Management Accounting System and Financial Problem Resolution

The provided report emphasizes the significance of a proper management accounting system in controlling the flow of financial resources within and outside an organization. It highlights the need to resolve financial problems through certain strategies and techniques, and utilizes performance measurement tools to assess effectiveness.

Management Accounting

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM involving management accounting and its different system
together with various costing techniques and reporting to enable the company to execute it.

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P1. Different management accounting systems and their essential requirements..................2
P2. Different methods which can be taken into account for management accounting reporting3
TASK 2............................................................................................................................................5
P3. Key differences between income statement developed through marginal and absorption
costing.....................................................................................................................................5
TASK 3............................................................................................................................................6
P4. Advantages and disadvantages of planning tools used in budgetary control...................6
TASK 4............................................................................................................................................9
P5. Ways for responding to financial problems.....................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
1

INTRODUCTION
It has been analysed that every day, there are number of challenges which are faced by
organisation and due to these they have to adopt new and different approaches of accounts.
Management accounting can be defined as the process of developing different financial and non-
financial documents which help managers in making right decisions. This report will be
highlighting different requirements of various kinds of management accounting and for this
same, Zylla Company will be chosen which a multinational company with reference to which all
concepts will be explained. It also briefs about various methods of reporting along with
advantages and disadvantages of planning tools which are used in budgetary control. This covers
the major part of assignment and there will an income statement framed by using marginal and
absorption costing methods as well. Also, ways to overcome various problems faced by
organisation by using different management techniques are highlighted as well.
TASK 1
P1. Different management accounting systems and their essential requirements
Organisations whose business is expanded all over the world in different countries cannot
much rely on old techniques of financial accounting. With the variation in business environment,
the needs of managerial accounts is rising and the reason behind this is that it emphasises on
developing future plans and policies of organisation. Its various systems are used for the
interpretation of financial data. When an enterprise initiates their business, they come up with
various problems which firm has to deal with and acts as a barrier in achieving more profits. The
tools which are part of current modern accounting has objectives of framing strategies which can
resolve the troubles of organisation.
In earlier scenario, finance area was restricted to taxation, costing, etc. But, in the current
era, they have to look at the factors like plans of rivals and trends in industry, etc. Through
reducing the process cost the profits margins can be increased. It is an important part of
management accounting and is an internal process. The other way to increase profits is to hike
sales of products and services. For this, it is required that there should be large investment
decision thus knowing the areas where investment can be done or where it is difficult to do.
Thus, it can be said that for such decisions managerial accounting is required.
Following are some of the management accounting systems:
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Inventory Management System: - The business of Zylla is complex as they are
operating their business in different nations. So, it becomes a little challenging task for them.
This area of management accounting is concerned with the issues of keeping more or less needed
inventory which should be available in warehouse of an organisation. In back time, companies
used to keep and maintain record through manually recording but now they utilise current
technology like EOQ, determining carrying and ordering cost. It is observed that in scenario if
an organisation stocks a large in warehouses then it will directly increase process cost and
chances of wastage of resources increases. On the other hand, if stocks are less in store, this will
also affect the organisation in a negative way and supply chain management of firm as well.
Job Costing: - This gives them an idea that which activity is hampering their profits in
negative way or becoming burden on organisation. Through this, they can eliminate that activity
which is increasing process cost and thus, helping them in achieving the goals of organisation.
Price Optimisation: - It is required that a product should be sold on suitable price so that
price set will be favourable for both sellers and buyers. The management use this technique in
identifying that what will be the right cost at which they can sell the product and on the other
hand, it also gives profit to organisation. This is required because most of the consumers avoid
buying any product if it is expensive and thus, decreasing its demand in market.
Cost Accounting System: - Costing is most crucial factor for business and if they
decrease cost then it will directly increase the profit. Cost accounting reduces chances of
wastage of resources and it can be achieved through decreasing the unnecessary expenses. Its
scope is large and affect almost all areas of company.
