Management Accounting Report for Tech (UK) Limited

This report examines the financial performance of Tech (UK) Limited, a company specializing in mobile phone and gadget accessories. It analyzes the company's current financial situation, highlighting a loss of €1.5 million. The report then delves into the importance of management accounting systems, including cost accounting, inventory management, and job costing, as tools for improving financial performance. It explores the benefits of adopting a balanced scorecard approach to address the company's financial challenges and achieve sustainable growth. The report concludes by emphasizing the crucial role of management accounting in guiding Tech (UK) Limited towards a more profitable future.

Management Accounting report for Tech (UK) Limited
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Contents
Introduction......................................................................................................................................3
Task 1(M1, D1)...............................................................................................................................4
TASK 2 (M2,D2)...........................................................................................................................14
TASK 3 (M3, D3)..........................................................................................................................16
TASK 4(M4,D4)............................................................................................................................21
Conclusion:....................................................................................................................................23
References......................................................................................................................................24
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Introduction
Tech (UK) Limited is a company that deals in producing special charges for mobile telephone
and other carry on gadgets within the United Kingdom. It is a large company which deals in such
mobile accessories. While going through the company's financial statements it could be assessed
that the company is running in losses and a report has to be submitted which states and discusses
Management Accounting system that can be implemented by the company through which the
company can easily focus on its business. As a trainee management accountant at TECH (UK)
Limited a report on the functions of Management Accounting systems are hereby presented.
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Task 1(M1, D1)
I. Distinguishing Management Accounting from Financial Accounting
1. Management Accounting is the process of providing various accounting information through
which the management can get help in making various policies and to undertake various day to
day decisions of operating a business. The purpose of Management Accounting is to use various
accounting data that has been obtained from financial accounting done for making policies and
decision making for the business. Managerial decisions are the most important aspect of
management accounting. The limitation of management accounting is that it does not guide the
users as how to increase the earnings of the company also do not provide how one can maximize
the rate of return on the capital of the company. The data that Management Accounting uses it's
from the income statement of the company. (Singh, 2018)
Financial transactions of an organisation that have occurred through its business can be tracked
by the user with the help of financial accounting reports. Financial accounting report is the
summarisation of various reports which includes financial data. Income statement and balance
sheet are the part of such financial accounting reports. Financial transactions of an organisation
that have occurred through its business can be tracked by the user with the help of financial
accounting reports. Financial accounting report is the summarisation of various reports which
includes financial data. Income statement and balance sheet are the part of such financial
accounting reports. (Singh, 2018)
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II. The importance of management accounting information as a decision making tool for
department managers
2. The importance of management accounting information as a decision making tool for
department managers can be explained as
Storehouse of Reliable Data-For the purpose of planning, controlling and decision making
management requires data which is reliable and consistent. Such accurate data is difficult to find
and that is why Management accounting is very helpful in collecting such data from various
sources and to provide valuable information for the use of the department managers. Financial
data is not only the data that management accounting requires, management Accounting uses all
type of data and convert that data into information so that such information can be used as and
when required. Management Accounting uses qualitative data to provide such information in the
form of various reports. (Management Accounting: concept, need, importance and scope, 2018)
Modification and presentation of data- the data that management collects from various sources
is not that reliable and reasonable and has to be modified according to the use for the managers
as and when required. The data is developed and provided to the management so that they can
make various decisions according to the information and understanding generated from such
information that has been provided to them. The data that has been generated by the
Management Accountant can change the data as per its requirement for a particular issue that has
been asked by the management to deal with. The data can be classified into various categories
according to the product, types of consumers etc. Such grouping of data is very helpful for the
management as to take various decisions in which such data is to be involved. (Management
Accounting: concept, need, importance and scope, 2018)
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Communication and coordination- when the data is provided by the Management Accountant
to the various departments it becomes difficult for them to co-ordinate, as such data belongs to
which department is not known. Due to which coordination and communication is very
necessary between the departments for making decisions and the growth of company. The
growth and targets based on the performance of various departments shall be communicated to
the respective departments so that it can enhance their business levels in the upcoming future. A
failure in communication made by the Management Accountant or his report is very harmful for
an organisation in making its crucial decisions. A proper coordination and Communications can
be maintained between the organisation and its departments for a better future of the entity.
