Management Accounting System and Its Importance

The assignment discusses the significance of management accounting systems in businesses, highlighting their role in making effective plans, coordinating operations, and solving financial problems. It also emphasizes the importance of communication and evaluation in management accounting systems, enabling businesses to identify efficiency and effectiveness in their policies and practices.

MANAGEMENT
ACCOUNTING

Context
To work as a trainee management accountant at Imda Tech limited, which make different types of electronical
product and other gadgets for the retails in UK. The company is progressing with the successful rate but at present
time they are facing some lack of financial information to improve their decision making.
So, this report will help to solve the financial information gap and other relations of the function in the business
Task 1
A) Definition of management accounting (MA) and its importance of Management accounting system
Management accounting is the most significant issue of the business to make success on it and to
accomplish aims and objective of the company. Within the management accounting, the functions of management
and accounting are connecting with each other. Financial and non-financial accounting activities and the other
functions are coordinated with each other to make the progress of the business. Management accounting deals with
the issues like fund raising, fund management, resource management, decision-making, planning monitoring and
controlling and the other issues relates with the business.
Management accounting is the concept that has many scopes on the business to make the efficient strategic
management. There are several scopes is available of the MA these are-
 Management accounting (MA) helps to do effective management and strategy to the business.
 MA supports for identifying the roles and responsibilities of the management
 MA helps to understand the capacity of the entity itself
 MA assists to Imda Tech for taking effective decisions and planning for the business
MA system is the most important system for the organisation which relates to various internal financial
aspects of the firm. MA system helps to do the effective management with the use of different systems of
Management accounting system. The major systems of MA system are-
1. Cost accounting system
2. Inventory management system
3. Job-costing system
4. Price optimizing system
Management accounting system have more activities that makes more help to manage the business.
 Management accounting system leads to do the effective coordination with the financial and the
information with the management.
 Management accounting system makes deals with the helps to do effective monitoring and controlling over
management.
 In order to assess the financial data for present and next accounting period the MA is an effective tool.
Apart from this, it helps to make fruitful kind of business decisions.
 It helps to the Imda Tech Limited for setting objectives and aims of the workplace and boost up total
profitability performance in the industry.
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Difference between MA system and financial accounting
 Management accounting system is not similar with the financial accounting while it deals with the financial
terms but the way of working and approaching is completely different from the financial accounting.
 Financial accounting deals with the financial reports for a period (usually a year) in business that describes
the company affairs to stakeholders of the business. On the other hand, MA system deals with the
management issues to make effective coordination with the financial data to make the effective decision.
 On the other hand, Management accounting deals with the current financial information. This is needed to
make effective plan for the day to day running of the business to achieve its goals and objectives
 Financial accounting follows ing the laid down standards whereas management accounting system does not
follow the any standards and giving but focuses on information needed for to the internal use according to
eh of the business structure.
 Financial accounting describes the overall business result in various report as income statement and balance
sheet. Managerial accounting shows the in details the figures level of needed for the day to day working in
the organization.
 Financial accounting describes with the profitability issues while managerial accounting describes the
specific cost issues of the business.
 Financial accounting focuses mainly on the profit margin only whereas management accounting helps to
make co-ordination of work to reach the goals of the business.
 Financial accounting deals with past financial information and turns them into them the income statement
and balance sheet.
B) Various systems of MA and its essential requirements within workplace of Imda Tech Limited
To reach aims, purposes and objective of the firm, managers need to imply the systems of MA in an
effectual direction. To do that need to understand different systems of MA system like-
Cost inventory system:
To reach the goals and objectives of Imda Technology they can use the cost inventory system that use to
identify the cost issues to produce the product from production to distribution. To do the whole operation need to
manage the cost to get the highest level of production. Because to reach the profit margin first need to identify the
cost issues like fixed cost, variable cost, overhead cost, labour cost and other cost that relates with the production
and operation. Some systems that the cost accounting system offered like actual costing, normal costing, standard
costing, other costing activities, life cycle of costing, environmental related costing
Actually costing is known as the costing of the business which occurred after completing the production
and selling procedures.
Further, it is not based on the assumptions as well as estimations within workplace of an entity.
On the other hand, standard cost describes the target cost in comparison of the actual cost that describes the
performing the operations according to the plan with the costing issues. Further, these are only estimated and not
based on the incurred within workplace of cited company.
