INTRODUCTION...........................................................................................................................4 TASK 1............................................................................................................................................4 P1. Management accounting system and essential requirements of these systems.....................4 P2. Various kind of method management accounting reporting.................................................6 M1. Benefits of management accounting systems......................................................................7 D1. Management accounting systems and management accounting reporting is integrated within organisational processes...................................................................................................8 TASK 2............................................................................................................................................8 P3. Preparation of an income statement using marginal and absorption costs...........................8 M2 Management accounting techniques for preparation accounting reports............................12 D2. Interpretation of financial reports.......................................................................................13 TASK 3..........................................................................................................................................13 P4 Advantage or disadvantage of planning tools which is used for the budgetary control.......13 M3 Uses of different planning tools and their application for preparing and forecasting budget ...................................................................................................................................................15 P5 Compare how organisations are adapting management accounting systems to respond to financial problems.....................................................................................................................15 M4Responding to financial problems, management accounting can lead organisations to sustainable success.....................................................................................................................17 D3 Evaluate planning tools for accounting period to respond financial problems appropriately ...................................................................................................................................................17 CONCLUSION..............................................................................................................................18 REFERENCES..............................................................................................................................19
INTRODUCTION The management accounting system can be defined as a kind of accounting system apart from other accounting system which provides information to the managers for better decision making. In other words, it is an accounting system that includes all kind of information including financial and non financial that becomes a basis for preparation of policies and plans in the context of organisations (Abdelmoneim Mohamed and Jones, 2014). Though this accounting system is not mandatory for the companies to apply but now these days due to its benefits it is becomingverycrucialfortheorganisationsTounderstandindetailaboutmanagement accounting, alpha financial consultancy company is selected which provides financial services to their clients who operates in retail, manufacturing etc. Their client company is TPG processing company which is involved in the manufacturing sector. Overall in the project report different kind of management accounting systems, reports are mentioned as well as use of costing technique is described for preparation of financial statements. Apart from it, in the report advantages and disadvantages of planning tools and role of management accounting system in resolving the financial issues is also described. TASK 1. P1. Management accounting system and essential requirements of these systems. The management accounting system consists different kind of system which plays an important role in the context of organisations. Like the alpha financial consultancy provide guidance to their client company. Herein, below some types of management accounting systems are mentioned below:Price optimisation system- This is a kind of accounting system which provides a framework for deciding the prices of products and services. As per this accounting system companies assign the price in an effective manner which is beneficial for both to the customers and companies. Except from it, this accounting system plays an important role in analysing the customers feedback on different pricing levels. So this is essential for two activities first one is fixing the price of products and services as well as evaluation of customers on different prices. Same as in the TPG processing company they
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implement this accounting system for determining the prices of their manufactured products and services.Cost accounting system- This is a type of accounting system that computes the overall cost of different kind of activities. On the basis of this accounting system companies can manage and control their costs. While in the absence of this accounting system, it will be difficult for the companies to determine all the expenditures which can hamper the profitability. So basically, this accounting system is essential for the companies in minimising overall cost so that profitability can increase. Herein, the aspect of TPG processing company they use this accounting system in the guidance of alpha financial consultancy. Due to this accounting system, they can analyse about which activities are consuming higher costs and which ones are beneficial for them.Inventorymanagementsystem-Itisoneoftheimportantaccountingsystemof management accounting system. Eventually, this accounting system manage the raw material and finished goods in a significant manner so that further decision can be taken. Apart from it, this accounting system manage and control the cost of ordering, storing etc. The inventory management system is essential for taking decisions regarding to the purchasing of new material as well as for to produce new products. Same as in the TPG processing company they manufacture new products on the basis of finished goods available in the warehouses. Along with their purchase team buy new raw material as per the availability of raw material in the stores. So overall, this accounting system is required in those organisations which operates in manufacturing or construction. Job costing system-The job costing system is a type of accounting system which manages the cost which occurs on various kind of jobs for multi-pal activities. Due to this accounting system, organisations can evaluate about total cost of job. So this accounting system is essential for minimising and controlling the cost of job that is assigned in different kind of activities. For example in the client company of Alpha financial consultancy company, they evaluate overall cost of job in theirmanufacturing activities and accordingly they make decisions for further. So these are the accounting systems which have their own role in the context of TPG processing company.
