Comprehensive Management Accounting Report: Imda Tech

This report provides a comprehensive analysis of management accounting principles and their practical application within the context of Imda Tech. It begins by outlining the core functions of management accounting, differentiating it from financial accounting, and emphasizing its importance in decision-making and business value enhancement. The report then delves into various management accounting systems, including inventory management, job costing, cost accounting, and price optimization systems. Task 2 examines the use of marginal and absorption costing methods in preparing income statements, providing detailed examples and calculations to illustrate their impact on profit determination. Furthermore, the report discusses different budgeting techniques, evaluating their respective merits and demerits. Finally, it explores the application of the balanced scorecard approach for performance evaluation. The report concludes by summarizing the key findings and offering insights into how management accounting tools can be used to address financial challenges and improve business outcomes for Imda Tech. The report includes financial statements using both marginal and absorption costing methods.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Functions in relation to management accounting..................................................................1
P2 Management accounting systems and its types.....................................................................2
M1...............................................................................................................................................3
D1................................................................................................................................................3
TASK 2............................................................................................................................................4
P3 Use of marginal and absorption costing in preparation of income statements......................4
M2...............................................................................................................................................6
D2................................................................................................................................................7
TASK 3............................................................................................................................................7
P4 Various budgets and their merits and demerits......................................................................7
M3...............................................................................................................................................9
D3................................................................................................................................................9
TASK 4............................................................................................................................................9
P5 Use of balance scorecard approach........................................................................................9
M4.............................................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In every business there are various aspects that are required to be taken into
consideration. For this there are various processes which are to be undertaken and they all will be
covered under management accounting (Strumickas and Valanciene, 2015). In this different
accounting systems are there which will be used and by them the objectives of the business will
be achieved. In this report which is made in respect if Imda tech there will be discussion of all
the functions which are carried out and by which growth will be achieved. In this process
budgets are the main tool to be used and they will be described in the report together with the
manner in which financial problems will be solved.
TASK 1
P1 Functions in relation to management accounting.
In any business the main focus is provided towards the enhancement of the value of the
business and for that there are various activities which will be required to be undertaken. For this
purpose the methods that have been specified will be used so that they can be used for the benefit
of the business (Vakalfotis, Ballantine and Wall, 2013). All the policies which are made in this
relation will be complied in the best manner so that best outcomes can be achieved.
For this it will be required that all the information to be used in this will be collected.
With the help of the data there will be decisions that will be made so that all the operations that
are performed will be done in the most effective manner. In addition to this there is another
method that is used which is financial accounting in which the aspects in relation to finanace will
be covered. The main difference which exist in between them are specified below:
Basis Management accounting Financial accounting
Information In business there are financial
and non financial aspects
which are used and they both
will be covered under this.
In this the information in
relation to finance will be
covered.
Format In case of it there are no
formal pattern that is specified
so can used any method.
In this financial statements are
prepared for which the format
has been specified.
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Purpose In order to make decisions in
business information will be
provided by it to the managers.
In this the information is
provided to outside parties so
that they can make the best
decisions.
Time frame There is no time limit which is
specified in relation to it
(Hoque, 2002).
In this the time frame is
mentioned which is generally
one year.
Legal requirement No legal requirement is
specified in relation to it.
In this there is statutory
requirement that is to be
fulfilled.
Importance of management accounting
In order to manage the work in proper manner there will be requirement of this
accounting. With the help of this the activities will be performed in the most efficient manner
(van der Steen, 2011). The major advantages of this are:
 In this various policies for the benefit of the business will be made.
 With the help of this the cost efficiency will be achieved and this will be done as the cost
which are irrelevant will be avoided.
 By the help of it there ill be increase in the profitability of the business which will be
beneficial for the growth of the business.
P2 Management accounting systems and its types.
For the collection of relevant information there are various systems present and they are
described here under:
1. Inventory management systems: In the production of any product there is the
requirement of the inventory and so for that it is required that it shall be maintained in the
best manner (Ward, 2012). For this there will be various decisions that will have to be
made and for that information will be collected with the help of this system. In this the
level that is to be maintained in relation to inventory will be specified and order will be
placed in respect of that. By this the problems that arise in business due to this will be
avoided and business will be managed properly.
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2. Job costing systems: There are different jobs that will be performed and cost will be
incurred in relation to them. It is not possible to allocate the cots of each job to all the
products so for that it is required that all the cost will be accumulated and then that will
be distributed among all. In order to keep the cost under control the factors which will be
affecting it will be identified and then the measures will betaken to keep them under
control.