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Normal costing is the term that describes the labour cost, manufacturing overhead cost etc. that directly
relates with the operation and performance of Imda Tech Limited.
Inventory management system:
Management accounting system has the system of inventory management system that helps to understand
and describe the issues of resource management. Resource management plays vital role to identify the strategy and
the implementation of the strategic planning. This is the best way to make control over resources of the business.
Effective resource management helps to identify the issue of resource allocation, fund raising, distribution of the
resources and use of the resources that makes effective implementation of the planning.
There are different inventory management system are available which used by Imda Tech for meeting
financial goals which are stated below:
Dependent and independent demand of inventory management systems. These management systems
describe different issues to manage like product expiration, inventory status reports, products inventory, products
purchase, customer’s management, supplier’s manager etc.
Just-in-time is another inventory management system that refers the system that starts from receiving the
order from customer then start schedule the production and receive the materials within proper time. Further, it is
used producing chargers and other electronic gadgets in appropriate time period and provide customers in right time.
It refers to the shipment of products up to the customer that helps to improve satisfaction level of consumers. This is
the strategy that helps to reduce the cost of the production and improve the quality and productivity of company.
Apart from this, there are other systems are also associated with the stock management which are like
perpetual and periodic. Further, in order to make an effectual valuation of stock available in the company some
methods are adopted by Imda Tech. Such techniques are like FIFO, LIFO and Weighted average cost (Dowler,
2015).
Job costing system
Job costing approach is significant system of the MA because it describes issues of labour of the business
because it is the best resources of the business. It is used in the Imda Tech Limited company in order to assess cost
of each product produced in every job or batch in the company. In the present study, the selected firm manufactures
special chargers and electronic gadgets where it easily able to know that each batch incurs how much level of
costing. Job costing system describes the exact cost against of the production of the business that helps to identify
the issues of profitability or strategies of the planning. Also, this job costing system helps to do the effective
performance management what helps to identify he capacity of the organisation and achieve desired objectives in
proper time-frame.
Job costing system needs three information to accumulate, these are- direct materials that shows the costing
of the material need to track and to do that need to make sheet, unison online terminals and warehouse and the
production area to track the exact cost of the direct materials. Then need to identify the direct labour cost because it
is directly relating with the production cost and to do the budget or start the project need to identify the labour cost
to complete the task. And the last one is overhead because business should identify the overhead cost of production
and variable overhead, depreciation on the production, rent etc.
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Price optimizing system
This specific approach supports to do the pricing of the business and adopt an effective or profitable price
of a product. The reason is it is an aspect of the firm on which customer satisfaction level as well as revenue
generation capability of Imda Tech depends up to the greater extent. By setting the reasonable pricing system, the
business will get the success by dealing with the customer and meet the demand of the customer. To do the effective
costing need to understand and identify the issues of costing, resource management to set the price and
understanding the buying power and the market situation by comparing the products and brand with the competitors.
A firm considers different level of prices of a so that it can easily evaluate the response of customers. Among these,
a particular pricing at which majority of customers purchasing products, that will be chosen by considering price
optimisation system.
Task 2
Computing costs and assessing profitability condition of Imda Tech using two costing aspects
Income statement of Imda Tech (UK) Limited on the basis of marginal costing
On the basis of the above stated profit and loss account, it has been identified that, Imda Tech has to earned
4625 GBP net income at the end of September 2010. The reason is that, it has efficiently managed different costs i.e.
variable as well as fixed, within working environment. Apart from this, only variable expenses is considered and
eliminate those costs which highlight non variable profit.
Income statement of Imda Tech (UK) Limited on the basis of absorption costing
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From the above table, it has been analysed that, at the end of September 2010 the Imda Tech suffered loss
rather than income which is worth -5375 GBP. Under the selected method i.e. absorption costing, all kinds of
expenditures are considered for performing calculation. Therefore, sales which is generated and recovered from
fixed and non fixed types of cost lead to create negative impact on profitability position
From the basis of above analysis it can be stated that Imda Tec can adopt different range of effective strategies.
At the very initial level, it needs to consider cash as well as cost management strategies which will be
helpful for boosting liquidity position. Apart from this, must provide effectual trainings to employees of production
department for utilising resources in optimum manner. As they will become efficient then profit will be easily
influenced in favour of the cited firm.
Task 3
A) Pros and cons of various budgets
Budget is the most significant issue and the most important issues of the business or any organization.
