Management Accounting Assignemnt : Tech (UK) Limited

Management Accounting
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Contents
Introduction:...............................................................................................................................4
Task 1.........................................................................................................................................5
(ii) The importance of management accounting information as a decision-making tool for
department managers:............................................................................................................6
(iii) Cost Accounting Systems-..............................................................................................7
(iv)- Inventory management work system.............................................................................8
(v) Job Costing System-.........................................................................................................8
(b) (I) Different types if managerial accounting reports-.......................................................8
(M1) Evaluation of the benefits of management accounting systems and their application
within the context of Tech (UK) Limited..............................................................................9
Task 2.......................................................................................................................................10
Absorption Costing..............................................................................................................10
Marginal Costing..................................................................................................................12
Task 3.......................................................................................................................................15
(a)Different types of budgets and their advantages and disadvantages...............................15
(b) The budget preparation process including determination of pricing and different costing
systems that can be used......................................................................................................18
(c)The importance of budget as a tool for planning and control purposes...........................18
Task 4.......................................................................................................................................19
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. You must provide
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relevant financial information about the other organisation you have selected for
comparison...........................................................................................................................19
Conclusion................................................................................................................................22
References................................................................................................................................23
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Introduction:
With the ramified economic changes and complex business structure, financial
management plays an important role for the business success. There are several financial
tools which could be used by the investors to analysis whether the particular company has
potential to create value on the investment or not. It is observed that the evaluation of the
financial statements is required to identify whether the company is performing well in the
market or not. In this report, critical understanding has been made on the working of the Tech
(UK) which has been working as manufacturing company since very long time. There are
several financial tools have been used that are given in this report in the different report tasks.
This report emphasises upon the insight of the managerial accounting system, budgeting and
other managerial tools that could be adopted by the Tech (UK) for the effective functioning
of the organization.
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Task 1
Management accounting is the process to evaluate the available financial information before
making investment decision. This management accounting helps managers to take the
imperative decisions and assists employees to take tactical decision in organization
Management accounting is used by the managers of the Tech (UK) to understand the
concept of the managerial accounting and helps in taking the effective financial decision
making in long run.
(i) Definition of Management Accounting and Differences between the
managerial accounting and Financial Accounting
1. It could be inferred that the Management accounting is the tool or measure which
analysis all the financial and costing data of the company to make the more informed
decision on the basis of available information.
2. It assists managers to make the effective financial decision making and implement the
progressive strategies to win over the market competitive market (Weygandt,
Kimmel, and Kieso, 2015).
Differences between the managerial accounting and Financial Accounting
Details Managerial Accounting Financial accounting
Definition Management accounting is
the tool or measure which
analysis all the financial and
costing data of the company
to make the more informed
decision on the basis of
available information. It
assists in making more
imperative decisions for the
long term benefits.
It assists in making the
financial decisions such as
accepting the project and
investing in particular
stocks.
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Object It improves the existing
working by implementing
the effective strategic
decision making.
It provides the financial
information to the managers
to make long term financial
decision.
Form of function It sumarised the details of
the company and implement
the effective strateic
progrma to win over the
market.
It provide the proper
understanding for the
requird capital in the
particualr business projects.
Users It is useful for the
employees to make the
tactical decisions.
It is used by the internal and
external stakeholders.
Time Frame The time frame of the
required information is
based on the uses and
deployment of the
information in the particular
decision making.
The financial report is
prepared in the year end.
(ii) The importance of management accounting information as a decision-making tool
for department managers:
With the ramified changes in time, managerial accountants uses the imperative accounting
information to make the effective decision making to mitigate the long term business issues.
It develops the business of Tech UK limited in the long run. It is considered that Tech UK
limited could use this accounting information to make the long term decisions such as
strategic alliance, accepting the projects and expanding the business in long run.
There are several uses of the accounting information which could be used by the Tech UK for
the effective business functioning (Jordan, 2014).
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1. Estimation of the future results- The management accounting information helps in
identifying the future problems and issues which managers will face. It helps
managers to prepare the effective decision making to mitigate eh future problems at
spot.
2. The Management accounting information also assists in identifying the variances
which arise due to the differences in the expected and actual result.
3. It helps in determining the inflow and outflow of the cash in the business.
4. It also identify the rate of return and capital employed in the business. It helps in
dettermining the futrue cash flow and required cost of captial in business.
(iii) Cost Accounting Systems-
It is evaluated that the accounting system of the Tech UK limited estimates the cost of the
products and return on capital employed. The cost of the capital and return on capital
employed could be used by the organization to control the cost of the business. It becomes
complex to determine the overall cost of the business if company does not use the proper
management accounting. The main use of the cost accounting system is to lower down the
overall cost of the production which eventually helps company to increase the overall return
on capital employed (Jordan, 2014).
