Management Accounting System Improvement at Zylla Company - Unit 5

This report provides a comprehensive overview of management accounting principles and their application within Zylla Company. It begins by defining management accounting and discussing its various types, emphasizing its crucial role in internal control, performance improvement, and timely decision-making. The report covers key components such as inventory management, cost accounting (including process and activity-based costing), job costing, and price optimization. It explores different management accounting reporting methods, including segmental reports, performance reports, inventory management reports, accounts receivables ageing reports, and job cost reports, highlighting their benefits and practical applications. Furthermore, the report delves into the advantages of management accounting systems in reducing expenses and enhancing operational efficiency. Finally, it examines cost analysis techniques, comparing absorption costing and marginal costing, and illustrating their use in making informed production decisions. This detailed analysis provides valuable insights into how Zylla Company can leverage management accounting to achieve its objectives and goals.

Management accounting

Define management accounting and discuss its types and
essential requirements in organisation
◦ Management accounting is quite useful for organisation as it helps it to have internal control in
organisation itself.
◦ The management accounting information is required by management to improve its performance, if
deviations exist in organisation.
◦ It is an essential requirement to managers so that they may take quick and timely decisions for
betterment of company.
◦ This will help organisation internally vibrant and will become capable of performing competitive in
market.
◦ Management accounting provides accurate and timely information about financial statements. It also
provides statistical data to provide support to managers to take enhanced and better decisions for the
company.
◦ Zylla Company also uses management accounting information to improve upon its working to be
competitive in market.

Cont◦ Inventory management system-
◦ It is the ongoing process, which deals with moving parts and products into and out of company location.
Zylla company also manages effective inventory management as it clarifies company that what amount of inventory is
needed and how it can manage to get the products timely produced and made available to final consumers.
◦ Company manages their inventory on daily basis as they place new order for products and ship ordered goods to
customers. It is however important that business leaders gain grasp of everything involved in inventory management
process (Burritt, Schaltegger and Zvezdov, 2011).
◦ This will give them useful insight, no wastage of stocks will be done, and no additional cost will be incurred. Thus,
they can find out ways to solve inventory management challenges by finding appropriate solutions for company to
flourish in bets possible way.
◦ Cost accounting-
◦ Cost accounting is the important phenomenon in organisation. It measures and controls cost in the
organization which helps them to keep a watch over its expenses and no additional expenditure is incurred.
◦ It also provides measures to control. Estimating accurate cost is required so as to arrive at profitable operations. Firm
must know which products are profitable and which are not.
◦ This can be ascertained by calculating correct cost of it. Further products costing system helps in calculating and
estimating closing value of materials inventory WIP (Work in Progress) and finished goods for purpose of preparation
of financial statements for organisation. It has been divided in two parts such as process costing and activity based
costing.
◦

Cont
◦ Process costing is cost accounting system that accumulate manufacturing expenses separately for each
process held in production of goods.
◦ It is more appropriate for products whose production is assigned into different departments and cost flow
from one department to another department. Example, process involved in oil refineries and chemicals
products.
◦ Activity based costing involves calculation of activity rates and application of overhead expenses to
products based on their respective activity usage.
◦ Job costing-
◦ Job costing is the process, which involves accumulating information about costs associated
with specific production or service job. This information is quite helpful in order to submit cost
information to customer’s under contract where expenses are reimbursed (Caglio and Ditillo, 2012).
◦ This information is also helpful for determining accuracy and transparency of company estimating
system regarding allocation of job to factors of production, which should be able to quote price to allow
reasonable profit to organization.
◦ It involves three type of information such as direct materials, direct labour and overhead involved in
carrying out effective production by company.

Cont
◦ Price optimisation-
◦ This method is based on mathematical models to calculate how demand varies at
different price level and then resultant data combined with information on costs and stock
levels to recommend that amount of price, which will improve and provide more profits to
firm in effectual manner.
◦ This is done because if prices are too high, customers will not purchase and if prices are too
low, then firm will not earn profits. As such, price optimisation is used to improve upon
profits to company. So, formula of price optimisation is based on overall demand for product
in market, level of competition.
◦ Finding perfect balance between the price and profit is essential part of this system.
◦ This will provide clarity to business on how much price is to be quoted to gain more profits by
analysing demand for the product in market and determine level of competition from rivals.
◦ As such, this technique is quite useful for Zylla Company to target high profits in effectual
manner.