Budget describes the sales volume and the profit margin to the business for the planning year. It indicates cash
incomes or receipts as well as cash outflows or payments generated in the company and assess expenses of the
production and deals with the other financial terms that relates with the financial planning. So for Imda Tech
Limited, they should try to make effective budget to avoid the financial problems and meet purposes of entity.
There are some different types of budget available that need to be selected for the business to make
effective use of this financial tools. Such as-
Sales Budget Sales budget is one of the important types of budget that describes the sales volume
of the business. The main reason of sales budget is to define the sales volume of the
business because business need to identify the sales margin that reflect the profit and
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the capacity of the business
Production budget Production budget describes the production unit which is produce for sell. Because
when the target sell is assumed with the business capacity need to fix the production
budget and get clear understanding about the production unit also business need to
identify the production capacity to ensure the sells volume of the business.
Capital budget Capital budget is the budget that help to describe the investment and capital margin
to deal with the sell and production item of the business because business need to
ensure the investment margin to ensure the production and sells margin of the
business
Cash flow budget It shows about the receipts and expenses of payments of the business on a certain
situation of the business. This budget helps to describe the previous year budget and
makes relation to set the new year budget by analysing the market situation and the
market demand of the product.
Revenue budget Revenue budget helps to describe the profit and the cost of the business. It shows all
the cost of the product and makes calculation with the unit price with the sales
volume to set the profit margin of the business
CASH BUDGET
Advantages of Cash Budget
 Budget helps business to make control over the monetary issues.
 Cash budget supports to business in order to identify the cash requirement of it to fulfil short term
obligations.
 It helps to make plan for optimal utilization of the financial resources within Imda Tech.
 Also, Cash budget helps to make control and monitor over cash so the unnecessary expenses can be
reduced
 It helps to give more focus and to reach the financial goals of the entity.
 Budget helps to alert before any money or financial crisis occur in the market or country.
 It helps for adopting strategies for effective cost management in the workplace of Imda Tech Limited
company.
Disadvantages of Cash Budget
 Major disadvantages of cash budget are its reliance issues because it uses the cash flow for one year to
allocate next year cash flow so there is no guarantee about incomes, payments and revenue levels of the
firm.
 Indeed, sometime budget can cause serious financial problem because the data that used to do the budget
can be improper.
 Further, if that source having any problem from where required data originated then whole business plan
can change and it can cause barriers to further progress of the business.
 It shows only deficit or explicit of the budget and does not reflect causes due to which a specific issue has
occurred.
 In order to frame and operate cash budget in the Imda Tech company, more costs required there.
SALES BUDGET
Advantages of Sales Budget
 Sales budget helps to set the selling goal for the company and boost up total revenue position.
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 It helps to Imda Tech Limited for determining revenue level which required to earn in the next year along
with the selling price.
 Through this particular budget system, stock level in the business environment will be declined and support
to generate huge revenue.
 It is an important technique for preparing highly effectual production plan for the next year.
 In order to keep the expense and costing level under control and decline the total expenses of production
and selling, sales budget is appropriate method.
Disadvantages of Sales Budget
 It is prepared with the help of wide range of assumptions and estimations which can be sometimes affect to
the whole smooth procedure of sales budget.
 Information considered under the sales and budget and data provided it is not highly appropriate and
supportive for the Imda Tech.
 While preparing the budget demand is higher in the market but if it declines in the next year then stock will
be remained at there. Therefore, company cannot generate the budgeted or estimated sales and revenue in
the upcoming period.
 Moreover, it prepares by taking base to the past financial statements where it is not compulsory that Imda
Tech will perform same in the next period.
PRODUCTION BUDGET
Advantages of Production Budget
 Production budget supports for scheduling in order to control over production of units and related function
of production. Therefore, it helps to reduce cost of the production.
 It helps to improve quality of the products like special chargers and electronic gadgets and reduce cost of
the production.
 Through production budget, the Imda Tech Limited enterprise easily able to decline stock level and utilise
all the resources which come into consideration under operation function.
 The machinery, available production equipments, plant etc, can be utilised in optimum direction with the
help of this mentioned budget.
 The cited business entity able to achieve targeted revenue and reduce stock in the workplace using
production budget.
Disadvantages of Production Budget
 It is based on the market research where if demand declines that Imda Tech Limited cannot be able to sale
the estimated production units in the next period.