3. Cost accounting system: In the manufacturing process various cost will be incurred and
they will be required to be distributed among all in the proper manner so that the
objectives can be achieved in the best manner (Parker, 2012). The main cost that will be
involved in this will be related to material, labour and other overheads. For this standards
will be set by which the cost will be managed as it will be incurred on the basis of the set
parameters.
4. Price optimisation systems: There exist a inverse relation in between the price and
demand by which it can be identified that if price will increase the the demand will be
reduced and vice versa. So for this it is very important that price shall be maintained at
the optimum level so that sales of company can be maintained at the level which will
yield the maximum return and for this purpose this system will be used.
M1
In the business there is always a scope for the expansion and for that the main thing that
is required to be done is to make the best decisions by which this can be made possible. For this
information will be required and that will be collected with the help of the different management
accounting systems. Imda tech will be able to maintain its position in the market and will be able
to survive for long period.
D1
In order to make the improvements in the business it will be needed that performance of
the company shall be evaluated on regular basis. For this there are various policies which are
made so that this can be achieved (Otley and Emmanuel, 2013). Also the systems will help in
earning the additional benefits in the competitive market and this will be done with the help of
the various reports that are formulated in the whole process.
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TASK 2
P3 Use of marginal and absorption costing in preparation of income statements.
The income statement is prepared so that the incomes and expenses can be recorded and
profits can be derived from it. For this two methods which can be used are described below:
 Marginal costing: The total cost in this method are categorised in two parts which are
fixed and variable. Fixed will cover those cost that remains same and variable are those
on which there is an impact of the change in the units of production (Renz, 2016). With
the use of it contribution will be calculated that will be used for the purpose of making
conclusions. By that the decisions will be made and in this the allocation of fixed cost
will not be considered.
 Absorption costing: In this the total cost will be considered and for that allocation of
fixed cost will be made. Due to this the over and under absorption of the cost will be
available which will be included in the calculation of the amount of profits that have been
made.
By using these methods income statement will be made which will help in achieving
financial viability and the factors that will be affecting the profits will be identified. Then the
steps will be taken so that the identified causes can be removed. Below are presented the income
statements that will be made by using both these methods.
Income statement as per Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production expenses 2
Total Variable production cost 15
Working 2: Calculate value of closing inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit in case of marginal costing ￡Amount £ Amount
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Sales value
Less: Variable costs
Stock at the opening
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement as per Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this Actual cost is £10,000 and budgeted cost is £15,000
Selling cost: In this Actual cost is £7875 and budgeted cost is £10,000
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct labour ￡5
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Direct material ￡8
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit in case of absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenses
Fixed selling expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
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M2
In the process of preparation of financial reports there will be requirement of the various
techniques that will have to be applied (Herzig and et.al. 2012). By them the information will be
acquired and that will be used in the report formation. Managers will be using them in order to
make the decisions that will be in overall interest of the company.
D2
In the process of achieving targets only calculation of the profits is not enough in fact
there evaluation shall be done so that performance can be measures and then further
improvement can be made (Fullerton, Kennedy and Widener, 2013). In the given case it can be
seen that Imda tech is facing losses which are 2875 and 375 in respect of marginal ans absorption
costing. The loss is more in marginal costing because in that the fixed cost is not allocated so the
whole amount is taken and by that loss is increased.
TASK 3
P4 Various budgets and their merits and demerits.
Budget is the tool by which the proper planning can be done about all the aspects
involved in business. In this the estimations are made in relation to the incomes and expenses
which are incurred in the process of carrying out the business (Bodie, 2013). For the preparation
of them the data will be taken from the past years which is historical data and also the future
prospects are considered and estimates are formed with the use of them. There is time frame for
which they are made and are required to be followed by all so that targets set in them can be met.
Also by them the performance of the company will be checked as in this the deviations
that exist between the actual and budgeted values will be identified. Then the reasons due to
which they arise will be determined so that the steps can be taken to remove them and make the
company achieve the required level of effectiveness and efficiency. There are various categories
in which they are divided and they are explained below:
Master budget: This is the most important budget and is also known as the summary budget.
This is due to the reason that in this the amounts in relation to all the activities will be involved
and managers can use this to take the decision about all at the same time.