Discuss different methods used for management accounting reporting
◦ Segmental report:
◦ It is the report of operating segments of company in disclosures accompanying in its financial statements. It is
required for public held entities and not for the private ones for its use.
◦ Creditors and investors regarding financial strength of operating departments of company use segment reporting. Zylla
Company prepares this report for providing information to them in effective way as by relying on this report, they can make
decisions regarding company.
◦ Segment report includes information like factors used to identify reportable segments, types of products sold by each
segment, revenues and indirect expense, depreciation and amortisation. It also includes information such as material expense
items, income tax expense, non-cash items and profit or loss incurred.
◦ As such, this all type of information is helpful for analysing strength of financial position of company for investors and
creditors for enhanced decision making.
◦ Performance report:
◦ This report is detailed statement that measures results of some activity in terms of its success over a specific time
(Christ and Burritt, 2013). For example, company regarding employee’s performance in accomplishing tasks may produce
annual report.
◦ Alternatively, such report might help management assess success of project or product and how well budgetary constraints are
adhered to. The actual results are compared with budgeted standards obtained under some conditional assumptions over same
period.
◦ Variations from such budget or standards are known as variance and may be favourable or unfavourable depending upon
higher or lower measurements relative to the standards.
◦ Thus, corrective action are taken if any deviations are occurred in performance of various parameter such as employees
performance report or other such thing which provides business to improve and attain stated objectives in effectual manner.

Cont◦ Inventory management report:
◦ Inventory means stock of goods which are held in company warehouse for the purpose of future production or sales.
◦ The stock of goods can be retained by company in for of raw materials, spare parts, partly finished goods or finished goods in its
godown or future sales or production purpose.
◦ By inventorying stock in effective manner, company requires inventory management report. This report deals with figures and facts
about inventory currently in hand in company’s warehouse.
◦ It provides managers useful information as how much amount of inventory is used for production purpose and how much more is
required to complete production of specific items.
◦ This ensures that stock is not overestimated or underestimated and no additional cost is incurred and production process is carried out
in effective manner. Managers do this as unnecessary stock in godown results in additional expense to company, which can be
clarified by inventory management report.
◦ Accounts receivables ageing report:
◦ This report lists down all the unpaid invoices, which are overdue for payments for customers. This involve all such
information, which is required by company to jot down lists of unpaid invoices from customers (Dillard, J. and Roslender, 2011).
◦ It also includes unused credit memos by date ranges. The ageing report is primary tool for company’s personnel’s to determine
invoices of customers, which are overdue for payment.
◦ This report can be used to configure to also contain contact information for each of customers liable for payment of invoices. This
report is also used by management to determine effectiveness of credit and control functions of company in effectual manner.
◦ The report is sorted by customer name with all invoices for each customer directly below its name usually sorted by either of invoice
number or invoice date on it.
◦ It is very powerful tool for management as it provides them useful information regarding the overdue payment, which should be taken
in time by the company.
◦ By analysing this information, company gains payments on time from the customers, which is needed for company’s effective
functioning.

Cont
◦ Job cost report:
◦ Job cost report shows expenses incurred by company in specific project.
They are usually matched with estimate of revenue so that company can evaluate its job
profitability.
◦ Zylla company effe5ctively shows its expenses through job cost report. This report helps to
identify high earning areas of business so that company can focus its efforts on those high
earning areas instead of wasting time and money on jobs which yield low profit margins to
company.
◦ These reports are also used to analyse expenses while project is in process so that managers
can correct areas before expense is incurred on particular project.
◦ This helps company to establish those jobs, which yield them high revenue margins so that it
may flourish in manner so that it can achieve its objectives and goals in effectual manner
(Fullerton, Kennedy and Widener., 2013).