 Time taken for implementation and execution of this specific budget in the company is high which create
impact on the efficiency and productivity of organisation.
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 Moreover, sometimes it can enhance two kinds of the expenditure at the time implementing which are like
stock storage cost and expenses related to obsolescence.
B) Preparation process of the budget:
To process the budget there are some categories and the processes that need to adapt to do the effective
budgeting. To do the effective budgeting need ensure the practice of the processing. First need to identify the
production capacity to do the budget and the market demand of the product and market position of the organization.
Then need to ensure the capacity of the business to produce and sells. Then need to do the effective pricing strategy
of the product according to the market demand and the buying power of the customers. Also, need to set the revenue
amount of budget by doing effective cost management and the pricing of the unit of production
To prepare the budget there is process that need to follow like first firm has to assume the update budget
and makes start of the existing budget for the business that using budget previously. On that time, need to set the
budget period so time issue need to fix and usually budget sets for 1 year in the business. Then need to review
bottlenecks of the issues of budget and identify the funding and cash availability of the business. So this is the part
that describe the programmatic view of the budget. Also, this part helps to identify the availability of the investor or
funding option for the budget. So, business should ensure about their funds and source of investment to fulfil the
plan or execute the strategy of budget. Further, cost need to identify to set the profit margin of the budget. In this
case, business need to identify all expenditure relate with eh production and selling and then need to set the profit
margin in the budget. Then need to step the costing points that need to match with eh finding and the project output
that need to ensure that is the project or works is going to carry the success margin for the business. Then need to
create the package of budget to issue the budget. After issuing need to make control and monitor the budget by
obtaining the revenue forecast and obtaining the departments of budgets to get the successful budget for the business
Procedures of preparing budget is started below:
 All the data related to the finance need to obtained within the organisation. Further, sources preparing
budget is collected from the past financial statement of the company which are published in past years.
 After that, information obtained in the above step are coordinated with related managers of each
organisational functions. In this, the respective managers provide further information about their expenses
and incomes.
 At the third stage, coordinated estimations are communicated with managers of each department along with
seniors who take business decisions.
 Once the budget or estimations are communicated then approval is taken from the authorised party then it is
implemented within the workplace. (Agarwal, 2016).
 At the end, budget is monitored and evaluated by departmental managers and authorised framework.
During this, if any kind of issues to be found then corrective actions will be made for achieving budgeted
data.
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Pricing strategy
Pricing strategy has most significant issues to get success on the business. Because in most time customer
wants to get the product according to their buying power but with the least price and business want to make profit
from the sell so both issue need to be sought out to make both side happy.
To do the effective pricing there are some factors need to practice efficiently like- fixed and variable cost of
the production and operation. Also, need to have clear understanding about competition, need to set the aims and
purposes of Imda Tech Limited enterprise. Then need to set the strategy to set the positioning for the business. Also,
need to set the target group to make the efficient process and progress of the business.
To make control of budget there are some process need to run like business need to set responsibility centre
that will help to define different functions of the business and headed by the manager who responsible for the
activity of the functions. So responsibility centre can be four types as-
 Revenue centre that will measure output of the monetary terms while it will not compare the direct cost of
the input issues.
 Another one is expense centre that will show the monetary terms of inputs of the production
 Profit centre helps to measure the difference between input and output to show the revenue margin
 Investment centre will help business to define the funding issues of the budget.
Pricing strategy can be different like-
 Pricing at a premium: It describes the business set the costs higher than the competitor which help in
making increasing the profit by selling product at higher price. If company image is good in market then
customers buy their product without thinking of the price.
 Market penetration strategy that describe the lower price strategy that taken by the business in order to
make good position in competitive market. New business should use these techniques to enter the market
by ensuring quality with minimum price of that.
 Economic pricing is another pricing method that show the business makes pricing according to the buying
power. Mostly retailers and discount shops use this strategy while at present big brands are use this strategy
to make strong engagement with all levels of customers
Task-4
Balance Score Card Approach
Balanced scorecard is the performance management tools to define the standard structure to make
monitoring and controlling on the staffs and making report on the issues relates with staff management that helps to
act. Balanced scorecard defines four different issues like-
 financial activities describe the financial activities that helps to understand the shareholder demand and
activities on the business
 internal business processes describe the satisfaction process of the shareholders and customers at a time by
ensuring the positive practice of internal business process
 next task is learning and growth, this describes to achieve the vision and mission of the business and it
helps to meet the challenges improve the business sustainability
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 Finally, it is important to enhance the customer satisfaction level in order to increase the profit.