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Actual Costing
This actual cost is the cost incurred for the effective business functioning and injecting the
capital in the operating works of the Tech UK. It includes payment for the raw material and
labour cost.
Normal Costing
The Normal costing of the products is determined by using the payment to labour and
material added by the overhead expenses made over the cost of the production. The
accounting system assists in implementing the effective decision making (Flannery, 2016).
Standards work cost
The computation of the standard cost is done by using the proper accounting method and
deducting the estimated cost form the actual cost incurred. The recorded of the variance
between the actual and estimated cost is done by using the standard work cost.
(iv)- Inventory management work system
Inventory is required to be managed for the effective level of working in organization.
Effective inventory management work system assists in reducing the overall cost of the
business and increasing the overall business outputs. The inventory management work
system assists in implementing the proper inventory management in business. It determines
the inventory turnover, minimum and maximum stock and the cost of capital increased due to
the blockage of inventory.
(v) Job Costing System-
The job costing system is used to identify the specific products and groups of the products. It
is used to determine the job costing to the mangers and evaluating the business functions
program. This type of the job costing system is suitable when there is lot of products cost is
there to determine. This job costing is the most suitable for the organization which have high
complex business recording system. It assists in bifurcating the costs in the different work
process.
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(b) (I) Different types if managerial accounting reports-
It is evaluated that managerial accounting is the process of using the financial and cost
accounting information for the effective decision making. There are several types of the
report is prepared for the analysis.
1. Balance sheet and income statement- The financial reports helps in identifying the
capital available and resourced used in the business functioning of organization. The
financial information helps managers to determine whether the accepted projects will
give good amount of return on investment or not.
2. Job Costing sheet and Cost Report- This sheet reflects the costing of the particular
jobs and implemented work. It assists in implementing the effective decision making
and identifying the areas of the expenses made in the particular project.
3. Inventory record system report- It helps in setting the proper track record of the
inventory of the company. It assists in management of the company and implemented
the strategic work for the better handling of the inventory of the organization
(Ehiedu,2014
4. Accounts Receivable Aging Report- It is the list which is accompanied with the
unpaid customers details, customer invoices and memos ranges which helps in
recording of the credit sales.
5. Accounts Payable aging Report-- It is the report which covers all the detail and list
of the accounts payable of company. It shows the time period, amount of credit
purchase and payment amount to be paid to account paybles.
(ii) Why it is important for the information to be presented in a manner that must be
understood
It is evlauted that each and every person should present their infommraton in such a way
which must be understood by others. It is the core objective of shared information. . If the
shared information becomes difficult to understand by others then it will negatively impact
the shared information. Therefore, if company wants to share its imperative information with
its stakeholders then the shared information must be given in such a manner which is easy to
understand by the others. If they fail to understand the information then it will negatively
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impact the investor’s decisions and will render company less transparent in terms of sharing
required information (Siguenza-Guzman et al., 2016).
Hence, Proper use of methods and tools plays imperative role in sharing information with the
stakeholders.
Evaluation of the benefits of management accounting systems and their application
within the context of Tech (UK) Limited
There are several benefits that could be used by Tech (UK) Limited by using the management
accounting information in its business.
 It will help managers of the Tech UK to take all the imperative decision and develop
an effective decision making system.
 It will assist company to reduce the overall cost of productions and eventually
increase the overall profitability in determined approach.
 It also assists in maintain the effective inventory management program and implement
the inventory management program.
 It helps in prepraito of the job sheet for the employee and unit per cost of the
operating work department of the Tech (UK)
 It increases the profitability of the business by reducing the overall cost of capital of
business.
