[SOLVED] Understanding Management Accounting and Budgeting Techniques

The provided document is a detailed report on management accounting and budgeting techniques. It covers various methods such as incremental budgeting, zero-based budgeting, and activity-based budgeting, discussing their advantages and disadvantages. Additionally, it highlights the importance of key performance indicators (KPI) and financial governance in resolving financial issues and problems within an organization. The document also emphasizes the role of benchmarking and other financial tools in achieving sustainability and profitability. A conclusion is drawn from the report, stating that management accounting brings beneficial results to companies through the preparation of financial statements and adoption of accounting systems.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Section 1...........................................................................................................................................1
P1. Importance of Management accounting system in decision making and improving the
performance of Unicorn Grocery................................................................................................1
P2. Different types of management accounting systems used for reporting...............................2
P3: Different costing methods.....................................................................................................3
P4 Advantages and disadvantages of different types of planning tools for budgetary control...7
PART B..........................................................................................................................................10
P5: Various financial issues and measures to resolve it............................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12
.......................................................................................................................................................13

INTRODUCTION
Nowadays, there is an intense competition around the globe. Management accountant
applied various tools that are used by the firm in order to gain the sustainability in the market.
This report has two different sections. Section one covers the use of management accounting
systems to improve the understanding of different departments and different roles of
management accounting department of Unicorn Grocery. Second section of report is made on the
Nero Ltd and management accountant uses diverse management accounting tools and planning
tools in order to resolve the financial distress and make the company free from financial distress.
Management accounting is the tool which is used by the firm in order to gain the sustainability.
These MA tools are made by using their business operations in an effective manner (Chenhall
and Moers, 2015).
Section 1
P1. Importance of Management accounting system in decision making and improving the
performance of Unicorn Grocery
Management accounting implements managerial accounting, managers implements the
provisions of accounting information for informing themselves before they determine matters
throughout their company, that assist their management and performance of control functions.
With the help of management accounting tools, accountants are able to make the decisions in an
effective manner. While, management accounting is mostly implemented to manufacture
information for managers throughout the company. On the other hand, financial accounting
assists complete internal firm objectives.
Importance of management accounting system
Planning: Main concentration of management accounting is planning for the future
company. Management accountant emerge reports which are highly detailed than financial
accountants. They could cover information about particular products, market, regional
information. On the basis of information covered from reports like surveys, budgets or rivals
analysis, managers could fix objectives and layout how they would be attained (Albu and Albu,
2012).
Controlling: Information covered from management accounting renders managers a
higher sense of control over company’s success. As, information rendered in management
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accounting reports are the only one which is used internally. Under this, accountants don’t need
to GAAP. Henceforth, managers could select what regions of the organisation needs extra
analysis and which region could be examined later.
Measurements of performance: There is huge role of the techniques of budgetary
control and standard costing regarding the measurement of performance of the employees and
different departments. The tool of standard costing helps in determination of standards and its
comparison with actual cost. It helps in identification of deviation in standard and actual cost. It
is assumed that the performance of organisation is good if actual cost doesn't exceed standard
cost. On other hand, budgetary control systems helps in measurement of efficiency of employees
and providence of direction to the employees. So, it contributes in improvement of overall
performance of Unicorn Grocery.
Improvement in efficiency of the business: The different tools of management
accounting system helps in determination of targets of different departments of Unicorn Grocery
in advance. It provides the opportunity to management accounting officer to measure the
efficiency of different department in completion of their tasks.
Contribution in maximisation of profits: Application of linear accounting system helps in
controlling different costs which are not relevant and unnecessary. It helps in removal of
inefficiency. Implementation of new tools and techniques provides new ways of achievement of
goals so, maximum benefits are achieved by organisation through their improved performance.
P2. Different types of management accounting systems used for reporting
The accounting officer of Unicorn grocery adopts such accounting systems which is also
used by them for reporting purpose also in organisation. Such accounting systems provides large
number of financial and non financial information which further used by the organisation to
improve their performance and accomplish their organisational targets (Van der Meer-Kooistra
and Vosselman, 2012.). Such systems contributes in planning, monitoring, risk control, strategic
management etc. The three different kind of systems which are used by the accounting officer of
Unicorn Grocery is inventory accounting, Job costing, cost accounting. Application of such
systems helps to derive large number of benefits like improvement in performance, allocation of
budgets, controlling of actual cost, helps in identification of deviations, appraisal of performance
etc. It improves the understanding between the different departments of Unicorn Grocery and
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helps in allocation of roles to each and every employee on the basis of their specifications. These
different types of management accounting systems are defined below: Inventory accounting: It is effective accounting system which is implemented by the
management of Unicorn grocery to improve their performance and achievement of
organisational goals. The main role of this system is to track the stock of organisation and
effectively allocation to different departments. EOQ is the effective system under this
which helps in timely ordering of the stocks. This system also have the function
regarding determination of need of stock by different department for satisfaction of
demands of customers. Job costing report: This report records all the expenses and cost which were incurred
during past production activities so as to product quality products. It can be done for one
individual or single unit of product produced., or batch of units of similar products are
manufactured together. It is necessarily required for the managers to allocate
expenditures for each unit produced which help them in dealing with financial efficiency
and productivity during the time (Endenich, Brandau and Hoffjan, 2011). Account receivable report: This reports includes the information about customers who
failed to make payment to company for the products they get from them. It is considered
as an important tool which is useful to collect personnel in order to examine the total
invoice which is pending for future payment. It is a standard reports which provided
every accounting details related with credit payment options.