So, balance score will help to identify the financial activities that relate to the shareholder’s demand and
activities to the Imda tech Limited. Also, it will ensure to practice the positive internal process of their operations to
make satisfaction of different stakeholders. Also, Balance Scorecard helps Imda tech LTD. to provide the way to
achieve its vision and mission and face the challenges and make effective solution of the barriers to do further
progress of the business. As this issue giving focus on customer satisfaction so Imda tech ltd should have clear
policy to make customer happy and set the pricing according to the buying power of customer. Accounting
management system helps to identify the resources of the business that helps to make efficient impact on financial
issues of the business. So, these activities will help them to improve their operational process by making cost
reduction and quality maximization to reach the customer demand.
 Accounting management system helps to develop the reporting strategy that helps to identify the financial
issues and make efficient impact to solve the financial problems.
 Accounting management systems helps to identify he key performance issues that helps to recognise the
financial problems and make effective decision to solve these
 Financial problems need to understand quickly to give the positive response to make efficient impact on the
business because financial problem can raise on any time and can impact negative activity on the business.
By using the balance scorecard approach Management accounting system can understand the financial
problem situation. There are lots of ways to adopt the financial problem on the business by applying the
balance scorecard approach.
 Financial data can show the unmatched figure because of miscalculation or misrepresent of information. To
avoid this need to make the efficient data controlling and monitoring process by applying balance scorecard
to make effective use of financial data on Imda Tech Limited
 Also, if the negative output shows on the cash flows of the business that can be cash inflow or outflow so
the situation will show the problem on financial data or information. So, the situation need handle by
identifying the problem on the cash flow by issuing the balance scorecard business process to coordination
with shareholders and customers
 Balanced scorecard helps to define the cost per unit issues with the production and the defects units of the
production. It helps to improve the strategic management and planning to identify the financial problem
and the solution to adopt these problems.
Financial governance and development of effective strategies
Financial governance is the most important issues of the financial term because the failure activities of the
financial governance makes financial problem. Financial governance describes the rules and regulation and the way
of approaching the different financial term with the logic and the responsibility. So, business need to imply this
financial governance to the business to make effective and positive response on the business.
By approaching the financial governance, business makes positive activity among the financial activity. It
mainly gives focus to ensure the financial activities with logic and to meet the accountability (Phillips, Robert 2005).
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All the financial activity and accountability implies on the financial governance to implement the rigorous financial
report. So, to reduce the loss amount for Imda Tech ltd they should approach with positive financial governance
because it helps to identify the financial activities with logic and accountability set on the activities that helps to
monitor and control al the financial activities.
Financial governance helps business to make effective strategy to deal with the different functions and
issues like the fund raising, allocation, distribution, using of funds and management and the control and monitoring
the whole functions with the effective and positive approach to ensure the logical performance . So, Imda tech ltd
should adopt this to identify the best possible way of fund raising, allocation, using these funds and making effective
control over these issues to reduce the losses and make success of the business.
To do the effective financial governance, need to develop the councils what implemented by the CEO of
the organization and they make the audit committee with the help of management and then the committee develop
their role to understand all the functions and working approach of the organization. So it will help Imda Tech Ltd to
make sustainability on the issues of employee management and other combination and coordination of work.
 Management accounting helps business to make effective plan and formulate that plan for the future
policies that helps to make effective impact against financial problems.
 It helps to organize the financial information and makes efficient flow of the information within the
business function that helps to identify the financial problem on the primary stage and make decision and
measures to solve these problem
 Management accounting system helps to coordinate operation and motivating employees that helps to
improvise skills of employee to face different financial problem situation and make them able to take
decision to solve these problems
 It helps to implement strong communication and update the information that which help in developing
effective work between the team to solve any financial problems.
 Management accounting helps business to evaluate efficiency and effectiveness of it. policies to face the
financial problems of the business
 It also focuses on the existing reports and management accounting consider the actual performance that
helps to compare their goals and their future activities and plan. Also, management accounting helps to
identify the budget issues and changes need in production and helps to develop alternative options for the
production and customer management to solve financial problems. It also gives extra information to
managers that helps managers to identify the barriers of the process to make solution to run the business
effectively
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