(Management Accounting: concept, need, importance and scope, 2018)
Implementation of control- in a business it is a good practice to maintain and sustain a system
of analysing various performances of the all departments so that the management is aware of the
default made by the departments and can take various actions through which such problems can
be resolved. This process of controlling the departments is called as control. Implementation of
control in an entity is very helpful in making decisions for the purpose of management
accounting. For the accomplishment of control in an organisation Management Accounting
system provides important information which is highly systematic and effective. The
Management accountant is not the controller of the various performances of the departments,
such an interpretation is not correct. The most important function of implementation of control is
that it leads to effective communication and helps the managers of various departments to
achieve their goals in an effective and efficient manner. (Management Accounting: concept,
need, importance and scope, 2018)
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Financial analysis and interpretation- for the purpose of strategic decision making
Management accounting is very crucial. The various managerial executives of the company
generally do not possess a good technical skill of manufacturing a product. The role of
Management Accountant in the company is to help them and guide them with relevant facts and
figures about the various policies and procedures that can be used by them so that the process in
developing strategic decision making can be done. (CLEVERISM, 2018)
Helps in preparing a plan- planning is the first step in development of a business. Without the
steps of planning no business can grow. Management Accounting system helps in developing a
plan for an entity so that the growth of an entity can be forecasted before the process has begin
and can be achieved as per the plan. For preparation of various plants information is required,
such information is derived from the past results of the company that are income statement,
balance sheet, cash flow statement etc. Information can also be bifurcated in internal information
and external information. Internal information is the information that has been derived internally
from the organisation true its various financial statements. External information is obtained from
the external sources that our suppliers, creditors, debtors etc. (CLEVERISM, 2018)
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III. Cost accounting systems (actual, normal and standard costing)
3. Producing a product involves various costs that are variable and fixed in nature. Accounting of
these costs is called as cost accounting system.
It can be further divided into:
a. When the cost of a product is calculated by accumulating direct labour cost, direct
material cost and other variable cost, this approach of calculating cost is called as normal
costing.
b. Actual costing – In manufacturing a product there are many costs that are involved but
only actual cost that specifically occurred in producing a product are called as actual
costs.
c. Standard costing- The estimated general cost that the product will involve of various
material labour and overhead cost are called as standard costing.
IV. Inventory management systems
4. Inventory management systems-
So as to maintain and manage inventory effectively and efficiently the company introduces
inventory control system. Inventory management system controls the organisation from getting
out of stock and maintains the minimum level of inventory every time available for the company.
Good inventory system will keep stock levels up to date. For making a cell the organisation's
staff shall be aware of the stock, its location and how fast the inventory is available for the
consumer. (JUNIOR, 2017)
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Whenever a customer wants a particular product the company should try to make the product
available to the customer. To increase the sales of a company whenever a customer demands a
product it should be available in the warehouse. Inventory management system is highly
beneficial in customer retention as it provides the inventory to the prospective customer as and
when required by them. Hindi long run inventory management system identifies the demand of
the product which has the highest successful sales and keeping the marketing strategies in hand
the system helps to keep the product in the stock. (JUNIOR, 2017)
Inventory management system helps introduction of holding cost. To reduce such holding cost
inventory management system identifies the inventory that is needed and gives only that
inventory in stock. In inventory management system which is very helpful and forecasting the
current and future needs particular inventory can be ascertained and can be kept in the stock.