P2. Various kind of method management accounting reporting. Management accounting reporting- The management accounting reporting can be defined as a systematic process in which companies evaluate their actual performance with the help of set standards. The TPG processing company prepares different kind of reports with the guidance of Alpha financial consultancy. Herein, below some types of management accounting reports are mentioned below such as:Cost accounting reports- These are the reports which consists detailed information about the cost of different kind of activities. Due to this reports organisations can assess about which activities are occurring loss for them and which ones are not. So with the use of these reports companies can take suitable decisions regarding to the expanding. For example in the TPG processing company, they prepare this report on the basis of cost accounting system. As well as these reports provide basis for computing profitability of different activities.Inventory reports- The inventory reports are those reports which contains information about the cost of ordering, carrying etc. Apart from it, these reports provide information about how much finished goods and raw materials are available in the stores. So with the help of these reports companies can evaluate about the need of new material and can purchase accordingly. Herein, the aspect of TPG processing company they prepare this report for analysing about how much raw material is available in their warehouses. Eventually, they are involved in the manufacturing sector so it is very important for them to use these reports in their different operations of the manufacturing sector.Budgetreports-Thebudgetreportsarethosereportswhichmeasuretheactual performance. Under these reports managers compare their actual performance with the pre set standards. Eventually, these reports are useful in the measuring the financial performance of the companies. For example in the TPG processing company, they prepare this report by estimating future income and expenditures. On the basis of it, they compare the actual income and expenditures. In the absence of these reports it can be difficult for the companies to assess their actual level of performance.Account receivable ageing reports-This is a kind of reports that includes detailed information about the total collection of any company from debtors in the market. As well as these reports categorise the information about the debtors with the date so that
they can calculate the interest. Same as in the TPG processing company, they prepare this report for the purpose of analysing about how many debtors they have in the market as well as for calculating the interest rate on due payment. Performance reports-The performance reports are those reports which provide detailed information about the performance of different kind of activities and employees. This is why because these reports measure the actual performance then compare it with standards Herein, the context of TPG processing company they prepare this report for measuring the actual performance of their activities. So these are the reports of management accounting systems which are being used by different kind of organisations. Such as the TPG processing company makes these reports for better management of their manufacturing activities. M1. Benefits of management accounting systems. Themanagementaccountingsystemshaveownbenefitsanditdependsonthe organisations that how they use it. Below the advantages of management accounting systems are mentioned: Management accounting system Benefits Priceoptimisation system This accounting system is beneficial in determining the prices of products and services at appropriate level. Such as in the TPG processing company it is beneficial for them in assigning the price of their products and services. Cost accounting systemThis system is useful in computing overall cost of different activities. On the basis of this accounting system, the above respected company controls and reduce the total cost of manufacturing. Inventorymanagement system The inventory management system is beneficial in the managing the available stock in the warehouses. Such as in the TPG processing companytheymanagetheirrawmaterialandfinishedgoods available in the warehouses. Job costing systemThis accounting system is useful in computing the cost of jobs of different activities separately. Such as the TPG processing company,
