Management Accounting of KEF Ltd : Assignment

Management Accounting

INTRODUCTION
Management accounting is the financial statesman firm preparing management reports to
identifying the accuracy in financial and statistical information. It is helpful for analysing the
cost of the firm by identify the internal financial position and records of the firm (Nishimura,
2019). Thus, by making the statements it helps to managers for decision-making process in order
to achieve overall objective of the firm.
The present report is based on management accounting of KEF Ltd. The report will cover
the various topics like different types of management accounting systems, different methods
used for management accounting reporting. Thus, report will cover various factors such as
benefits of management accounting systems, explain the benefits and disadvantage of different
types of budgeting tools used in budgetary control. Lastly report will describe how organizations
are adapting management accounting systems in order to reduce financial problems.
TASK 1
P1
Management accounting is the tool of managing the business financial activities. This
accounting and financial statements helps to recognize the profit and non-profit position of the
firm. Therefore, this accounting system helps to manager of the firm that they easily take the
decision regarding funds and other activities (Nishimura, 2019). In other words, The
management accounting contains different concept and methods which are necessary for the
enterprise because these methods identify the actual performance of the firm. Therefore, to use
these statements in the business for planning in effective manner and to choose the best
alternative action of business and also control by the differentiates between actual and standard
performance and evaluation and interpretation.
types of management accounting systems
Management accounting tool refers to identify the overall cost of the firm. It is the
process which is used by every enterprise to identify the particular cost of the department. It is a
tool that KEF Ltd used in the business in order to determine overall cost of product which is for
identify the actual performance or profitability of the firm. Therefore, firm identify the actual
cost of the production than they estimate the budget to decrease the expenses of product and
control cost and valuation of inventory. There are different types of management accounting
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system such as — Inventory management system, cost accounting system, Job costing system
etc.
Cost accounting system — This system is the framework which helps to identify the production
cost of the KEF Ltd. Cost accounting system is the best which identify the profitable product or
non-profitable products (Nasreen and Baker, 2019). Therefore, by tracking the raw material and
identify the actual cost of the raw material it helps to Estimating the accurate cost of products.
This accounting works through managing of raw materials by going through different stages of
production and go slowly into finished goods. Therefore, KEF Ltd prepare their financial
statements by debit and credit in accounts the closing value of materials inventory, work-in-
progress and finished goods.
Inventory management system — This management system is managed the inventory accounts
of the firm. That means firm order the inventory according to the demand of the product.
Therefore, this system helps to manage the raw material by tracking the supply chain and
operations department of the KEF Ltd. Thus, this system contains different production
departments like retail to production, shipping to warehousing any many more. In this system
there are different statements which manage the inventor such as ; LIFO, FIFO and weighted
average statements. These statements help to KEF Ltd to makes the better decision related to the
raw material and sales of the product.
Job costing system — This system includes the control process of information which is allied
with cost along with particular job of production and service. There are different kinds of
information needed when identify the cost of production, which is direct labour, overhead and
direct materials. Thus, It helps to identify the cost of production of particular departments of
KEF Ltd.
P2
Management budget are those budgets which describe the actual performance of the firm.
Manager of the firm makes this budgets to identify the actual cost and reduce the extra cost of
the production. These report gives the internal information of the firm, managers use this report
to takes the better decision and makes better planning. Therefore, These reports explain the
internal data which is received through top management of the firm like, auditors, financial
accountant, these statements are used by the enterprise for effective planning, organizing,
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evaluating and decision-making. There are different types of management accounting report
which describe below :
Budget report — Budget report is described the future performance of the firm. Therefore, this
report commonly prepared on the basis of estimating data of different department (Maalouf and
El-Fadel, 2019). Budget helps to KEF Ltd in comparing their actual performance with the
standars performace so, that firm can take the best decision in order to enhanec the future growth
of the firm by eliminate the differences between actual or standard perforemce.
Cost report — Cost report will include the overall cost of the business. This report will describe
the expenses of the production that how much fund needed for making the quality product, thus,
KEF ltd makes this report for identify the cost of partuicular departmnts.
Benefits of management accounting systems.
This system helps to recognize the cost and expenses of particular departments. There are some
benefits while using this system in the business.
 This system helps to take the corrective action regrading the production process.
 It is effectively measuring the performance of the particular departments.
 This system helps to controlling the expenses of production activity and helps to enhance
the profitability.
TASK 2
P3 Calculate costs using appropriate Techniques
Particulars
Partic
ulars
Partic
ulars
Partic
ulars Particulars
Partic
ulars
Partic
ulars
Partic
ulars
Partic
ulars
Partic
ulars
Partic
ulars
Selling price 60
Direct material 20
Fixed production
overhead
1200
00
2000
0
Direct labour 12
Variable production
overhead 8
Opening stock Nil
Production
1800
0 20
Sales
1600
0 6 12
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Closing stock 2000 8
6
Absorption cost 46
Particulars
Sales
1600
0 60 960000
Less: COGS
Opening stock
Add: purchases
1800
0 46
8280
00
Less: closing stock 2000 46
9200
0 736000
GP/ NP 224000
Marginal costing
Particulars
Sales
1600
0 60 0 960000
Less: COGS
Opening stock
Add: purchases
1800
0 40
7200
00
Less: closing stock 2000 40
8000
0 640000
Contribution 320000
Less: fixed 120000
Net profit 200000
Interpretation
On the basis of analysis as per absorption costing, the company KEF LTD attain profit of
£224000 in the may month. While in marginal costing profit earned by the company was
£200000. This variation in between both the cost occurs because in marginal costing fixed cost is
not considered and selling price taken into consideration. On the other hand, in absorption
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costing fixed cost is considered along with consideration of production price. Therefore, KEF
LTD should focus on increase the sales of the product. By taking into consideration absorption
costing in the company KEF LTD can assess to appropriate cost and profit and also become able
to execute proper financial planning.