A good inventory management system has a key advantage that its ability to be flexible and to
adapt every critical situation as and when the situation arises. The inventory management system
runs in an unpredictable business where there is no certainty of anything. (JUNIOR, 2017)
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V. Job costing systems
Job costing systems
The way of producing goods and providing various services as per the order or the demand made
by the customer is called a job. For the purpose of calculating the total costs involved in a
particular job such a process is called as job costing. Job costing system let's to produce goods
and services as per the requirement of the customer and do not produce them to hold in inventory
in the warehouse for that particular product. For producing a product that involves special jobs
needs special materials and special labor for its manufacturing. The calculation of a job can be
completed only when the work is completed. (SHAH, 2018)
Every job that has been conducted in the company has to be accounted separately by making a
separate account for a job this can be done. This helps in the calculation of the overall profit or
loss that has been incurred in every such kind of job done. Job costing system is highly
recommended for quoting price for a job to the customer on the basis of the past cost records that
have been a certain. It helps in identifying the jobs which are profitable and which is loss
making. (SHAH, 2018)
It helps in providing a detailed analysis of various costs of materials, labour wages and other
variable overheads which are classified buy their departments which help the management to
identify their operating efficiency and effectiveness. Cost of production can easily be calculated
with the help of job costing system. Various plans and policies can be created and adopted by the
organisation with the help of job costing system. Job costing system is expensive in nature as it is
difficult to maintain a separate job and is a time consuming process. (SHAH, 2018)
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b) Presenting financial information
I. Different types of managerial accounting reports
1. Managerial accounting reports-
Managerial reports are the process of reporting to the management by providing them with vital
information to the different levels of Management so that department manager can make
decisions in the favor of the company.
Types of Managerial accounting reports-
External report- The report which has been prepared by the management for the users outside
the entity is called as external report. External users are suppliers, creditors and debtors. It is not
compulsory for the company to provide external report to the outsiders but such reports are
beneficial for increasing the business of the company. Search reports are prepared in accordance
with the income statement and balance sheet which are made at the end of every financial
statement. (Mishra, 2018)
Internal report- The report that has to be prepared for the various levels of Management within
an entity is called as internal report. The reports that are prepared internally for the internal use
are provided to the lower level management, middle level management and the top level
management. The requirement of such reports is not mandatory as it is prepared for the various
department managers to understand the working of the company and to make various decisions
accordingly. (Mishra, 2018)
Control reports - control reports are the type of managerial report which has two aspects. One
aspect is about the personal performance and the next aspect deals with the economic
performance. (Mishra, 2018)
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The personal performance is a type of Control report which is generated to judge the
performance of various department managers and the appropriate heads of various departments.
Economic performance Control report is generated so as to identify the departments working and
their various economic performance calculations. Economic performance is evaluated
periodically. For the purpose of economic performance full cost accounting is considered rather
than responsibility accounting (Mishra, 2018).
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II Why it is important for the information to be presented in manner that must be
Understandable.
When in information is reliable and presented in an understandable Manor it is a vital step
towards effective decision making in every aspect of business. In the absence of reliable
information did Apartment managers will not be able to make proper decisions, this will affect
the organisational decision making structure. Information that has been generated by the
department managers which is wrong can lead to wrong interpretations within the entity and thus
affecting the working of the business.
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TASK 2 (M2,D2)
Marginal costing: The accounting system in which the cost of the product that has been
manufactured includes only variable costs and the fixed costs relating to the product are written
off against the contribution that has been obtained from selling the product.
In marginal costing there is no provision of under or over absorption of various over it. Marginal
costing is more useful and decision making when absorption costing. Contribution that has been
obtained through marginal costing is based on per unit sales and is constant in nature. The
disadvantage of marginal costing is that the closing stock is not valued as per the requirement of
the various accounting standards and the fixed costs are not shared amongst the units that have
been produced, but are written off in full.
Absorption costing: Where the product cost is calculated by considering all that have been
incurred for the purpose of the product or not, such an approach of cost allocation is called as
absorption costing. Absorption costing is more Complex in nature then marginal costing and also
do not provide Useful information for the purpose of calculation of cost of a particular product.