P2. Different methods which can be taken into account for management accounting reporting
Developing report is quite an important task as this is a summary of the work which has
been carried out in past and thus it can be said that it can be used for analysing the business
profits and losses etc. Through referring to such reports they can make certain decision through
looking at their future plans. With this they get an idea that what are the areas where they are
lagging behind and making mistakes. Working on the mistakes for their growth in future is quite
necessary for expansion in business market. Following are some of the forms of reporting that
are as follows:-
Account Payable Reporting:- This kind of report is used to know the amount which has
to be paid to their creditors along with the due amounts. Suppliers are the key aspects of business
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and are considered as stakeholders for organisation like Zylla as they provide them raw materials
and other resources used in their process. It is necessary that they should be given their payments
on time so that they can improve their services and Zylla credibility will increase. There are
some of the firms who develop such reports by considering the amount which others prefers
duration of credit. There are no certain standards and regulations which has to be followed to
adopt this into business model. This can be used to ensure that there is proper relation with the
suppliers of organisation and on the other hand account payable reporting can be also used for
making future policies and plans concerned with creditors.
Account Receivable Reporting:- Debtors can be called as individuals or companies who
own money to organisation. This kind of reporting is useful in getting information about debtors
who has purchased goods from the company on credit thus it also includes the time period which
is given to them to repay the amount. The two ways which can be considered in this is time and
the other one is amount. The objective of such kind of reporting is to reduce the chances of bad
debts. Manager at Zylla ensures that they regularly frame this kind of report so that an insight
about the debtors who are not paying due amount in time and as a result they can blacklist them.
This way they can save lots of money of company and will regularly get the details of debtors
who should not get the products on credit from firm.
Job Cost Reporting:- Profits attained through the business activities can be analysed
through developing such report and it is the duty of manager to make this. It can be said that the
usefulness of activities can be find out and those who are not giving them good profit and there is
usage of more resources in it they can they can eliminate such activity. Most of these operations
are part of manufacturing process thus they have the aim of minimising expenditure of resources.
Inventory Control Reporting:- Due to lots of production MNC's find it challenging to
maintain their stock. To overcome such situation inventory control report is framed with the aim
of finding right quality of goods which should be ordered on one time. Overstocking and under-
stocking are two issues which can hamper multinational organisation profits. The solution for
this problem lies in with inventory control reporting and in this they have option of using
economic order quality (EOQ). With this kind of tool they can reduce carrying and ordering
costs which are part of managing inventory. It briefs or gives details about the time period when
the organisation did not have required good or certain raw materials which are required for the
production process. It has been seen that organisation store lots of good in warehouses more than
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their demand in the market thus it bring expenditure expenses and there is increase in inventory
cost significantly. Such issues or problems can be overcome through developing report on
regular basis which will give them an idea about the stocks which has to be done.
Budgetary Reporting:- No organisation can manage their financial resources till they
have a budget which acts as an outline map of the activities where certain amount of money will
be invested. It plays a crucial role in ensuring that no wastage of finance is done and for this
manager analyse the department and areas of company (Otley, 2016). On the other side, it also
increase between the employees and activities which they have to do. To carry our a budget
planning it is required that management should spend time in analysing and evaluating the whole
organisation. Such report includes all the necessary expenditure and income which firm is going
to spend or earn in future.
TASK 2
P3. Key differences between income statement developed through marginal and absorption
costing.
Costing importance has been increased in market as organisations are making large profit
after reducing their costs of their business. Marginal cost is a new concept as compared with
absorption costing. Following are key differences between both marginal and absorption costing
that are as follows:-
Basis Absorption Marginal
Fixed Cost In this, the fixed cost is taken
during time of determining
cost of outcome goods.
In marginal, fixed is treated as
period cost.
Closing Cost Influenced by opening and
closing stock.
There is no impact on
manufacturing cost due to
opening and closing stock.
Inventory Valuation Value at complete production
cost.
Value cost at total variable
cost.
Use Assist in IAS 2. Used during decision making.