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applies this accounting system for managing cost of job. D1. Management accounting systems and management accounting reporting is integrated within organisational processes. The management accounting system and reporting are aligned with each other. This is why because all necessary information for preparing the reports achieved from the management accounting systems. Such as in the aspect of TPG processing company, they prepare accounting reports such as inventory reports, cost accounting reports with the help of accounting systems suchascostaccountingsystemandinventorymanagementsystem.Sobasically,the management accounting systems and reporting are aligned with the organisational process. TASK 2 P3.Preparation of an income statement using marginal and absorption costs. Basically, there are two kind of methods for preparation of income statements. Herein, below both the methods are mentioned: Absorption costing method- It is a kind of method that consider fixed and variable costs in an equal manner. In other words, this consider both cost as the cost of unit. Marginal costing method- This is a type of costing method which considers both the cost in different manner. It consider variable cost as unit cost and fixed cost as period cost. Income statement by absorption costing method ParticularsMayJune (in£)(in£) Sale501500025000 Less: Cost of Goods sold Opening stock Direct Labour cost525001900 Direct Material cost840003040 Variable production Expenses315001140 Fixed indirect production40004000
expenses Closing stock-48002122.4 Total cost of goods sold72007957.6 G.P.780017042.4 Selling and Distribution Cost40004000 Administrative expenditure20002000 Sales commission cost7501250 Net Profit (NP)10509792.4 Absorption Cost per unit Direct Labour rate55 Direct Material rate88 Variable Expenses33 Fixed indirect production cost810.53 Total Absorption Cost (Per unit)2426.53 MayJune Opening Stock-200 Production500380 Units sales300500 Closing stock20080 Income statement by Marginal costing method ParticularMayJune (in£)(in£) Sale501500025000
Less: Cost of Goods sold Opening stock-3200 Direct Labour cost525001900 Direct Material cost840003040 Variable cost315001140 Less: Closing cost-3200-1280 Total cost of goods sold48008000 G.P.1020017000 Fixed indirect production expenses40004000 Selling and Distribution expenses40004000 Administrative expenses20002000 Sales commission cost7501250 Net profit (N.P.)-5505750 Absorption Cost per unit DL55 DM88 Variable Cost33 Marginal cost per unit1616 MayJune Opening stock-200 Production500380 Units Sales300500 Closing stock20080 Calculation of material cost variances:Herein, below three variances are calculated which are as for may month: Material cost variance = standard material cost – actual material cost
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Material price variance = (standard price – actual price)* actual quantity purchased and used Material usage variance = (standard quantity – actual quantity)* standard price Given, Standard Price =£10/kg Actual Price = 20900/2200 = £9.5/kg Actual quantity = 2200kg Standard Quantity = 1000kg Material price variance = (10-9.5)*2200 =£1100 (Favourable) Material usage variance = (1000-2200)*10 =£12000 (Adverse) Material cost variance = (10*1000)-(2200*9.5) = £10900 (Adverse) Calculation of closing inventory of material using LIFO and Weighted average method: Under LIFO method: DatePurchasedIssuedClosing stock Units(In£)/ units (In£) Total Units(In£)unit s (In£) Total Units(In£)unit s (In£)Tot al 01/05/1 9 403120 12/05/1 9 203.672---40 20 3 3.6 120 72 15/05/1 9 20 16 3.6 3 72 48 24372 20/05/1 9 203.7575---24 20 3 3.75 72 75 23/05/1 9 ---103.7537.524 10 3 3.75 72 37.5 27/05/1 9 ---10 15 3.75 3 37.5 45 9327 30/05/1---53154312
9 Under Weighted Average method: DatePurchasedIssuedClosing stock Units(In£)/ units (In£) Total Units(In£)unit s (In£) Total Units(In£)/ units (In£) Total 01/05/1 9 403120 12/05/1 9 203.672---603.2192 15/05/1 9 363.2115.2243.276.8 20/05/1 9 203.7575---443.34147 23/05/1 9 ---103.3433.4343.34113.56 27/05/1 9 ---253.3483.593.3430.06 30/05/1 9 ---53.3416.743.3413.36 M2 Management accounting techniques for preparation accounting reports The management accounting techniques play an important role in the preparation of the income statements. Such as in the TPG processing company, they prepare income statements with the use of absorption and marginal costing systems. So basically, the management accounting techniques are useful in preparing different kind of accounting reports.