 Performance report: It is also an important accounting system which analyse the
performance of overall department of an organisation which help in finding deviation if
any, which restricts the company in achieving desired goals and objectives. It is related
with every project data, utilisation of resources and future growth of outside parties. This
report provides sufficient information relating to transactions done in past and current
time.
P3: Different costing methods
Cost refers to an amount which is incurred in the process of production or payment to
someone by company. It involves material, labour, manufacturing cost etc. which is essentially
required in the production process. Basically it is known as the value of money which is used to
invest in something in order to develop or improve services. This will help in improving
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productivity of different departments which directly enhance the overall performance of an
organisation. Managers need to first analyse the total cost in order to take crucial decision with a
motive of managing and controlling extra cost for the business (Cullen and et. al., 2013).
For this there are various costing methods which is helpful in identifying total cost incurred in
business operations. Such methods includes:
Absorption costing: It is a managerial accounting techniques which helps in providing
total cost incurred in the production of specific products. It consists of both variable and fixed
cost. It includes anything which makes direct impact in the products. The cost of a finished units
in stock can consists of direct labour, material and overhead expenses.
Marginal costing: It refers to the cost incurred in producing additional unit. It includes
variable and fixed cost which are incurred in producing extra unit during particular period of
time. It doesn't taken fixed cost wit a motive of evaluating net profitability but only variable cost
need to be considered.
Comparison
Absorption costing Marginal costing
In this costing method, all cost related with
production are taken into consideration.
It includes cost which is incurred in producing
extra unit.
It includes both variable and fixed overhead
costs.
In this, only variable cost are included in order
to evaluate inventory of an organisation.
The profit will be appeared to Profit goes higher due to each individual sales
of unit.
Statement of profit and loss using absorption costing
Quarter 1
Particular No. Of units ￡/unit ￡ ￡
Sales value 66000 1 66000
Less: Cost of sales
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Less: Opening inventory 0 0.85 0
Add: Production 78000 0.85 66300
Less: closing inventory -12000 0.85 -10200 -56100
Gross profit 9900
Expenses
Selling &Administration
costs -5200
Profit 4700
Less: Under absorption -2800
Profit reconcile 1900
Quarter2
No. Of units ￡/unit ￡ ￡
Sales value 74000 1 74000
Cost of sales
Add: Opening
inventory 12000 0.85 10200
Add: Production 66000 0.85 56100
66300
Less: Closing
inventory -4000 0.85 -3400 -62900
Gross profit 11100
Expenses
Selling
&Administration
costs -5200
Profit 5900
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Statement of profit and loss using marginal costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales value 66000 1 66000
Cost of sales
Opening inventory 0 0.65 0
Add: Production 78000 0.65 50700
50700
Less: Closing inventory 12000 0.65 -7800 -42900
Contribution 23100
Less: fixed costs -16000
Less: selling
&administration -5200
Profit 1900
Quarter 2
Particular No. Of units ￡/unit ￡ ￡
Sales 74000 1 74000
Cost of sales
Opening inventory 12000 0.65 7800
Add: Production 66000 0.65 42900
50700
Less: closing inventory 4000 0.65 2600 -48100
Contribution 25900
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Less:Fixed costs -1600
Less: selling
&administration -5200
Profit 4700
(b): Reason for analysing variations in profit
As per the above calculation it has been noted that there are differences in net profit while
calculating through both costing methods. The main aspect which need to considered is that the
reason of difference in net profit due to fixed overhead expenses. The same is mentioned as
under:
For the first quarter:
Overhead absorbed= (66000*0.20)= 13,200
Fixed overhead costs= 16,000
Under absorption: (2,800)
For Second quarter:
Total absorbed expenses: (74000*0.20)= 14,800
Fixed costs= 16,000
Under absorption= (1200)
(c): Reconciliation Statements:
It needs to be done by taking crucial difference those are arises in a project that can help
in reducing those gaps.