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Calculation through utilising marginal costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Computation with Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
300 pounds is profit which has been taken through absorption costing as compared with
net profit through marginal costing it is more. Variation is do to difference in fixed cost. In
marginal costing the overall cost is calculated in the final goods and in case of absorption it is
calculated on very stage of production. Closing stock also puts impacts on the results as if some
of the expenses which include fixed are not taken in scenario in current year than it will be
shifted to next year in the case of absorption costing (Cullen and et.al., 2013). In marginal
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costing if expenditure like fixed cost is acquired in current year but the closing stock remain at
the end of year the burden of fixed cost will be taken in this year. This includes a unnecessary
cost in the case.
TASK 3
P4. Advantages and disadvantages of planning tools used in budgetary control.
Budgetary control is a long process that make sure that organisation takes proper decision
related to their finance so that they can easily attain the targets which has been set for a particular
time period. This is not a monitoring activity but instead it is more over related to proper
planning. Different companies who are part of business environment use various tools of
planning as they are aware that it is necessary to be prepared themselves for future situations.
This will bring a positive impact on the organisation as the confidence level of staff will go high.
If they have planning then they will find it easier to make their stable position at crisis time
(Parker, 2012). Following are some of crucial planning with their advantages and disadvantage:-
Case Budget:- Due to high liquidity, managing cash is becomes a challenging tasks so it
is required that there should be proper planning for this. This is one of the tool through which
they can know the requirements of finance at difference time and situation. Through cash budget
they can reduce the chances of bad debts and can overcome the hurdles which are coming in
supply chain management and etc (Delafrooz and Paim, 2011). In includes the information about
funds which organisation have to pay to various business bodies in coming time and also states
that how the company will be earning the finance from different platforms like selling of product
or through loan interest which they have provided to certain debtors.
Advantages:- Having the money in sufficient amount will allow them to pay to creditor in
the promised time period. This will improve their image and they will win the trust of suppliers
which will result in some kind of discounts from suppliers. Suppliers are aware that if they will
be giving right materials they will get timely payments. In emergency situation they can easily
buy the materials required for production through case they have instead of credit facility.
Disadvantages:- Some of the companies does not develop cash budget as they think that
ascertaining the needs of liquid assets is not possible. As their continuous change in business
environment has to incorporate in their business and they have to decided what amount will be
enough for particular situation. It is tough to decide the right amount and the other demerit of this
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is that it is totally based on the previous years budget. As in this the previous years clinging
balance is taken for developing the budget for current year. It is a little risky as there can be large
variations.
Master Budget:- Zylla can incorporated this tool in their business so that they can attain
the goals. It includes sales, marketing, marketing budgets and etc. It has been observed that the
department which are part of the organisation has their own budget but there is a master budget
for the company. It ascertain the income which they may can take out and the expenditure which
are done in the productive organisation (Renz, 2016).
Advantages:- If firm has master budget the chances of conflict reduces and has
information that which department needs to be given how much funds. It might happen that
production department requires more budget than the marketing department and through they
have to use it so that they can attain the goals which has been set. It provides that all demands of
areas in company are met.
Disadvantage:- Small organisation does not believes in the concept of master budget due
to high cost which is required to develop it. There is requirement of a large workforce as it
includes analysing the sales, storage etc. and not only workforce there is requirement of different
resources (Hansen, 2011). Many managers thinks that developing master budget needs a lot of
time and can be considered as a lengthy process and they prefer to frame short budgets thus
giving them better outcomes.
Operating Budget:- Operational planning includes the income and expenses which are
concerned to core revenue generating operations of organisation. Production and administration
are two areas which are emphasised through this planning technique. These are the key areas
where most of the expenditure are done by any company so through this budgeting planning is
also done (Schaltegger and Zvezdov, 2015)
Advantages:- To ensure that more investors should invest in their business it is required
that they should show better operating costs of an investment to the industry. Doing so will
attract a lot of people and they will able to increase their market share along with income of
company. Modifying any budget is a quite complicated task and but in the case of operating
modes the changes can be made easily. Bringing any amendments ensure that every body has
been altered about the changes.
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Disadvantage:- Operational budget is restricted to some areas of organisation and can be
called as risky. They have key feature that it is easy to amend and in case if manager regularly
puts some sort of changes it will look that the manager is not at all confident about the plans
thus they are in state of confusion among staff.
