Management Accounting Report for Tech (UK) Limited

This report examines the financial situation of Tech (UK) Limited, a company experiencing significant losses in the mobile phone and gadget retail sector. It delves into the concepts of management accounting, including its distinction from financial accounting, its importance in decision-making, and various cost accounting systems. The report further explores different types of managerial accounting reports, emphasizing the importance of clear and understandable presentation. It then analyzes the company's financial performance using income statements prepared under both marginal and absorption costing methods. The report also discusses the importance of budgeting, outlining different types of budgets, their advantages and disadvantages, and the budget preparation process. Finally, it examines the Balanced Scorecard approach as a solution to Tech (UK) Limited's financial problems, comparing it to another management accounting approach used in a different organization.

Management accounting report for Tech (UK) Limited
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Contents
Introduction.................................................................................................................................................3
Task 1..........................................................................................................................................................4
a) Explanation of management accounting and the essential requirements of management accounting
(P1, M1 and D1).......................................................................................................................................4
b) Presenting financial information.........................................................................................................8
Task 2..........................................................................................................................................................9
P3: You are required to prepare income statements (M2, D2)................................................................9
Task 3........................................................................................................................................................13
P4: In report including (M3, D3)............................................................................................................13
Task 4........................................................................................................................................................16
Referring to Tech’s current financial situation, explain ways by which the Balanced Scorecard
approach suggested by the auditors can be used to respond its financial problem and compare this
approach to another management accounting approach used in another organisation of your choice
...............................................................................................................................................................16
Conclusion.................................................................................................................................................18
Bibliography...............................................................................................................................................19
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Introduction:
Tech (UK) Limited is in huge losses doing business in mobile telephone and other carry-on
gadgets in UK on retail basis. The current situation of the company that is being reported by the
managers but there is lack of financial and information due to which the decision making is
getting affected. A report to evaluate such financial information is to be made where the use of
Management Accounting system, management Accounting report, balanced scorecard approach,
ABC analysis, variance analysis has to be reported to the team. Here is the brief report of all such
requirement for the company.
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Task 1:
a) Explanation of management accounting and the essential requirements of management
accounting (P1, M1 and D1):
I. Distinguishing Management Accounting from Financial Accounting.
The preparation of financial information and providing such information to various business
managers so that such information can help them in making decision is called as Management
Accounting. Management Accounting reports and Management Accounting prepares is for the
internal management team. Management Accounting provides the users with the where position
of the company and the user here at the part of the internal team. The purpose behind
Management Accounting report is to help to management and the various departments so that we
can provide them various result of their department for the Welfare of the company. (Vitez,
2018).
Financial accounting reports the outsiders of the company that are investors, suppliers etc. to
show their company’s actual position to them. Particularly every year financial accounting
reports have to be generated as they are compulsory as per the requirement of law. For
preparation of financial accounting reports various accounting standards in accounting policies
have to be kept in mind and the financial reports shall be complied with all such requirements.
(Vitez, 2018)
II. The importance of management accounting information as a decision making tool for
department managers.
These are discussed below:
Future forecasting – accounting systems helps in deciding the future while considering decision
making. (Vitez, 2018). Future forecasting is very important for a business as such forecasting
helps in analysing various reports and provides what actions the company should take in the
future so that such decisions are fruitful for the company. Management accounting report helps
in making in forecasting of the future and helps the managers to make decisions regarding the
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business. With the help of past results and trend analysis the managers can forecast the future
and such forecasted future is helpful for them in decision making.
Analyses investment return- For the management to make a decision which involves heavy
investment, the rate of return for such investment has to be calculated, so that the company can
analyse weather such investment is beneficial for the company or not. Not only this when there
are more than 2 investment that the company has to do, it helps in calculating rate of return of all
such investments available and provides the managers with the best. Rate of return the amount of
earnings that the company will be provided with when the organisation invests in the investment.
(mishra, 2018)
Analyses in variances- It is not always correct what has been predicted by the management and
what have been the actual results. The difference between the two gives the rise to variances.
Search variances are identified by the management accounting system and have corrected there
by the managers. Variances can be of two types that are positive variances and negative
variances. The management accounting system takes the advantage of the positive variances and
corrects the negative variances. There are various analytical techniques through with the
variances can be identified and corrected. Search techniques are part of management accounting
system and Management Accounting system help them in identifying the variances and to help
them in making decisions.
Aid in decision making process - For a production manager and production team it is the most
difficult to whether purchase or produce equipment. Such decisions are highly evaluated by the
company so as to ensure that the most out of the list can be taken by the company. Considering
the cost of both of the proposals is necessary for the company before making such evaluation as
what to consider. (mishra, 2018)
For evaluating the cost of both the proposal Management Accounting system is highly
recommended and is found most beneficial for the entities. One has to understand the
management accounting system and its policies and principles prove it becomes very easy for the
user to evaluate to proposal of making the products at home or buying it from outside. So as to
take the decision of making it or buying it management accounting system are very helpful.