Task 2
Absorption Costing
1- Statement reflecting cost of per units of the Tech (UK) Limited:
Particulars Amount per unit
Direct-labour cost per unit £ 5
Direct-material cost per unit £ 8
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Variable-production o/h per unit £ 2
Fixed-production o/h incurred in the month £ 15,000
Total-units manufactured in a month 2000 units
Fixed-production o/h per unit [£ 15000 / 2000 units] £ 7.50 per unit
Standard production cost [£ 5 per unit + £ 8 per unit + £ 2 per
unit + £ 7.50 per unit]
£ 22.50 per unit and per
month
2- Calculation of Total Cost of Production of Tech (UK) Limited:
Particulars Amount
Cost of production (Standard) £ 22.50 per unit
Total units produced in a month 2,000 units in a month
Cost of production [2000 units X 22.50 per unit] £ 45,000
3 – Calculation of Total Closing Stock of Tech (UK) Limited:
Particulars Units
Total production in a month 2000 units
Total units sold in a month 1500 units
Closing stock [2000 units – 1500 unit] 500 units
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Income Statement of Tech (UK) Limited using Absorption Costing
Particulars Amount
Sales [15,000 units x £ 35 per unit] £ 52,500
Cost of goods £ 45, 000
Add: Opening stock Nil
Less: Closing stock [500 units X £ 20 per unit] (10,000)
Gross Profit £ 17,5000
Selling, Distribution, and Administration Expenses
Fixed expenses = £ 10,000
Variable expenses = £ 7, 875 (15 % of £ 52,500)
£ 17,875
Net Loss (£ 375)
Marginal Costing
1- Statement showing the calculation of Production cost per unit of Tech (UK) Limited:
Particulars Amount
Direct-labour cost £ 5 per unit
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Direct-material cost £ 8 per unit
Variable-production o/h £ 2 per unit
Total marginal Cost of Production [5 per unit + 8 per unit + 2
per unit]
£ 15 per unit
Total units produced in a month 2000 units
Total marginal Cost or variable cost of production [2000
units x £ 15]
£ 30,000
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Income Statement of Tech (UK) Limited using marginal Costing
Particulars Amount
Sales [15,000 units x £ 35 per unit] £ 52,500
Cost of goods £ 30, 000
Add: Opening stock Nil
Less: Closing stock [500 units X £ 20 per unit] (7,500)
Gross Profit £ 30,0000
Selling, Distribution, and Administration Expenses
Variable expenses = £ 7, 875 (15 % of £ 52,500)
£ 7,875
Period Cost
Production overhead = £ 15,000
Selling, distribution, and administration = £ 10,000
(£ 25,000)
Net Operating Loss (£ 2875)
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Task 3
Budgeting is the tool which is used to estimate the future expense and income of the business.
It is prepared to estimate the amount of capital required to implement the strategies.
In the meeting of the Tech (UK) the senior manager prepared budget and asked employees to
work as per the prepare budget to control the future expense and costing o the business. There
are following details are given as below (Keel et al., 2017).
(a)Different types of budgets and their advantages and disadvantages
The Budget is used to estimate the future expense and income in the present.
.There is several budgets are prepared:
 Master Budget- It is the complete combined budget which is made at all levels of
company. It gives details about the operating expenses, future sales, income and flow
of cash in business.
 Advantages:
(a) Gives overview of the financial results.
(b) Becomes easy for the future financial planning.
(c) It assists in decision making in long run.
(d) It is used for the Gap analysis.
Disadvantages:
(e) The amounts provided in this budget lacks specificity as these amounts are
collectively represented.
(f) It becomes difficult to read a master budget. Updating of any information is not
possible one it is prepared as the data is interlinked.
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Source: http://www.loscostos.info/cost-accounting/master-budget.html
 Operating budget: It provides the future debt plans and operating expenses which
company might have in the long run. IT shows the spending of money in the
particular department (Allen, 2011).
 .
Advantages:
(g) Manage the requirement of the business.
(h) Project the future flow of cash in business.
(i) Reduce the financial leverage and increases the profitability of the business
(Wyatt, 2012).
Disadvantages:
(j) It is time consuming process and increases the overall cost of the business.
(k) It considers only financial factors and avoids the possible non-financial
information (Needles, Powers, and Crosson, 2013).
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 Cash Flow Budget: This budget is prepared to determine the future cash inflow and
outflow from the business. It assists in maintaining the flow of cash in near future.
Advantages:
(l) It estimates the cash available in the business.
(m)It reduces the associated of the business.
(n) It reduces the overall cost of the capita of the business (Baños-Caballero, García-
Teruel, and Martínez-Solano, 2014).
Disadvantages:
(o) It might distract the financial information negatively as it becomes hard to
determent the cash and non-cash transaction in the prepared budget.
(p) Cash budget may result to fraudulent activities if the prepared budget reflects the
higher cash outflow and inflow. As mangers tends to take that excess in their
pocket.
 Financial Budget: This budget is ideally used when company uses the capital
budgeting tools to make the effective financial decisions.
Advantages:
(q) It provides the future outcomes at spot which eventually increase the
effectiveness of the financial decision making (Ehiedu, 2014).
(r) Well planned business will identify the core issues which manager might face in
its business.
(s) A Monthly audit plan and prepared budget helps in identifying whether the
particular project would be viable for the company or not.
Disadvantages:
(t) It considers only financial data and avoids the non-financial information.
(u) Time consuming process and increases the overall cost of the business.
(v) All the data and financial planning is interlinked. One mistake may destruct the
complete budget (Flannery, 2016).
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(b) The budget preparation process including determination of pricing and different
costing systems that can be used.