Discuss benefits of management accounting systems and
their application
◦Management accounting system helps business to reduce unwanted expenses,
which may not be incur by company as it reduces their profits and impact their
overall efficiency.
◦ Operational expenses can be lower down by managers by using this system in
effective way.
◦This also provide clarity to business what resources are being used to carry out
production.
◦ As such, expenses are controlled and management accounting system in
company observes wastage of money and time

Calculate costs by using techniques of cost analysis with help of
absorption costing and marginal costing
◦ Marginal costing-
◦ Marginal costing is the increase or decrease in total production cost by producing one more unit of product or of service
to customer.
◦ In manufacturing concern, marginal cost of production decreases as the volume of output increases because of economies of scale in
production.
◦ Expenses are lower down because company take advantage of discounts for bulk purchases of raw materials, optimise full use of
equipment’s and engage more specialised labour in carrying out production.
◦ However, production will reach point where diseconomies of scale will enter marginal expenses will begin to rise. Cost may be
aroused as company will hire more management, more labour and more use of machinery will be made by it (Giovannoni, Maraghini
and Riccaboni, 2011).
◦ This will increase marginal cost to company. Marginal costs can be used by management for production decisions.
◦ Marginal costs ae bifurcated on basis of variability into fixed and variable costs.
◦ It helps to determine prices n basis of marginal contribution. Marginal cost = Direct Material + Direct Labour + Direct Expenses +
Overheads.
◦ It also helps in determining and valuing stock.
◦ It helps company to ascertain department and product profitability based on contribution margin.
◦ As such, it is profitable technique which is used by Zylla Company to conquer its objectives and goals in effectual manner.
◦

Cont◦ Absorption costing-
◦ This costing helps company to ascertain cost by taking indirect expenses and overheads. It means that units
produced absorb all manufacturing costs.
◦ In simple words, cost of finished unit in inventory will include indirect materials, direct labour and both variable and
fixed manufacturing overhead.
◦ This method is also called full absorption or full costing method. Absorption costing is contrasted with variable or
direct costing.
◦ Some of direct expenses includes manufacturing a product, raw materials used in production, and all of overhead costs
such as utility expenses, used in producing a good.
◦ Absorption costing includes everything that is direct expense in producing a good at the cost base. It also includes
fixed overhead charges are included as product expense.
◦ It counts for all fixed expenses, which reflects certain situation in which inventory is not sold because
assets remain part of company’s books at end of accounting period.
◦ As such, it reflects more fixed costs attributable to those items within ending inventory. For Zylla company
absorption costing will result in more accurate regarding ending inventory (Lambert and Sponem, 2012).
◦ In addition to this. More expenses will be counted for unsold products, which reduces actual expenses reported.
◦ This eventually results in higher net income calculation when compared to variable costing calculations. This will
achieve company’s goals in effectual manner.

Different management accounting
techniques
◦ Financial planning-
◦ It is planning of investor’s current value and future financial state by using currently
known variables to predict the future cash flow, asset values etc.
◦ financial planning is based on individual clearly defined financial goals.
◦ A snapshot of assets and liabilities serve as a benchmark for measuring goals towards financial
planning.
◦ Revaluation accounting-
◦ This accounting revalue the difference between an asset’s fair market value and its
original cost by deducting depreciation.
◦ Revaluation accounting us useful for firm as it recognises firm’s equity and do nit affect
income statement.

Outline advantages and disadvantages of tools used in budgetary control
◦ Zero based budgeting-
◦ This type of budgeting tool is based on zero base. In which all expenses must be justified for each new
period. It means that no previous year data is used to make budget.
◦ Zero base budgeting start from zero and every function within firm is organised for its needs and costs. Budget is then
prepared about what is needed for upcoming period by organization regardless of previous budget whether it was
higher or lower.
◦ Advantages:
◦ 1. zero based budget are flexible budgets, focused operations. As it is based on zero basis, flexibility is obtained in
preparing budgets as no previous data is used in preparing budgets of organization.
◦ 2. More disciplined execution can be observed in zero-based budgeting.
◦ It is useful technique to prepare and forecast future budget for organization so that they may execute budget in
enhanced way which fulfils its goals and objectives in effectual manner.
◦ 3. Lower costs are obtained in implementing zero based budgeting.
◦ This is far better budget to forecast best efficiency in organization. Firm need not incur additional expenses regarding
budget. It attains cost effective benefit in effectual manner.
◦ Disadvantages:
◦ 1. It is quite resource intensive (Tucker and Lowe, 2014). It takes lot of time and effort to draw up budget from
scratch rather than using existing budget to modify it.
◦ 2. It can be gamed by managers as they get more resources into their departments. This makes biasness among
department. As such, it is not useful tool for organization.