TASK 3
P4
Planning tools helps to manage the cash flow performance of the KEF Ltd. This tool is
manage the budget by tracking the monthly expenses. There are various types of planing tool
used in budgetary control which describe as below -
Activity based budgeting — This budgeting tools is based on particular activity associate with
different cost. This budgeting method describe the overhead performance and their associated
costs (Knoll and Senge,2019). Therefore, this system managed the cost and analyses the
activities which helps to reduce the cost of KEF Ltd. Thus, Each activity that increase costs is
reduced for potential ways in order to create profitability of the firm. Hence, activity budgets are
prepared on the basis of results. This budget is not considered the previous year budget because
this budget only consider the current activities of the firm. Therefore, by using this budget
method in the business firm might be able to reduce the expenses as well as reducing the
production time.
Advantages
 This helps to reducing the cost of particular activity.
 It helps to reducing the production time
 It helps to management to examine the activity of the firm.
 It helps to examine the processes that are unnecessary and have wasted costed.
Disadvantages
 The Source of information is not easily available from accounting reports. This method is
take more time for analysing in order to gather the data.
 This report cannot be used for the purpose of external reporting this only consider the
internal activities.
 This budgeting method is complex in nature.
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 This budget only helpful for short term period. Hence, this report not consider for the
long term purpose.
Zero based budgeting — This budget start with zero base that means all expenses and incomers
are mention for each new period (Holopainen, Niskanen and Rissanen, 2019). Therefore, while
using this budget in the business there has less chance of errors because this budget takes the
right factors in the budget. This budget is not depended on the previous year budgets it only
includes the reliable date. Therefore. KEF LTD top-level of managers makes this budget to
estimating the cost of particular task. This budget save a lot of cost, and also it helps to identify
that how many funds required for achieving the task.
Advantages
 This budget set the priorities that they set the high profits over the expenses.
 This process helps to reduce the errors and make business effective.
 This method saves cost of production through analyse inefficient operations in the
business.
Disadvantage
 This is also complex method because this method needs lot of information and detailed
analysis.
 This is process create many issues related to involvement of more paper work in
preparation of this budget.
Different planning for preparing and forecasting budgets.
Financial prediction means forecast future and their impact on the protected form (Dai, Free and
Gendron, 2019). There are different tools which forecast the futures such as -
Cash budgeting — This method helps to identify the cash flows of the firm through cash flow
statements.
Sales budgeting — This method helps to identify the future sales of the firm. Firm estimate the
future sales and generate high demand of the product by compare the actual with estimate.
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TASK 4
P 5
Many organization uses this accounting system in order to reduce the financial problem
of the firm. Therefore, KEF Ltd adopt various ways for reducing the financial problems such as
— key performance indicators and budgetary targets, benchmarking and many more.
key performance indicators - This indicators helps to firm for achieving the task of the
business. This method measure the performance of each department and provides the suitable
solution. Thus, KPI provides the information that how firm can achieving the business objective.
Thus, KEF LTD complete their success and for reaching towards their business target so, they
using Key performance indicators at multiple levels. It helps to minimisimg the cost of sales,
marketing, production and human resource departmnts.
Budgetary targets to reduce the financial problem — This is also most suitable method to
reduce the financial problem(Alsharari, 2019). Thus, this method is compare the actual
performance with standard performance and find the reason of difference and then it provides
helps to take corrective action in order to achieve organization goal. In some time, budget can
either be positive and negative that means favourable budget is describe the income and
unfavourable budget is describe the expenses and liabilities.
Benchmarking — It is the process of identifying the activity of the KEF ltd products, services
and processes. This method provides helps to identify the internal opportunities of the firm in
order to improve the performance of the firm. Therefore, there are different types of
improvement opportunities in the business such as continuous and dramatic. Continues
improvement is helps to reduce the short term problems and contains very few adjustments in the
business. On the other side, Dramatic improvement involve rearrange and re-evaluate of whole
process of the firm. Therefore, this process provides the helps to enhance the level of production
by using the improvement techniques.
Management Accounting responding to financial problems
Management accounting is the best framework which develop the statements techniques
within the business to find the profitable or non-profitable activities on the firm. These
statements analyse the internal performance and maintain the sustainability in order to ensure
that the reliable information is revealed in the firm such as financial and non financial
information. Thus, this budgets helps to maintain the sustainability of the firm by making the
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best pricing and production decisions, investment ideas that helps to take major financial
decision and improves the profitability of the firm.
Planning tools for solving financial problems.
Planning tools is the types of management accounting it is helpful in terms of solve the
Financial problem of the firm (Ahmad and Al-Shbiel, 2019). Therefore, there are different types
of financial statements which helps to solve the problem in order to achieves the goal of the firm.
Cash flow statements is one of the best financial statements which manage the cash outflow and
inflow of the firm. Therefore, the profit and loss account it describe the income and expenses of
the firm. on the side, balance statements shows the asserts and liabilities which helps to
determine the actual income of the firm. Sales budgeting shows the actual sales of the firm and
also estimate the expected sales for the coming accounting budget of the financial year. These
all budget helsps to solving the problem and fullfill the short term anad long term requirement of
the firm.
CONCLUSION
From the above project report it summarized that financial accounting is the method
which describe that managers preparing management reports and accounts that provides better
information that how to manage the overall activity of the business.
The report has based on management accounting of KEF ltd. The report has described the
different methods of accounting such as activity based, zero based budgeting etc. furthermore,
report has described the methods of accounting report and types of management accounting
statements. Lastly, report has described the financial tools who reduce the financial problem of
the firm.
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