Budget is prepared to identity the future cost and expenses of the business. It includes the
pricing and costing which might incurred in the production. It covers the costing, pricing sand
inventory management policies of the Tech (UK) Limited (Grant, 2016).
1. Committed for the budget- It includes the financial experts who would be indulged
in the preparation for the budget (Jordan, 2014).
2. Evaluating the previous performance- it evaluates the last production data and sold
items.
3. Cost Analysis- It includes the use of the job sheet, implementation of the proper
strategic program and implements the proper strategic program which helps in
identifying the cost of the process.
4. Pricing- It includes the pricing strategies such as price skimming strategy, production
unit strategy and implemented work program which will be used to sell the products
in market.
5. Coordination- It sets up the direct and indirect relation between the work program of
the Tech (UK)
6. Communication- It sets up the proper communication methods between its
employees and managers while preparing the work sheet (Mwangi, and Murigu,
2015).
Determination of the price of the products and services offered in market
1. Cost Plus pricing- It is the pricing method which is determined on the basis of the cost
of the services offered in market.
2. Price skimming- The price skimming strategy is followed when company has strong
brand image in market. It is used when to sell the products at premium rate.
3. Price penetration- The price penetration strategy is used to sell its goods and services at
very low cost to increase the overall outcomes of the business and increase the business
efficiency.
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(c)The importance of budget as a tool for planning and control purposes
The proper planning is most required element to implement the strategies. Planning is
required to prepare the budget. Budget is used to control and evaluate the costing of the
business (Mwangi, and Murigu, 2015.).
Budget in planning- The budget provides the estimated cost and finance capital which might
requires in the implementation of the decision. It gives the clear details about the finance and
costing required to impellent the strategies.
The budget for controlling- The budget program is used by the mangers to control the cost of
the business. In the end, the final outcomes are compared with the prepared budget to
identify the gap between both which eventually increases the overall outcomes of the
business (Tseng, and Chiang, 2016).
Performance Measurement and evaluation
Task 4
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. You
must provide relevant financial information about the other organisation you have
selected for comparison.
It is evaluated that improving the internal work functions could be improved by business by
using the balance score card approach. This technique is used to set up the performance
indicator and set four quadrants such as customer perspective and implement the strategic
work program. It improves the existing work program in determined approach.
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Source: http://crackmba.com/balanced-score-card/
It is the feedback management system. The main crunch of this measurement tools are that is
requires clarification of the objectives in each working department. It also set the day to day
tactical targets for the employees of the Tech (UK). It monitors the implemented strategic
targets and goals (Weygandt, Kimmel, and Kieso, 2015).
This tool helps in making the effective decision making and mitigates the future problems
and financial crunch of the business.
Details Target set Measurements Indicators Steps to mitigate
the issues
Financial
Perspective
Increasing the
revenue by 20%
Increase the
production and
sales
Use of financial
statement and
cost sheet
Adopting new
machines and
system devices
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in UK tech
Customers
perspective
Satisfy clients’
needs in offered
products
Increasing the
quality of the
work process
system.
Focus on
customization of
the
Improve product
mix and
generate cost
leadership
strategy.
Internal process
system
Re-Engineering
of existing value
chain activities
Increase the
production
Set targets and
goals
Install new
system devices
in the value
chain activities.
Learning and
growth
Hiring of
experts
employees.
Use of different
systems.
Use of training
and development
program
Strategic
alliance with
other
organization
By using the
strategic alliance
with other
organizations to
reduce the cost
of capital.
Comparison between the ABC costing and Balance Score Card Approach
Activity-Based Costing v/s Balance Score Card
It is evaluated that the management accounting approach helps in addressing the
problems of the traditional accounting system. It gives the ranking to the costs of the
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production of the goods on the basis of partition of the costing. On the other hand, balance
score card approach helps in identifying the financial and non-financial indicators which
assists in implementing the strategic program in long run. Therefore, as referred by the
auditors of the Tech (UK), balance score card approach is more suitable for the company to
analysis the loss of the £ 1.5 Million in the last year (White, Sondh, and Fried, 2015).
The JB HI-FI Company has used Activity based approach and shown the good amount of
increment in its financials.
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(JB HI-FI, 2017)
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Conclusion
With the increasing complexity, it could be inferred that each and every company
needs to implement the proper strategic program and effective work functions to win over the
market. These financial strategic tools help company to win over the market and implement
the strategies to reduce the overall costing of the business. Tech (UK) Limited has to initiate
its working towards the managerial accounting system in the manner discussed in the report
for a better working. The use of the management accounting and financial information assists
management to implement the strategies to cut down the business cost and increase the
overall return on capital employed.
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