(mishra, 2018)
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Ascertaining cash flows- The revenue growth of a company is totally dependent on the
projected cash flows that are being presented by the managers to the users of the company. The
information that has been provided to the manager of the company used to decide how the
evaluation of money and resources is to be done so that the company can be benefited with the
decision that the manager has taken. The manager can easily predict the cash flows and the
impact of the cash flow on the business with the help of Management Accounting system.
Management accounting system helps the manager by providing them with the information
which includes the cash outflow inflow for the business during the year. With the help of these
past results and trend analysis the managers can easily identify the cost that the company will
incur in the near future. (Vitez, 2018)
To improve productivity and profitability: In an entity the production process should be
evaluated as and when required. About the production process a production manager can give a
detailed analysis of the productivity that the companies is providing and if the user of the report
provided by the production manager is not satisfied with the productivity levels that has been
stated by the manager, productivity needs to be improved. The productivity can be improved
with a Management Accounting system through with such productivity can be increased. For
increasing the productivity of the company will have to consider the profitability as well as.
Earning that the company is making by selling the product produced by the company. The
profitability and productivity can be improved with the help of Management Accounting system.
(Vitez, 2018)
III. Cost accounting systems (actual, normal and standard costing)
When a product is made various costs related to the product occur in manufacturing such
product. Accounting of such costs is called as cost accounting system. (Vitez, 2018)
It can be further divided into:
Normal costing –In this system, actual material costs, actual labour and variable overhead cost
are calculated (Drury, 2013).
Actual costing – It ascertained actual cost which is incurred for production of products.
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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.
Inventory management systems-
Various combination processes and Technology that is done for the maintenance of the products
and whether the products are available in stock on the company. Inventory management system
is useful in many ways as it helps in identifying the inventory that weather for the inventory has
barcode labels or other tags that are useful for identifying the stock. Inventory management
system includes in itself various tools through which the barcode labels can be identified and
scanned. Inventory management system is highly recommended where the stock levels are high
and to analyses high data level is necessary and to generate report on timely basis is
recommended. Inventory management system applies the inventory principles which are FIFO
method, LIFO method and ABC analysis.
Inventory management system does not let the inventory to fall below the minimum level and it
always keeps stock available so that the company’s staff may not run out. Whenever the
company runs out of stock it affects its position in the market so as to avoid this Management
Accounting system provides inventory management system which is basically very useful for a
business to maintain it stock levels.
V. Job costing systems
Job costing systems
The cost of a job is to be calculated is called as job costing. It is done for calculating the cost of
various completed job done for manufacturing of product. Job costing system provides feasibility
of various jobs. For the purpose of calculating cost of a product all the cost involved in the
various jobs are maintained in ledger and then are added to the cost of the product.
The purpose behind job costing system used to analyses the profits of the company
understanding the cost of production and various overhead that weather they are below the
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projected cost or not, through which company profit can be easily ascertained. There are various
documents that are used in the job costing procedure which are-
Production order- it is a type of work order through which is the production manager is
authorized to produce the amount of products that are mentioned in the production order,
Cost sheet- for the purpose of recording various costs another document which is called as Cost
sheet is used it provides the detailed cost that are incurred during the production process. (Drury,
2013).
Job costing system has many objective that are to complete a product to maintain a separate
account for a product that involve specific job and the calculation of the job on the basis of cost
involved in each job. It helps management to provide price of a certain work that has been asked
by the customer on the basis of the cost incurred in the previous jobs done by them.
b) Presenting financial information.
I. Different types of managerial accounting reports.
1. Managerial accounting reports-
The managers in providing expertise in financial reporting and also it help to control
management in Planning and performance of management system. (Vitez, 2018)
Types of Managerial accounting reports-
External report- the report that the management prepare for the outsiders of the business is
known as external report. Involve external users which are shareholders, investor and creditors.
The answer ability of the company is not meant to the outsiders but the reports are to be provided
to them. Company provides reports through the medium of the income statement and the balance
sheet that the company provides to the registrar of companies at the end of every financial year.
