Pricing and Cost Control Strategies

This assignment delves into the crucial aspects of pricing strategy and cost control within a business context. The report aims to analyze various approaches to setting prices that ensure profitability while remaining competitive. Furthermore, it examines different cost control techniques to minimize expenses and maximize operational efficiency. The analysis is supported by academic references and explores the evolving landscape of management accounting practices.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P1 (a) Management accounting and requirement of management accounting system...............2
P2 (b) Presenting financial Information......................................................................................4
TASK 2 .........................................................................................................................................5
P3 Calculation of profit as per marginal and absorption costing................................................5
TASK 3............................................................................................................................................7
P4 (a) Different type of budgets and their disadvantage and advantages...................................7
P4 (b) Process of preparing budgets by using various costing system.......................................9
P4 (c) Importance of budget as a tool of planning and control purpose.....................................9
TASK 4..........................................................................................................................................10
P5 Balanced scorecard approach...............................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13
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INTRODUCTION
Management and accounting is a tool to operate and manage the financial, accounting
and performance records in an ethical and effective manner (Lennox, Francis and Wang, 2011).
Accounting is a method which is used to keep records and information in figures and numbers.
At present, accounting tools are widely used by organisations to make an effective and
systematic structure of businesses. This is a report to be submitted to finance director in Tech
(UK). It is a company which provides special charger for mobile telephone and other carry on
gadgets for retail industries in UK. There are different management accounting reports and
difference between management accounting and financing accounting explained in this report.
Different types of budgets are explained and differentiated in this report as well.
TASK 1
P1 (a) Management accounting and requirement of management accounting system
Accounting was basically used in maintaining records and information which is collected
from multiple departments of organisation. Now, the accounting methods and techniques are
used as management perspectives too. Managers and directors use accounting reports and
information in decision making and strategic planning process. Being an involvement of
managers and directors in accounting process, this is also known as managerial accounting.
Management accounting contains rules and regulations, accounting standards. GAAP (Generally
Accepted Accounting Principles) provide rules and regulations regarding keeping records and
information in particular formats.
Difference between management accounting and financial accounting
Management Accounting Financial accounting
This accounting is known as managerial
accounting system which is used by the
managers, directors and stakeholders, investors
and financiers of company.
This accounting system is used to form the
financial records properly. This is known as
historical approach which is made up of
multiple rules, guidelines and standards of
finance.
This remain focused upon future events and
incidents. It helps the managers to analyse risk
There are various financial records maintained
like cash flow statement, balance sheets, cost
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factors and future opportunities. of capital, fund flow statement, ratio analysis,
etc.
Management accounting contains annual
reports, financial reports and performance
score card.
There are different law boards and institutions
made which provide guidelines to retain the
records in a proper manner. These are (GAAP),
IFRS (International Financial Reporting
Standards) and ISAB (International
Accounting Standards Board).
Data and information which are provided
though management accounting reports are
used in making plans and strategies.
This is a part of internal reporting which is
used by finance manager to make finance and
investment plans as well as procurement of
funds.
Importance of management accounting as a decision making tool
Decision making is a process used to make future plans regarding growth and
development of organisation (Grabner and Moers, 2013). Business environment is full of
competitors and rivals. Effective operations and management are the only factors which can
separate organisation from competitors and provide competitive advantage. Management
accounting is a combination of multiple accounting and management system which provides a
large area to analyse overall performance of organisation. Versatile nature and dynamic scope
make management accounting more continent and flexible. Information and data remain accurate
which helps in making straight to the point strategies and plans for further growth and
development.
Management accounting systems are useful and essential for all the types of
organisations. There are various types of activity based costing techniques used in management
accounting. It helps in analysing the cost of product at particular stage or activity. Management
accounting information is mostly used in the manufacturing process. It provides required sources
which remain essential in the manufacturing of product.