The difference in absorption costing and marginal costing:
Difference between marginal costing and absorption costing is that in marginal costing fixed
costs are not considered for the estimation of various job Costs. Where as in absorption costing
where the business is small such costs are considered and are very useful.
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TASK 3 (M3, D3)
a) Different kinds of budgets and their advantages and disadvantages
The types of budget are
Plan utilisation budget- this budget is prepared as per the working hour or the program that has
to be completed within the set of hours that has been laid down in the production budget. Plan
utilisation budget is helpful and determining the load on each of the process for the budgeted
period. Plan utilisation budget highlights the processes which are highly overloaded and to take
remedial actions for them. The purpose of plant utilisation budget is to increase the sale by
utilising surplus capacity available for the production. (pal, 2018)
2. Production cost budget- a production cost budget is the compilation summary of various
material budget labour budget and many variable and fixed overhead budgets. Types of
production cost budget are- (pal, 2018)
3. Direct material budget it provides the estimated direct material cost that shall be incurred by
the company during the accounting period.
The purpose of direct material budget is to provide schedule to ensure supply of material to the
production department and to complete the demand of material whenever there is a requirement
asked from the production department. Direct material budget also monitors the store department
of the organisation by fixing the minimum and the maximum quantity inventory that has to be
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kept in the stock. Also it helps finance manager to analyse the finance required for the purposes
that have been made in regard to direct material. (pal, 2018)
Capital expenditure budget- capital expenditure budget are very important decision making as
they reflect the profitability of the organisation by their decisions. Such budget decisions are
helpful in identifying the future of the company. Also, a capital expenditure budget affects the
decision in a long term and affects the company's future costs and benefits. Capital expenditure
(pal, 2018)decisions shall be properly evaluated before implementing them as once they are
implemented in the organisation reversing such decision is almost impossible.
Capital expenditure budget keeps an eye on the cash expenses that are occurring in the
organisation and controls the unnecessary costs. That is why it is said to be a valuable tool for
controlling various capital expenditures.
Capital expenditure budget bifurcates various costs that are to be incurred on the various capital
expenditures to be incurred on their priority basis.
Zero based budgeting- it is a process in which the planning and budgeting process are to be
justified by each of the department manager in detail from the start to the end. That means every
manager who is providing their own zero based budget has to justify the reason behind the
expenditure that he is willing to spend during the period. The zero based budgeting techniques
provides the organisation with the detailed analysis of decision making. The budget that has been
provided by the different managers is then evaluated and the expenditure to spend money on
such budget is allotted on the basis of the priority of usefulness. (pal, 2018)
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b) The budget preparation process including determination of pricing and different costing
systems that can be used.
A cost accountant should have the understanding of various costing systems and pricing tools
which are applicable for the presentation and preparation of budgets for an organisation. For
making an estimate regarding the future for which the budget is prepared has to be forecasted
with the help of these systems and tools. This costing systems and pricing tools are highly
recommended for the preparation of budget. (pal, 2018)
Job costing system, batch costing system is some of the examples of Costing techniques that are
very helpful in the preparation of budgets. The cost accountant should analyse the costing
systems and the pricing tools through which the past data can be understood and a budget can be
prepared accordingly. (pal, 2018)
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c) The importance of budget as a tool for planning and control purposes.
IMPORTANCE OF BUDGET
Opposite is a comprehensive plan for the fulfillment of various goals and objectives for an
organisation. Budget creation is not and exercise that the CFA provide the department managers
of the organisation to accomplish. Up budget is the face of the company's decision making
strategic plan. (pal, 2018)
Budget helps in creating coordination between various departments while considering the
fulfillment of the company's strategic plan. Not only has this budget also increased performance
evaluation by providing upcoming all the managers to achieve in the budget. It helps in
increasing various business opportunities to be more effective and efficient.
Creating a budget that is both effective and efficient is a bit difficult task. To make a budget and
to participate in it is the important part for the employees and the management of the company.
Budget prepared by the various high level employees have to consider it at a reasonable ground.