(Vitez, 2018)
Internal report- the report that is meant for the different level of management internal is called
as internal report. Internal report is not public document and not available for the public they are
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there to help the department manager to understand the company's working and system. Reports
are meant for lower level, and top level management of the company. There is no access
compulsory requirement for providing such report their frequency depends upon the uses of the
company. Some of the examples of reports are changes in working capital, sales report, material
utilization reports etc. (Vitez, 2018)
Enterprise report- when all the departments are taken together as a single concerned and a
single report is provided is called as enterprise report. These reports are helpful in
communicating with outsiders and also concerned many activities relating to the business. These
enterprise reports are highly beneficial for the outsider and the outsider can invest in the
company with the help of these reports by making and interpretation of the financial statements
that have been provided to the user of the report. Enterprise reports are income tax returns,
employment report etc. (Vitez, 2018)
II. Why it is important for the information to be presented in manner that must be
understandable.
The accounting information that is provided to the users has quantitative and qualitative
characteristics. Such characteristics provide the user with the importance of the financial
information that is to be understandable by the user. Information provided is not understandable
to the user, its usefulness becomes of no use. Where the information provided is incorrect or
incomplete then it can hamper companies management system as information is required for
making decision and if the information is incorrect or incomplete it can lead to wrong decision
making. (Vitez, 2018)
Task 2:
P3: You are required to prepare income statements (M2, D2):
Marginal costing: And internal reporting tool which is a method of cost accounting and making
decisions by considering only for variable cost and ignoring fixed cost is called as marginal
costing. The purpose of marginal costing is to understand the changes occurred in the profit with
the increase in the volume of output. Marginal costing notes external reporting standards for the
company. (toughnickel, 2016)
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The disadvantage of marginal costing is that it becomes very difficult to separate all the fixed
and variable cost and many a time’s marginal costing can give misleading results. Usability of
marginal costing is lesser than absorption costing. Semi variable cost is considered fully without
eliminating the fixed Element and can provide wrong result.
Absorption costing: Calculation of a cost of a product by including all the cost whether variable
or fixed this called as absorption costing. (toughnickel, 2016)
Disadvantage of absorption costing is that it involved in the manipulation of profit as it includes
fixed cost which are done for the purpose of manufacturing a product or not. (Silva, and
Jayamaha, 2012).
The difference in absorption costing and marginal costing:
Difference between marginal costing and absorption costing is the involvement of fixed cost in
the calculation of the cost of the product.
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Analysis: The difference in the profit is because of the fixed cost involvement in the absorption
cost and not in the marginal cost.
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Task 3:
P4: In report including (M3, D3).
a) Different kinds of budgets and their advantages and disadvantages:
The types of budget are
Master budget- Master budget is the type of budget that provide for the allocation of various.
To the various processes involved in the business. Master budget is into the evaluation of various
cost centres that are present in the organisation and allocating money to the different calling
Centres. The factors that are involved in making a master budget are sales, operating expenses
etc. The purpose of the budget is to ensure that the manager involved in the organisation is
focused towards achieving their goals and objectives for the business. (Jane, 2018)
(efinancemangement, 2018)
The disadvantage of Master budget is that it lacks specificity. Master budget has many categories
and number that are involved in the budget so it becomes difficulty to update such budget, which
is one of the major disadvantages of master budget. (Jane, 2018)
Operating budget- Operating budget is the type of budgets with involves various costs that are
related to many operational steps involved in the production of a product. The costs include
production cost, overhead cost, manufacturing cost, labour cost, administrative cost, working
capital, etc. Operating budget is prepared in accordance with the above mentioned costs.
Operating budget is a time consuming process which is one of the major limitation of an
operating budget. Also operating budget creates goals to be achieved by different managers and
if goals are not achieved then it leads to blaming each other for the fault. (efinancemangement,
2018)
Cash flow budget- The management of company’s working capital is highly required and can be
done with the help of cash flow budget. Cash flow helps to understand accounts payable and
account receivable for the company on time not only this cash flow also provides the user with
the information that whether the inflow of cash is regular in the company and should not fall
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short for the requirements to be done. The cash shortage will be there and how the managers can
accomplish that. (efinancemangement, 2018)
Not only this cash flow budget helps the company to identify if there are surplus cash flows
available for the company to involve in a new project or not. (efinancemangement, 2018)
Company needs funds to run its business and funds can be classified as short term funds and
long term funds. Financial budget provides the company with the details of the types of funds
that are available for the company whenever there is a requirement of funds. The purpose of the
financial budget is to identify the outflows and inflows of funds. To be very precise the financial
budget portraits the financial health and position of a company to the user of the financial
budget. Some of the major decisions that are mergers and acquisitions are completely dependent
on financial budget that is the most important advantage of a financial budget.
(efinancemangement, 2018)
b) The budget preparation process including determination of pricing and different costing
systems that can be used.
The person involved in preparation of budget should possess the qualities of a cost accountant
who can identify various costing systems which are involved in the preparation of budget and to
apply these costing system insert budget. Some of the examples of Costing systems are job
costing system, standard costing, batch costing etc.
