Management Accounting– Report
Added on 2021-02-20
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ManagementAccounting
INTRODUCTIONManagement accounting is a continuous process or a systematic process which deals withgathering, classifying, analysing, and process financial and non-financial information in order toproduce reports that are used by managers to make decisions that aim to accomplish the strategyof the business and analyse the financial information and transfer to the manager for the effectiveor efficient decisions (Scapens, 2015). It is periodical report which helps manager to developstrategy department wise. Brightstar Company is selected for better understanding of theseconcepts and it provides various financial solutions to their clients all over the world. Airdri isone of the client companies of Brightstar which is founded in 1974 by Peter Philipps & PeterAllen. It is UK based company which offer different range of dryers. This report includes varioustopics such as management accounting and essential requirement of accounting system. MAIN BODYTASK 1 P1 Management accounting and essential requirement of its systemManagement accounting:Management accounting is the discipline which deals with gathering, classifying,analysing, and process financial and non-financial information in order to produce reports thatare used by managers to make decisions that aim to accomplish the strategy of the business. Itincludes the various practices which help the Airdri Company to achieve their business goals &objectives.Origination of management accounting:Management accounting emerges as a significant activity which helps the organization toanalyse their financial performances. Management accounting originates after financialaccounting because it helps the business to analyse their financial information in useful manner.There are two industries which plays important role in the evaluation such as textile and railroad(Origin of management accounting, 2019).Difference between financial or management accounts:Financial Accounting Management Accounting 1
Financial accounting classifies, analyse, recordand summarize day to day transaction relatedto the business activities. It helps in decision making process for theinternal operational functions. This techniquedoes not record financial information usingspecific standards or principles as it is not usedto serve to external stakeholders. It is used to determine an accurate financialposition of the company. Its main purpose is make managerial decisionsfollowing various tactics and measures in orderto concrete the strategy of the business. Financial accounting is used for the externalstakeholders. It also supports prepares reportsand financial statements which must becompulsory being consign to authorities,regulators and other incumbents. If well thisaccounting is not focused in the reportspreparation to make decisions, the nature of itsinformation provides just a general and not-specialized view of the financial position tomake authentic decision in context to growthand development. It is used for the internal purposes only(Kaplan, 2014). It is also focused in thepreparation of specialized queries and reportswhich are generated according with thebusiness’ needs to make decisions regardingthem. Different type of management accounting system:Management accounting system is the method of evaluating operational activities andimplement various systems which increase the organizational productivity as well as profitability(Otley, 2014). In the Airdri Company, manger follows the various accounting system to enhancetheir operational performance in order to achieve their targets and some of systems are discussedbelow: Inventory management system: It is kind of system or software which is used by theorganization to maintain their stock’s level and it will provide the regular update. With the helpof inventory management system, manager of the company can deliver products from warehouseto the manufacturing area as per the requirement. Manager of Airdri used this system to regulartrack their inventory level. It is essentially required to keep manager update regarding their stock2
level. In future, it reduces the chances of shortage as well as wastage of raw material at the timeof manufacturing electric items. For the effective management in the warehouse, manager canuse LIFO, FIFO and other inventory management system. It adds value to the organization tomanage those item that are ready for sale level and regularly track the raw material for thefurther functioning. Cost accounting system: It is also called costing system which is used by theorganization to estimate the economics value of the number, quality, and kind of resourcesinvolved in the production of each unit of product. This framework used for the analysis ofprofitability; control overall business cost and valuation of inventory. This system required forthe estimation of Airdri’s product cost which helps in measuring profit margin of the business.Lower the cost will provide the high profitability and similarly higher cost of product will reducethe profit margin. Manager of Airdri Company, use the cost management system for theevaluation of their product cost (Macintosh and et.al. 2012). It helps the manager to analyse allthe aspect and develop strategy which further required at the time of taking effective decision.Manager ensures that, cost of each unit will be low for the whole production and try to maintainor minimise the cost because low cost provides the high profit margin. With the help of thisaccounting system, organizational efficiency or effectiveness will be increased and in futureprovide benefits to achieve their goals & objectives. It add value to the business to reduce theirover expenses. Price optimization system: It is the mathematical framework which helps indetermining customer behaviour or response to different price range of the products & services.It also helps in measuring best price of the product which meets with the organizationalobjectives such as maximising profit and increase customer base. In the Airdri Company,manager use this system to determine their customer behaviour in order to satisfy them. It helpsthe business to identify their customer demand and their preference which helps in furtherdecision making process. It is essentially required to know about their customer behaviour,attitude, value etc (Libby and et.al., 2016). With the help of price optimization system, AirdriCompany set the affordable or suitable price range which can satisfy the customer needs, desireand willingness to pay. It adds the value to the entity to know the customer behaviour regardingdifferent price range. 3
Above mention management accounting system help the Airdri Company to improvetheir efficiency or effectiveness. Manager adopts these systems which further required buildingeffective strategy and helps in achieving business goals & objectives. Benefits of the management accounting system:Management accounting system BenefitsPrice optimization system:It helps in identifying customer’s behaviourregarding different price range of the product. With the help of price optimization system,manager of Airdri identify the customer buyingbehaviour which further helps in developingstrategy. Cost accounting system:With the help of cost accounting system,manager of Airdri identify each unit cost. It further helps in reducing product cost anddevelops effective strategy for the future.Inventory management system:This system helps the Airdri to keep track theirlevel of stocks.Effective implementation will reduce the chancesof shortage as well as wastage in the productionlevel (Kaplan and et.al., 2015). P2 Different method of management accounting reportingCharacteristics of good management accounting systems:Reliability: It provides the true information, because organization required reliability ofinformation because it further helps in developing strategy and decision making process. Accuracy: By using this information system, organization gets the accurate informationwhich helps in implementing strategy. Reasons of understanding overall management accounting system: In the Airdri Company, management have to analyse that it is important for the businessto develop strategy and then execute in proper way which further help in decision makingprocess. Some of the reasons discussed below: 4
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