. It acts as a planning tool as
it helps in overcome those variances and increase the efficiency and productivity.
There are various planning tool that can help in the development and forecasting of the
budget:-
PEST – The PEST (Political, social, economic and technological) helps in identification of the
factors along with their analysis which can affect the company profitability. It can help in
forecasting of the budget as with the help of technological, or political factor the investment can
be made on the new technology.
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Porter five forces – The porter five forces consist of the macro factors such as the new entrant,
Supplier power, Buyer power, Substitution and the competition in the market. It can be used for
the forecasting of the budget as the production policy or the cost and operational budget can be
made a bit tight in order to get am a competitive edge over the competitors.
Balance scorecard – The balance scorecard can be useful for the preparation of the budget as it
helps in determining the performance of the company based on financial as well as non-financial
indicators of the company (Perkins, et. al., 2014).
SWOT – It consists of an analysis of the Strength, Weakness, opportunity, and threat. It can be
beneficial for the company in preparation for the budget such as the sales budget will be on the
higher side if the opportunities are more than the threat. The budget can also be made keeping in
view the strength of the company (Bull, et. al., 2016)
These planning tools are not only useful for the development of the budget but also in solving the
financial problems of the company. It helps in reducing the cost of the company and minimising
it in the best possible way. They can forecast and save the overhead cost that can be attracted in
case there is no proper analysis of the available data. They are helpful in tackling the financial
cost by proper allocation of the available resources in the best suitable way.
Conclusion
It can be concluded with the help of the report that there is a different budget with the usefulness
in the company. They are useful in the preparation of the plans and policies depending on the
various factors. It can be concluded that planning tools can be beneficial for effective budget
making as they consider various macro factors that can affect company profitability. It also helps
in tackling the financial problem of the company by reducing the cost and better allocation of
resources.
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Task 4
a. (M4, D3)
The balance scorecard is the analysis of the performance of various segments in an organisation.
It is an internal method used by the company to effectively and efficiently manage the
performance of the individual as well as a whole. Balance Scorecard is useful in analysing the
result that is being achieved by the organisation within a period.
It can help in overcoming the financial problem in the following ways:-
Decrease in the cost – It is important to manage and try to reduce the cost that is involved in the
production of the product and the services so that the profitability can be increased and an edge
can be taken over the competitors. Balance scorecard can help in solving this. Through the
analysis of the result that is being achieved and the process followed balance scorecard can be
useful for a better and effective management along with good control and coordination (Savkin,
2016). It can result in continuous improvement in reducing the cost of the company along with
an increase in the profitability.
The management accounting approach that can be used to tackle the financial problem of the
company is using benchmarks. The difference between the balance scorecard and the
benchmarking can be understood in a way that balance scorecard is the measurement of the
performance and result achieved by the company whereas the benchmarking can be defined as
the comparison of those results with the other company data that are available (Ordelman, 2016).
It can be beneficial in overcoming the financial problem as it helps to determine and analyse the
process that is being followed by the rival companies in the market and can adopt it after the
modification as per the structure of the company. It can be beneficial in improving the
productivity, efficiency, and reduction of the cost.
Management accounting and planning tool can be beneficial in achieving the sustainable success
while overcoming the financial problem as it helps the company to get a competitive edge over
the competitors. The company can be competitive in the market in terms of finance and
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productivity along with an increase in the profitability by a reduction in cost, efficiency in the
process conducted and better implementation of plans and policies.
Conclusion
It can be concluded with the help of the assignment is management accounting plays a crucial
role in the decision making process. It is important to make the information in a way that is
understandable for the better decision making. It can be concluded that the difference between
the profit of the marginal and absorption costing is due to the overhead fixed cost considered in
the absorption costing. There are various types of budgets and have positive as well as negative
effect. It can be seen that they are very helpful in the planning and strategy of the company. The
balance scorecard can be useful in overcoming the financial problem by making the process and
performance more effective and productive. It can also be seen that the planning tool and
management tool are able to tackle the financial problem and help in getting an edge over rivals.
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