D2. Interpretation of financial reports In the project report with the use absorption and marginal costing method, income statements are prepared. As per the absorption costing method company is earning the net profit of£1050 in May month while in the June they are earning the revenue of £9792.4. While in the marginal costing method, company is getting the lose of £ 550 in May month but in next month earning the profit of £ 5750. TASK 3 P4 Advantage or disadvantage of planning tools which is used for the budgetary control Budget– It is the evaluation of organizational resources which is used for the projection of plan. It is produce by the top management for the estimate of their performance. Budget includes all the expenditure and revenuer which is generated from the operational functions. Manager oif the organization produce different types of budget which critically evaluate the performance of business as well as employees. Before producing any kind budget, manger evaluate the past performance which is helpful in decision making process. Most of budgets will cover financial and monetary aspects of the organization. With the help of budget manager of TPG processing company will take essential decision which further helps in achieving business goals & objectives. It helps in decision making and further it will be converted into action plan. Budget plays very important role in the business because it explains the strategy and path to get success in their work. TPG processing company use the various budget to control their activities. There are various budgets which can follow by the organization. But before that, they have to analyse its advantage or disadvantage and it ill discussed below: Cash Budget This budget prepared by manager of the TPG Company for the identification of real cash flow or it can be internal or external from the organization. Cash budget majorly focuses on cash and cash related activities. With the help of budget, individual can analyse and then able to understand the business performance, position and liquidity. In can be, used by the TPC processing Company to improve their weak areas which affect the business. Further helps in eliminating useless activities which increase the efficiency or effectiveness or it can be prepared department wise. There some advantage or disadvantage of cash budget and it is discussed below:
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Advantage: Cash budget helps in tracking each and every movement of flow of cash and other related items. TPG helps in monitoring all the cash flow for the effective results. It helps in accumulating funds for future and the other contingency which ensure about availability of funds in future. Disadvantage: Written data in the cash flow can easily manipulated and hide their actual performance. Manager if the TPG use this budget for the internal cash management not for the training. Cash budget fails in detecting fraud and other error. Operating Budget This budget is prepared by the organization which includes the operational expenses and income for the specific time period.It includes the estimation of income and expenses which further helps in building strategy. In TPG, manager builds small budgets for effective or efficient. Manager of TPG Company can adopt this budget and it has its own advantage or disadvantage which is discussed: Advantage It helps in maintaining day to day operational activities which increase the productivity or profitability. It helps in maintaining operational activity which provides accuracy in their work. Disadvantage It is complex and time consuming process which takes long time to operate. It includes operational budget for small size company such as TPG which majorly focus operational part. Master Budget This budget used to prepare for the every departmental functional. This budget will take time to develop each departmental budget. With the help of this budget, organization develops separate estimation of expenses or revenue. With the help of this, manager of TPG processing company identify the performance of each functional area. Further improvement will require enhancing their performance in order to reduce the cost and increase the efficiency. It will include the all financial information which helps in taking decision making process and development of effective strategy. Manager of TPG can use this budget and identify the each
functionalareaperformanceofthebusiness.Effectiveimplementationwillincreasethe efficiency or effectiveness. Advantage It will provide the accuracy in their work which help the manager to build effective strategy or decision which further helps in achieving business goals & objectives. Masterbudgetincreasethecoordinationorcommunicationamongthedifferent department which perform their work separately Disadvantage It is time taken process which consumes lots of efforts because preparing each divisional budget will take long time. It is very complex budget which create confusion and they required expertise to understand because it include the financial statement which required understanding. M3 Uses of different planning tools and their application for preparing and forecasting budget Budgets required to develop which help the manager to build effective or efficient budget because with the help of this employees able to perform their task in order to achieve organizational objective & goals. Planning tools helps in increasing accuracy and efficiency of results of budgets. With the help of these tool, manager develop efficient budget which further required completing their task in order to achieve their business goals & objectives. Manager of TPG processing company use the master budget which helps in identifying each department function and their performance which required evaluating for the further decision making process. Manager of TPG company use this planning tool for the budgetary control which increase the efficiency or effectives which further helps in achieving their business goals & objectives. Along with this, it will increase the forecasting techniques and ability. P5 Comparehow organisations are adapting management accounting systems to respond to financial problems Every organization face the financial problem which affect the productivity as well as profitability of the company. There are various problems which arise due to inefficiency in the operational functions. Financial problems can be occurring due to shortage of funds and other resources. TPG processing company already face the lots of financial problems which required solving with the help of different management techniques. After solving all the financial issues, organization get the stability which required to achieve their business goals & objectives which