Particular Q1 Q2
Profit from absorption 4700 5900
-2800 -1200
Profits as from marginal 1900 4700
Working notes:
Fixed charges= 16,000
=66000*0.20= 13,200
Under absorption=(2800)
= 74000*0.20= 14,800
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Fixed expenditure: 16000
Under absorption= (1200)
P4 Advantages and disadvantages of different types of planning tools for budgetary control
Budgeting is formulation of different activities of plan for future period of time.
Organisation consider one year as financial year. It determine various activity which shows
performance of organisation for one year. There are different activities which are involve in
budget which shows position of organisation in marketplace (Alleyne and Weekes-Marshall,
2011). It also determine the various assets and liabilities which are used in production and
different processes of organisation. Budgetary control is the methods which are used determine
the various upcoming events and peripherals which are use make budget and execution of
different plan and it help to determine the calculation of future costs. Budget provide rough
figures of expenditure and saving which are made in one financial year. There are various
financial statement which are prepared by the organisation in order to resolve the various issues
and problems. Budgetary control process help to analyses the various result and outcomes which
are evaluated with projects.
Advantages of budgetary control process
 This process aids to determine production cost and manufacturing cost. It provide
rough estimate which are concerned to different operation of organisation for one
financial years. It aids to make future plan and strategies to put control over different cost
of organisation.
 While making various types of plan and budget organisation have strong financial and
capital structure which help to face different situation of business.
 There are various factors and tools which aids to determine profitability and credibility
to perform different task with respects to budgets and plans.
Disadvantages of budgetary control process
 It is very complex process which possesses lots of risk and uncertainness. It did not give
certain figure of expenses and incomes in order to achieve different goals and objectives
of organisations.
 It resists new employees and manager to participate in making budget . The result and
outcomes are also remain uncertain while proposing various plan
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Different types of planning tools which are used by different organisation in order to make
budget, there are various advantages and disadvantages of these planing tools (Cokins, 2013).
 Incremental budgeting methods: The budget is based on incremental distribution for
next fiscal year. It consists of whole organisation and various department which are
involve in making budget. There are various advantages and disadvantages of this
methods are given below:
Advantages
 Incremental budgeting suits different organisation because it requires different funds
with little deviations.
 It is used as a techniques by different organisation to eliminate various rivalries among
different organisations.
Disadvantages
 It did not help to tackle large amount of risk which causes waste of resources in
organisations.
 Incremental budgeting did not give fixed amount of investment of capital of
organisation.
Zero based budgeting : This method is concerned with calculation of all expenses and income
for justified period. All activities concerned with budget are start with zero. There are different
advantages and disadvantages of zero based budget which are given below:
Advantages:
 There are different cost which are saved while performing various operation.
 This methods help to determine various opportunities in order to remove unproductive
activities of organisation.
Disadvantages
 This method is very time consuming process.
 This methods needs various experts in order to make budget.
Activity based budget: This methods is concerned with different activities which are related to
different cost in various functional area. It aids to calculate different rates like inflation,
recession and any other calculation (Gond and et. al., 2012).
Advantages:
 It is more efficient in calculating various products, customers.
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 It help to determine position of company in marketplace.
Disadvantages
 It is very time consuming processes to determine different process of budget.
 This method is very complex method of budgeting due to lots of steps implemented in it.
PART B
P5: Various financial issues and measures to resolve it
It is important for management of an organisation to implement financial measures in
order to deal with financial issues and problems which restricts company in achieving
sustainability and profitability. It is difficult for management to adopt new and advanced
technologies which is helpful in utilising available resources due to financial problems. Thus it is
important for company to prepare financial statements and analyse it carefully in order to
identify their actual financial position of company. Some useful techniques are explained as
under:
Key Performance Indicators (KPI): This techniques is used to identify the performance
through making comparison of previous and actual time data. The manager is already set the
target which need to be achieved in limited period of time through following various policies
(The Advantages and Disadvantages of Budgeting, 2017).
Financial governance: There are various standards and guidelines implemented by
government which need to followed by company if their want to survive in competitive market.
Such policies and standard help company in eliminating all financial issues.
Unicorn grocery Nero Ltd.
The financial performance is used in order to
find out the actual financial position of
company so that they can remove all issues
through adopting various policies.
KPI is also helpful for company as it helps in
differentiating the actual and standard amount
and find out the deviation if any.
KPI techniques is also bring positive outcome
to company through solving issues arises
between staff which makes negative impact on
the financial position of business as well.
Benchmarking and financial governance are
such tools financial tools and techniques to
resolve financial issues and problems.
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CONCLUSION
It has been concluded from the above report that management accounting brings
beneficial result to company through preparing financial statements which help company in
knowing their actual financial position. Adopting accounting systems and maintaining
accounting reports is helpful in increasing the profits of company.
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REFERENCES
Books and Journals
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