Cost accounting system
Cost management and cost accounting; both are important parts of management
accounting. This accounting method is used to analyse the manufacturing cost and control extra
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cost. This accounting system is used in manufacturing industry which deals in product and
services. It helps in deciding the base price of product. This cost is considered as gross
manufacturing cost. Managers of Tech (UK) would help the cost accounting system to analyse
the manufacturing cost of making special chargers for retail industry. Relevant cost analysis is
one of the essential components of cost accounting system which remain focused upon
controlling the cost of marketing and advertisement cost.
Inventory management system
This is one of the management systems which is used by organisation to manage the
quantity of stock and storing them in a secured place (Pärl, 2012). Stock can be found in the form
of raw material, work in progress, finished goods, etc. Inventories are categorised on a priority
basis according to their importance in manufacturing process. ABC inventory system is a
common approach which is used in managing the stock as per their preciousness.
Job costing
In large organisation, manufacturing process remains divided in multiple sections and
divisions. Finished product from one process become raw material for another process. Job
costing method help to track the cost of product at particular batch or section. It differentiates the
profitability at every job. A job can be elaborated as a project done for one customer or a single
unit of product. Bifurcation of jobs and section depends upon various types of direct expenses as
direct labour, raw material, factory expenses, overheads and costs. A job profitability report
shows the overall profit and loss statement for organisation.
P2 (b) Presenting financial Information
Different types of management accounting reports
Management reports are beneficial to managers and directors at management level.
Various type of management reports provides wide range of measurement and overview to sort
out and form strategic plans. Below are some management reports are described:
Cost reports – these are the reports which provide data and information regarding analyse
the cost and expensed for a particular time duration (Michalak, 2013). Cost reports contains
different type of cost analysis as marginal costs, absorption costs, process costs, labour and
material costs, job and batch cost. All these cost are integrated in one single format and presented
to managers and directors.
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Budgetary reports – Analysation of future cost and events are considered in budgetary
reports. Budgets are made on the basis of past records and information. This reports help in
forming and casting the plans for better operation in near future. Budgetary reports are the
projected score card which defines that how much amount of material, labour and overheads to
be implemented in manufacturing process for upcoming year.
Performance reports – These are the reports which are made by leaders subject to their
functional departments (Dumitru and et. al. 2011). Leaders peruse the performance of every
individual and integrate the report in single format and submit the reports to managers. All the
performance report provided by leaders are categorised by managers and they prepare a
conclusive and summarised report. These reports help in analysing overall performance of
organisation.
Other reports – All other reports which are used as supportive tools considered in other
reports (Zamora, 2011). These reports are used to get additional sources to rectify and rephrase
the final reports. All these reports are known as subsidiary reports or supportive reports.
Why systematic presentation of information is required
Systematic presentation of reports help to understand the data and information easily. In
corporates and businesses functions management reporting help in bifurcate the data and figures.
It provides a convenient path to explain and sort out the informations in summarised way to
form the plans and business projects. Management accounting system divided the cost in two
ways first is internal cost and second is external cost of management.