With the help of budget it comes with an opportunity for the team and to evolve them with
various organisational objectives.
Various Technology is used nowadays to prepare the budget. With the help of cloud computing
and various communication process best budget preparation is easy.
Are more effective budget plan can be prepared with the help of the decision makers in the
organisation shall be identified and so I'll be involved in making the budget. Various
Technologies should be used to coordinate and then combining the budget made by various
department managers shall be done. Budget creation child reflect the organisational plan that
depict strategy for the company. (pal, 2018)
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Budget is a tool that is used for the future period show that the users can have an estimate of the
expenses that are going to incur in the future. It is a tool through which translation can be made
of the organisational goals and objectives into the company's earnings. It is a plan through which
various departments can work together trying to achieve a single objective, thus keeps the entity
on a track of achieving goals. (pal, 2018)
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TASK 4(M4,D4)
Losses hamper the company is continuity in the market and that is what happened with
Tech(UK) limited the company in incurred a loss of euro 1.5 million. That provides the user that
the company's financial position is at a financial risk and is not sound. (bowen, 2018)
There are various solutions that can be provided through which the company's financial position
can be improved. Management accounting system provides balanced scorecard approach through
which such problem can be solved. The auditor of the company is also of the opinion that the
company shall use balanced scorecard approach to improve its position in the market and to
continue its business in the future. (bowen, 2018)
Balanced scorecard approach is very helpful in managing business and its future growth as it
provides with various objectives and plants. The purpose of Balanced scorecard is to keep
measuring the success of the entity that whether the girls that have been set are achieved or not.
Balance score card can be simple or complex as per the requirement for the need of the
company’s process. There are four components through which balanced scorecard approach can
be assessed that are financial which provides the company with the correct way to reduce its
financial losses. (bowen, 2018)
Customer satisfaction is one of the most important features or component of the balanced
scorecard approach as to understand what customer wants and to satisfy him to the best.
Providing products in the market that are useful for the customer and to provide with the after
sale services so as to determine whether the customer is happy from the product or not. If found
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the product is not valuable or doesn't meet the specified customer needs and class the products
have to be revised with the help of balanced scorecard approach. (bowen, 2018)
For achieving the company's objectives balanced scorecard approach/ method is to be adopted,
balanced scorecard approach is not like the traditional methods of tracking the financial position
of the business but provides with the exact position of the company by giving its objectives.
With the help of Balanced scorecard approach not only the immediate future is being tested but
also balance scorecard approach helps in evaluating the current and the past of the company.
With the help of various balanced scorecard approach the company ensure that various strategic
plans and actions have been properly implemented and they do match with the desired objectives
that the company which to achieve in the future. All of these can be achieved only with the help
of understanding the customer and the prices at what the product should be soon so as to increase
the sales. (bowen, 2018)
There are both advantages and disadvantages of using a balanced scorecard approach but this is a
tool which is found to be truly beneficial for the business and the company. Management
accounting system provides with various tools but balanced scorecard approach is found to be
the best among them for ensuring the future benefits that arise to the company. (bowen, 2018)
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Conclusion:
Thereby it can be concluded that Tech (UK) limited is a company which is running in huge
losses and has to be developed accordingly. One can easily identify the reasons behind the failure
of the company and because of that management accounting systems are need to be adopted by
the company. When the report is considered not only Management Accounting system but
inventory management system and job costing system which are the part of management
accounting system need to be considered as well as in depth. It can be concluded that if
Tech(UK) limited adopts the management accounting system and the various aspects of it that
are being discussed in the report including the balanced scorecard approach then the company
can easily Run its business in the upcoming future.
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References
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unleashedsoftware.com: https://www.unleashedsoftware.com/blog/benefits-strong-inventory-
management-system
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Singh, S. (2018). Management Accounting: Meaning, Limitations and Scope. Retrieved april 30,
2018, from accountingnotes.in:
http://www.accountingnotes.net/management-accounting/management-accounting-meaning-
limitations-and-scope/5859
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