further required to enhance productivity or profitability. There is some major financial problem which faced by the TPG processing company as follows: Lack of liquid funds:Company required adequate funds but its liquidity position is very bad so organization not able to pay their daily expenses. This problem becomes barrier for the TPG Company because it will affect the production and operational activities. Manufacturing company always required to maintain some adequate liquidity which required performing their daily activities. For this, company required enough working capital to perform their task in order to achieve their goals & objectives. Frequent shortage of funds will affect the production even stop the manufacturing process due to lack of financial stability. Cash mismanagement: In the TPG processing company, another financial problem is mismanagement of cash which affect the organization. Due to this reason, expenses are more than its earning and business the issue such as loss or theft of cash, excess cash expenditure, and negative cash flows. So it is important for the organization to effectively manage the cash because they have to maintain some adequate amount of liquidity to perform their task. Techniques to solve financial problems: Benchmarking:It is the systematic process where individual have to put lots of efforts towards achievement of performance in the organization which is based on benchmarking criteria. This process majorly focuses on improving their internal business activities with the help of various techniques. In the TPG processing company, benchmarking technique can analyse the way by which financial problem can be solved. Key financial indicators:This technique used by the organization in order to identify the key area which required improvement to enhance their productivity or profitability. It includes the various key areas such as gross profit margin, liquidity ratio etc. All are required to solve financial problem which affect productivity or profit margin of the company. Manager by using KPI technique solve the problem of mismanagement of cash in the business. With the help of this, business maintain the liquidity in the organization. Comparison between Airdri and TPG processing company: TPGAirdri Company face the problem regarding excessivecostswhichincrease manufacturingandproductioncosts. Due to this issue, company face the Airdri company face the problem of liquidity which affect the business in order to perform their task to achieve their business goals & objectives.In
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problem and it will reduce the profit margin. results, company not able to perform theirdaytodaymanufacturing activities.Itwillreducethe productivity as well as profitability. Managers of TPS processing company use the price optimisation system which helpsthemanagertocontroltheir excessivecostsandexpensesinthe manufacturingfunctions.After adoptingthismethod,managercan build strategy to reduce their cost o increase the profit margin. AirdriCompanyusesthecost accountingsystemwhichhelpsin solving financial problem after using this system, business able to track their each unit cost. High cost will incur shortageoffundswithindaily operations. M4Responding to financial problems, management accounting can lead organisations to sustainable success Small or medium size organization such as TPG processing company wanted to expand their business for the successful outcomes. But due to financial problem it becomes difficult to implement various strategies because shortage of funds makes them stop to done their activities. Manager of TPG Company, follow various management accounting systems to solve their financial problem which affect the productivity or profitability. Company use cost accounting system to analyse their each unit cost which help the manager to build strategy and try to maintain or reduce their cost for the whole period of production. It will increase the efficiency or effectiveness which further helps in achieving their business goals & objectives D3 Evaluate planning tools for accounting period to respond financial problems appropriately Planning tools include the various budget required to develop as per the requirement of organization in order to increase their efficiency or effectiveness. Planning tool helps in solving financial problem of the organization. For example, master budget is used by TPG for overall internal analysis, which helps the managers to build strategic decisions(Zoni, Dossi and Morelli, 2012). Planning tools such as master budget, inventories budget, cash budget etc. required detailed information to solve internal problem.
CONCLUSION From above discussion, it has been concluded that management accounting and its system help the business in order to analyse the requirement. These systems help the business to perform their task in order to achieve high level efficiency which reduce the cost or increase the profit margin. It further helps in achieving business goals & objectives. In addition, accounting reports helps in evaluating individual as well as organizational performance. Different planning tool and techniques are required to develop strategy or business decisions. It will increase the efficiency or effectiveness of the business. Management accounting system helps in solving financial problems in order to develop liquidity or increase the profitability.