TASK 2
P3 Calculation of profit as per marginal and absorption costing
Marginal costing
Calculation of profit by using marginal costing
technique
Particulars Amount
Sales 52500
Less: cost of goods sold
Cost of opening inventory
Direct labour 10000
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Direct material 16000
Variable production overheads 4000
Less: cost of closing inventory (500*15) -7500 -22500
Profit before selling and distribution expenses 30000
Less: selling and distribution expense
variable overheads -7875
Net profit or loss 22125
Less: Fixed cost -25000
Profit/loss -2875
Absorption costing
Calculation of profit by using absorption costing technique
Particulars Amount
Sales 52500
Less: cost of goods sold (W/N 1)
Cost of opening inventory
Direct labour 10000
Direct material 16000
Variable production overheads 4000
Fixed overheads 10000
Less: cost of closing inventory -10000 -30000
Profit before deduction fixed overheads and selling and distribution
expenses 22500
Less: under/over absorption -5000
17500
Less: selling and distribution expense
fixed overheads -10000
variable overheads -7875
Net profit or loss -375
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TASK 3
P4 (a) Different type of budgets and their disadvantage and advantages
There are various budgets are prepared to forecasting and analysing the cost for further
events and incidents.1. Finance Budge – An organisation need finance requirement to operate its business
functions and activities. Finance is sources which work as a blood in organisation to
boost the functions and operations subject to business projects and goals (Gullkvist,
2013). There three type of budgets are prepared to bifurcate the information and data as
per capital and revenue nature. Financial budget is a combination of Cash budgets, capital
expenditure budgets and balance sheet budgets. All the inflows and outflow of cash are
considered in cash budget. Any kind of expenditure as purchase of new plant and
machinery, equipment, land and building are considered as capital expenditure and are
considered in capital expenditure budget. Balance sheet budget helps in managing and
balance the assets and liabilities of organisation.2. Cash flow budget – this budget is prepared to analyse the further requirement of cash for
accessing the task requirements. This is one of the essential requirement for business and
organisations to analyse cash requirement for future.3. Master budget- this budget helps to analyse the cash budget in order to determine
estimated income and expenditure of organisation. It assist managers and accountants
subject to interrelated different budgets.4. Operating Budget – Activities and transaction which are made on regular basis are
considered as operating activities and operating expenses. All the operating transactions
are considered in income and expenditure account of company. These the expensed
which are incurred to execute operations known as operating expenses or indirect
expenses (Moser, 2012). Operating budget support to analyse the cost and consumptions
of resources in adjustment of operating expenses during the year. It provides an
estimation that how much amount of finance and cash to be utilised in operations and
business activities in upcoming years. Sales revenue budgets, expense budgets, project
budgets are the part of operating budgets. All the selling, advertising, marketing and
promotional expenses are considered in sales budgets. Expenses which remain related to
administration, stationary and newspapers expenditure, petty expenses are adjusted in
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expense budget. All other expenditures which are incurred to frame and design of plans
and strategies considered in project budget.5. Non-monetary budgets – Contingent liabilities and assets which remain uncertain and
can not be countable in money are considered in non-monetary budgets. These budgets
help in identifying the non-monetary incomes and expenditure to prepare an projected
budget. For example goodwill is one of the non-monetary income and asset which is
estimated in these type of budget.
6. Fixed and variable budgets – the are the budgets which bifurcate the cost as per their
type and nature (Leitner, 2013). There are two types of cost found in organisational
context fixed and variable cost. There are some costs which remain uncontrollable and
constant that are considered in fixed cost. Variable cost vary in respect of change of cost
with the change in per unit. Fixed cost remain same and constant while making budgets
and plans. Semi variable cost is one of the type of cost which remain fixed at certain level
and then after change in proportion of quantity, amount or size. Fixed cost budgets are
used to control cost and analyse the cost for upcoming year.
Advantages and disadvantage of various type of budgets
Advantage Disadvantage
Budgets provides a path to predict the future
situations and opportunities and frame growth
and development plans.
It is a process which contains high cost and
investment.
It helps in identifying the amount of resources
as finance, labour, material and wages to be
utilised in future.
Budgets are prepared on the basis of last years'
informations and records which are used
contains income statement, profit and loss and
fund flow statements.
It supports the management committee in
decision making and strategic planning.
Innovative ideas and creation remain lack
behind while making budgets.
Budgets make the organisational structure
strong and stable to deal with challenges
positive attributes.
Budgets are based on predictions and
estimation which are not the guarantee of
hundred percent success.
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P4 (b) Process of preparing budgets by using various costing system
Below are some basic steps defined to frame and design the budgets as
General information – there are some general informations and data are collected form all the
departments. These data may be related to operational costs, payment receipts, bills etc.
Source of income – this is the second step which help in find out the source of income to
generate the finance and cash. Find out the payback period of getting payments are the main
sectors of this step.
Make a list of monthly expenses – All the payments and incomes are recorded in books of
accounts (Bennett and James, 2017). There is a list prepared to sort out the monthly expenses.