Zero Based Budgeting (ZBB):- It is method of budgeting in which all expenditure
should be justified for different new period. It initiates from zero base and each of the
organisation is analysed for their requirements and costs (Hopper and Bui, 2016). Then budgets
are formed around what is required for the upcoming period, whether the budget as compare with
the previous one is higher or lower.
Advantages:- They are flexible budgets, has focused on certain activities and includers
low costs. The implementation of such budgets takes in disciplined way without and unwanted
activity.
Disadvantage:- The blender which comes with this is that there are chances of being
manipulated by different manager thus also showing a bias approach towards short term
planning.
Activity Based Budgeting:- It is a budgeting method in which budgets are developed
through activity based costing after taking into the account for overhead costs. In this the past
year budget is not taken to frame the current year budget. Those activities which are incurred are
analysed and evaluated (Wagenhofer, 2016).
Advantages:- Through this each and every factor can be analysed which are cost driver
thus taking all the levels in consideration which are involved in. Those activities which are not
yielding good results are obstructed out as it helps in viewing the business as a single unit and
not in any division in departments.
Disadvantage:- To use this technique it is required that there should be deep knowledge
of various areas of business and if the manager finds it difficult to understand that the budget
preparation can go in vein. This budgeting planning tool consumes a lot of resources of an
organisation.
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TASK 4
P5. Ways for responding to financial problems.
Each of organisation is uses different tools and method to manage their management
accounting system. There might be presence of lots of different hurdles which can impact their
accounting process. It has been observed that Vectair Holding is using a tradition approach in
accounting and following are some of difference from Zyll that are as follows:-
Zylla Vectair Holding
They try to reduce the wastage and for that
they use lean accounting,
They use traditional accounting method and
focus on recording the financial data or
information.
Though modern system they are able to make
right decision in less period of time.
Slow moving of information brings delay in
decisions.
Current technologies are integral are part of
lean accounting.
There is no much use of technology as things
are done manually.
The financial problems can be handled in right way through utilising different
management tools of accounting:-
KPI:- Key performance indicators highlights that whether organisation is able to attain
the targets or not able and are they able to do things in right direction. They can set SMART
goals thus assisting them in reaching effective way. They wanted to capture 10% market and for
this they will be using financial resources accordingly (Kokubu and Kitada, 2015). It is required
that for every goal a time limit should be set as if they will be not set the time period than things
may take a lot of time to happen and other financial disputes will arise.
Financial Governance:- If they have to ensure that they make more profits it is
necessary that they should consider the views of their stakeholder. Their interests also have to be
considered otherwise not giving them value in business will dissatisfy them.
Performance measurement control system:- They have to follow the principle that
there require them to establish performance standard criteria for analysing difference situation. It
will directly increase the profitability of company and will resolve financial problems.
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CONCLUSION
From the above stated report, it can be summarised through a proper management
accounting system organisation can control the flow of financial resources within and outside the
organisation. Any financial problem arising should be resolved through certain strategies and
techniques. They can use various performance measurement tools to know the effectiveness of
their purpose which they wanted to achieve.
REFERENCES
Books and Journal
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Cokins, G., 2013. Top 7 trends in management accounting. Strategic Finance. 95(6). pp.21-30.
Cullen, J. and et. al., 2013. Reverse logistics in the UK retail sector: A case study of the role of
management accounting in driving organisational change. Management Accounting
Research. 24(3). pp.212-227.
Delafrooz, N. and Paim, L. H., 2011. Determinants of financial wellness among Malaysia
workers. African Journal of Business Management. 5(24). p.10092.
Hansen, A., 2011. Relating performative and ostensive management accounting research:
reflections on case study methodology. Qualitative Research in Accounting &
Management. 8(2). pp.108-138.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research. 31. pp.10-30.
Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production. 108. pp.1279-1288.
Maiyaki, A. A., 2011. The Practicability of Activity Based Costing (ABC) in the Nigerian Retail
Bank. Business Intelligence Journal. 4(2). pp.351-354.
Moser, C., 2012. Gender planning and development: Theory, practice and training. Routledge.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production. 108. pp.1333-1341.
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