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Advantages: With the use of it the company will not be required to make the various budgets as
it will serve the purpose of all and also the time will be saved that will otherwise be used in
making different budgets.
Disadvantages: As in this lot of information will be there so it be very difficult foe the company
to update it as many changes will be there and it will not be able to identify all of them at a fixed
time.
Operating budget: All the operations that are carried out in business will be requiring lot of
expense and incomes to be incurred and so in order to manage them this budget is prepared. All
the cost such as material or labour will be recorded in it in relation to a fixed time period (Burritt,
Schaltegger and Zvezdov, 2011). By this the control will be established on them and any kind of
wastage that is involved will be removed and this will lead to the increase in the overall growth
of Imda tech.
Advantages: The main advantage of this is that by using this the cash of the company will be
managed in the most effective way. This is because all the payments that will have to be made
will be identified in advance so they will be arranged in the proper manner.
Disadvantages: As the expenses are made in all the tasks and it is not possible to estimate them
on the correct basis so there are chances that the budget will provide wrong information and will
prove to be a failure.
Cash flow budget: In all the functions there is the requirement of the cash that will have to met
in the effective way. For that it is prepared so that the requirements can be fulfilled in time.
There are various sources which can be used in order to collect cash but decision will have to
made about which will be the best one. By that cash will be managed and the business will run
without any hindrances.
Advantages: In the business there exist the problem of the cash shortage and that will be
resolved with the use of it. Also if any surplus is available then that will be invested in the place
where the company will be making maximum returns.
Disadvantages: There is no manner in which they can be estimated with all accuracy as cash
balance fluctuates a lot. So there will be risk that will be involved in it.
Process of budget formation:
in this process firstly all the information required will be collected and then that will be
used. For this research will be conducted by which the data will be available and also the future
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data will be identified (Busco and Scapens, 2011). Then the risk involved will be determined so
that it can also be taken into consideration. There will be need of the use of the knowledge of the
experts and professionals.
Pricing strategy:
Price is the amount that will be charged from the customers in exchange of the product
and it is important that it shall be fixed in that manner by which sales can be increased. For that
policies will be required to be formulated which will be used in this process. Such price will be
set by which the benefit will be made to both the customers and company.
M3
Planning tools are used so that business can run in proper manner. Budgets are one such
tool by which it can be ascertained that the forecasts which have been made were correct or not
and will the objectives be gained with the use of them.
D3
With the help of various planning tools the problems that will be faced by the company
will be resolved. This is because they will be identified on time and hence will be corrected
thereby increasing the chances of success and growth.
TASK 4
P5 Use of balance scorecard approach.
In the organisation there is the need to maintain the perfect level of balance among the
various activities that will be performed and for that this approach is used. In this there are
various aspects that will be covered which involve finance, internal processes, growth and
customers requirements (Christ and Burritt, 2013). They all will be identified and then decision
will be taken so that they can be maintained. With the application of it performance will be
evaluated as in this the needs of customers will be identified so it will be set that they are to be
met and if not then it will represent there bad performance.
There are various problems which are face by the business and in order to solve them this
approach will be used as in this the main areas are included in which the need of improvement is
there. Together with it there are certain other measures also which can be used to solve the
problems which are as follows:
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Benchmarks: In this a benchmark is set which will be the target that is to be achieved and by
this the efficiency will be improved as the employees will be needed to work in the manner by
which it can be made possible.
Performance indicators: These are the measures with the use of which performance of all will
be evaluated. In this parameters are specified which will define the performance of an individual.
They will be required to follow them in order to prove that the activities done by them are
according to the standards set.
Financial governance: Finance is the need of all the companies by which the work will be
undertaken and so it is needed that it shall be managed effectively. The available finance will be
allocated among all the departments according to the needs of all so that level of business can be
maintained (Hansen, Mowen and Guan, 2007). For this purpose there will be need of the various
policies and strategies which will be formulated and implemented so that improvement can be
achieved in relation to governance.
M4
For the achievement of sustainability it is required that problems that are present shall be
identified and solved and this will be possible with the use of the management accounting tools
and techniques. Some of them are budgets by which performance will be improved and growth
will be achieved.
CONCLUSION
From the above mentioned report it can be concluded that in the business there is
requirement of information and that will be collected with the use of various systems. Also for
this cost will be calculated and that have been also shown in the above report together with the
budgets that are to be made in order to deal with the different problems and improve the overall
performance.
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