The pricing for the product cost can be ascertained with the help of the costing systems that have
been described above. Such costing systems are highly useful for calculating the cost of a
product. The cost accounting should also identify the budget factor that is to be involved in the
preparation of such budget. The pricing under taken while preparing the budget shall include the
past results and trend analysis that is going on with the future forecasted approach, all these
factors together shall be taken by the cost accountant while working on the pricing of the budget.
c) The importance of budget as a tool for planning and control purposes.
Importance of budget:
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Budget is highly important in an organisation as they help in the smooth running and functioning
of the organisation. Budget helps in identifying the risky areas which are prone to the market
situation and identified very early so that they can be rectified before any serious issues happens.
The movement of cash flows within the entity is very much required and budget helps to plan
and predict the movement of such cash flows. Budget helps in removing of unnecessary steps
involved in the organisation process by simplifying the process and providing the budget to the
department managers on timely so that their functioning cannot be stopped. Not only budgets but
also sub budgets are also helpful in providing essence to the management. Budget helps in
monitoring sales and revenue through which the company's performance can be tracked by the
managers on the timely basis. Budget helps in making more confident decisions that are
strategically aligned for the Welfare of the company. (Kallu, 2017)
Budgets are highly recommended in making decisions and are very helpful for the purpose of
decision making for the managers of the entity. The budget reports when provided outside the
company it helps the lenders to provide funds for the company on the basis of our projections.
Not only this the budget also helps to provide potential investors who wish to invest in the
company by seeing the current position of the company and analysing the reports of the company
related to the future forecasted by the managers. (Kallu, 2017)
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Task 4:
Referring to Tech’s current financial situation, explain ways by which the Balanced
Scorecard approach suggested by the auditors can be used to respond its financial problem
and compare this approach to another management accounting approach used in another
organisation of your choice.
Tech (UK) limited financial statement showed a loss of euro 1.5 million. Such a big loss for a
company proves that the financial position of the company is facing tremendous financial risk.
There are various ways to resolve the problems faced by the company. Management accounting
system provides solutions and techniques which include balanced scorecard approach. The
auditor governing the audit of the company is also of the view that the company shall use
balanced scorecard approach to manage its financial risk and the losses that the company has
entered in the past. (Marr, 2018)
Balanced scorecard approach provides for a better strategic planning for building and
communicating strategy to the various managers involved in the production. The business is
approach as a strategic map which helps the manager to believe and understand the relationship
between different objectives that are aligned to the business strategy. The purpose of creating a
strategic map ensures that the strategic objectives of an entity are completely achieved and are
fulfilled by the management. (Marr, 2018)
Balanced scorecard approach helps in the improvement of strategy communicate various goals of
the entity. The purpose of balanced scorecard approach is to communicate various strategies
internally and externally within the management. Balanced scorecard approach help in providing
a plan to the management so as to how the strategy that has been made has to be applied.
Balanced scorecard approach helps in a better alignment of various projects and initiatives that
have been provided by the management. It helps the entities to map their projects with the
different strategic objectives and to ensure that such projects are able to focus and to provide the
strategic objectives that the company is required of. (Marr, 2018)
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Balanced scorecard approach helps in better management information to be circulated within the
management. It helps the organisation to provide for indicators that are very helpful in achieving
strategic objectives. It helps in measuring the company's current situation while achieving the
strategic objective. Some research have been made regarding the balanced scorecard approach
which provides that it helps to management in providing high quality information and also help
the management in making better decisions for the company. Performance is provided by the
teams to the senior management team and search report shall be provided with the information
that can be understood easily by the senior management team. 12 to improve such performance
reporting balanced scorecard approach has been initiated. Ensure that the management reporting
focuses towards their plan and to resolve strategic issues that are to be deleted from the
organisation. (Marr, 2018)
The organisation structure is to be properly aligned and balanced scorecard approach is the best
way to align the organisational requirement by achieving strategic objectives. Balanced
scorecard approach helps in achieving individual goals for the manager so that the combination
can be achieved by the organisation. Scorecard approach helps to achieve strategic objectives by
ensuring welfare. (Marr, 2018)
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Conclusion:
Tech (UK) limited is a company which is running in huge losses and when balanced scorecard
approach has been analysed with regard to the company's prospective, it is found that balanced
scorecard approach is the most beneficial Management Accounting system that can be applied to
the company through which the company can easily come out of such losses. For the smooth
running of a company Management Accounting system is very helpful for achieving their goals
and in making decisions regarding any aspect of the business. Thereby it is recommended that
Tech (UK) limited shall consider balanced scorecard approach and Management Accounting
systems that has to recover from its food losses and for a better future planning.
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