Cont◦ . Incremental budgeting-
◦ This type of budgeting is based on simple basis. In this budget, only incremental values are added to the existing
budget to arrive at a new budget.
◦ Budget used for current fiscal year becomes base for working on forthcoming year’s budgetary allocation.
◦ Management estimates and assumes that all the departments will continue to operate at their current level of expenditure and
if any additional amount is required will be added to arrive at next fiscal year budget estimates by company.
◦ Advantages:
◦ 1. This method is very easy to implement and does not have any complex calculations to arrive at new budget because only
values are added to the current year from previous year budget. This can be achieved for various departments as it need not
require ant detailed analysis by all of departments in organization.
◦ 2. Incremental budgeting ensures continuity of funds for department without any detailed analysis as it is easier to cope up by
departments.
◦ 3. It provides stability to organization as no changes are made which led to deviations as such, stable budget is provided by it
in effective way to firm (Parker, 2012).
◦ Disadvantages:
◦ 1. It is based on just on increment basis assuming that structure of business will remain same. However, it does not take place
in dynamic environment. As structure of firm with respect to industry or economy may warrant for significant changes.
◦ 2. It results in unnecessary use of funds as departments may demand for additional funds leading to wastage of valuable funds
and increasing expenses to organization.

Cont◦ Fixed budgeting-
◦ Fixed budgeting is useful for company as it is based on company’s anticipated level of output. Fixed budget are
collected and analysed before the period begins.
◦ Once company sets up static budget, it will follow it but also keep track of its actual spending on various activities.
◦ It focuses on department spending as a result, budget is tracked by company in effective way so that no wastage of resources
is made.
◦ Advantages:
◦ 1. It is easy to implement and follow by organization as a result, company need not to incur any extra expenses on its
implementation. It also need to be updated continuously throughout the year.
◦ 2. Fixed budget also offers strong and useful insight to company’s cost and profits when variance analysis is performed by it
(Schaltegger, Gibassier and Zvezdov, 2013). This allows company to see whether it is overestimating ore underestimating its
expenses or revenues.
◦ 3. As underestimating and overestimating the expenses and revenues is found by it, it makes easier for it to make any
alterations in their strategies.
◦ Disadvantages:
◦ 1. It lacks flexibility because company cannot change it anytime during fiscal year. As a result, if company set the budget for
sales volume to certain level and then volume increases, it cannot allocate more resources to it, which is greatest drawback of
this budgeting.
◦ 2. It is based on previous data as such, newer business face difficulty to implement it because they do not know about the
market fluctuations. As a result, fixed budgeting is not useful for the newly established set ups.

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Cont.
◦4. Capital budgeting or investment appraisal:
◦By applying the tools and techniques of investment appraisal firm can do
effectual planning regarding monetary investment.
◦Sometimes, business unit face difficulty in making selection of project that
needs to be considered for the purpose of investment.
◦In this regard, by applying varied techniques of investment appraisal such as
payback period, NPV, IRR and average rate of return firm can select best
proposal that aid in the profitability aspect.

State the use of different planning tools and their
application for preparing and forecasting
budgets
◦Cash flow forecasting is the planning tool for forecasting for firm in effectual
manner.
◦It assists owner of business in identifying peaks and troughs in bank finance.
◦Cash flow forecasting will assist in identifying constraints in which growth is
to be managed.
◦Cash flow forecasting as a budgeting tool is useful fir business as it gives
clarity to it so that enhanced decisions can be made by organization in
effectual manner.
◦Another tool is fund flow statement, which deals to analyse reasons for
changes in two balance sheets

Compare how organisations are adapting management accounting systems
to respond to financial problems
◦ . KPI (Key Performance Indicator)-
◦ A measurable value depicts how effectively a company is achieving its efficiency to
accomplish its goals and objectives.
◦ It is performance measurement by company.
◦ KPI defines set of values against which to measure. These raw sets of values, which are fed to systems,
are called as indicators (Shah, Malik and Malik, 2011).
◦ KPI is useful to assess performance of firm, its employees and departments so that improvement can be
made if there is deviation in performance.
◦ In order to evaluate KPI, it links to target values so that value of measure can be accessed as meeting
expectations or not within the standards.
◦ It evaluates success of organization as it provides evidence to company regarding its current position in
market and also employees are evaluated on behalf of it.
◦ Employees are evaluated through KPI as this measure the effectiveness of employee’s productivity in
achieving organizational goals in effectual manner.
◦ It is useful accounting system to cope up with financial problems of company so that it may not waste
valuable resources and it should be fully optimised which is accomplish through KPI.

Cont
◦ Financial governance-
◦ Financial governance is an important accounting system which focuses on increasing
efficiency of financial matters in the company.
◦ It also focus on improving reliability of financial management and reporting in the manner by which
company can achieve its goals in effectual manner.
◦ When firm is faced with multiple priorities including financial transactions, it raises issues to improve
upon governance of their financial processes in effective manner.
◦ It is then firm takes financial governance as an accounting system so that it may strengthen financial
position in effective way.
◦ Financial governance is constantly seek by office of finance so that increase in efficiency in
management of financial close and compliance process can be introduced in financial system of
accounting.
◦ Financial governance can build control cycle so that risk adjusted insight with unified financial reporting
(Van der Stede, 2011).
◦ It enhances timeliness and quality of financial reporting in firm, which achieves its financial governance
accounting system to provide pace to company in effectual manner.

Cont
◦ Budgetary target-
◦ Budgetary target is useful accounting system in firm.
◦ Zylla Company also uses it in the manner, which provides it efficiency so that it may
accomplish its goals and stated objectives.
◦ Using this tool organization makes forecast about future operations in the way, which provides
and yields it maximum results and efficiency so that it may flourish in best possible way.
◦ This helps to make budget target in best possible manner.
◦ Budget target is used to make the target of budget by which organization can make provision
regarding future to make fully optimised its valuable resources in effective way.
◦ Budget is important for company because it provides clarity to it to make good decisions on
behalf of its resources.
◦ This leads to efficiency in firm.
◦ Firm makes budget and then compare with actual results so that it can be improved by taking
any corrective action if any deviations exist in it.
◦ As such, budget target is essential tool for Zylla company to make effective working

Cont
◦ Balanced Scorecard-
◦ It is useful accounting system which is a performance metric used by management to
identify and improve various internal functions of business and their resulting outcomes.
◦ it is used to provide valuable feedback to organization.
◦ Data collection is vital to provide quantitative results as managers to make decisions regarding it
in effectual manner interpret information gathered.
◦ The balanced scorecard is used to reinforce good behaviours in organization by isolating four
separate areas such as legs, involve learning and growth, business processes, customers and finance
(Ward, 2012).
◦ Balanced card is used to attain efficiency regarding its objectives and initiatives that result from
these four functions.
◦ Zylla Company can easily identify the factors, which hurdles company performance, and outline
strategic changes tracked by future scorecards.
◦ Company can easily implement this accounting system and can identify those factors, which
hinders organization performance in negative way.
◦ Firm also uses balanced scorecard to make strategic initiatives and strategic decisions.
◦ This helps company to flourish in its working and operations. It achieves its goals in effectual
manner.

Discuss how, in responding to financial problems,
management accounting can lead to success
◦Management accounting helps organization to make enhanced decisions.
◦ It prepares reports about internal factors of organization so that managers can
make short and long-term decisions.
◦ This makes quick and timely decisions, which achieves its goals and objectives
in effectual manner.
◦Through management accounting, financial problems can be easily identified
which hinders organization success (Roberts, 2016).
◦As a result, financial problems can be solved by using budgeting tools and
techniques by which managers can take decision and can provide corrective
action to improve upon performance.
◦This eventually achieves organizational goals in effective manner.

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