For example how much expenses are made on monthly purchase and manufacturing process are
counted in this method.
Break even analysis – how much amount of sale is required to generate minimum profit are
calculated by this method. It is one of the prominent and convenient method for managers
perspective. This method help in analysing the profit volume and sales ratio after adjustment of
variable and fixed cost.
Pricing strategies – this strategy is used to ascertain the cost and profit margin on product and
services of company. This step help in managing the cost and deciding the price of product.
Implementation – After making strategies and plan there is a practical analysis done by
implementation them in departments and functions of organisation.
Analysation – this steps indicates towards the measurement the performance of organisation
subject to proposed budget and plan.
Various type of pricing systems are used such as
Price skimming: this is the system which is used to analyse price subject to enhancing
profitability of organisation. Prices and sales prices are decided at initial stage.
Economic pricing: this system is used to determine optimum price of product in order to
earn optimum returns form operations.
P4 (c) Importance of budget as a tool of planning and control purpose
Budgeting and planning tools are considered as essential in organisational context.
Budgetary-control is one of the planning tool which helps in making cost effective budgets and
plans (Lachmann, Knauer and Trapp, 2013). Budgetary-control process system is implemented
in organisation to control the cost and set the margin of profit. Budgets and plans are made to
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attain objectives and aims of organisation. Budgetary-control procedures enhanced the scope of
management accounting in organisational context.
In manufacturing and service providing organisations budgetary control process helps to
ascertain the targets and goals with available resources. Budgets shows the strength of
organisation in respect of analysing and forecasting the future events and incidents.
At managerial level budgets are used to make strategies and plans for better orations. It
provides a relevant data and functions regarding examine the position of organisation in market.
TASK 4
P5 Balanced scorecard approach
(Source : Balance scorecard connects with organisational goals, 2017 )
Balance score card is a approach which is used to organise the functions and departments of a
business ( Hasniza Haron and et. al., 2013). This approach was developed by Dr. Robert Kaplan
of Harvard university. It is the part of strategic planning and management. This is the
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management tool which is used to connect and communicate organisational goals and objectives
to managers and employees. It provides a path to plan day to day process and activities subject to
task and projects. This management tool is used by large business entities, government, non
profit and social organisations. This approach remain divided in five steps;
Perspective – it provides a view to develop vision and objectives of organisation. There are some
measures KPIs, targets and initiatives are considered in this approach. Financial, customer/stake
holders, internal process, organisational capacity are the factors which are used in making
perspective.
Strategic objectives – This approach remain focused on continuous growth and development.
Break downs are the most common virtues which affect the process of framing vision and
mission of organisation. Selecting the options and take actions are the key sources in strategic
objectives.
Strategy mapping – there is a visual representation is made in strategic mapping which help to
execute the plans and strategies within the organisation. There are different type of performance
management graphs made on the basis of logical concepts and assumptions.
Measures – Some Key Performance Indicators are used to measure the performance and actions
of departments of organisation (Mahesha and Akash, 2013). Providing aims and objectives to
monitor the works and actions, focus the attention of employees towards the desired success,
deciding a common goal and communication level and reduce the intangible and uncertain
factors are the key points which are considered in this step.
Cascading – this is the step which remain divided in three levels as Tier 1, Tier 2, Tier 3.
cascading strategy help entire organisation to line up the tasks and projects subject to
organisational goals and objectives.
As per above given scenario Tech UK gain a loss of 1.5 billions which need to settle with
proper appropriation. Organisation need to analyse the use of management accounting system for
better administration and advancement. It is required to identify key financial indicators such as
liquidity, profitability and solvency ratio. Managers need to control operating expenses and
reduce non operating expenses in order to increase profitability of organisation.
CONCLUSION
Accounting and management both are essential and important aspect in organisational
context. An organisational structure depends upon effective plans and strategies. Management
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and accounting help in storing the informations and data in particular data format. These
informations are used at high authorities level to make effective decision making strategies and
plans for better operations. This report is framed to differentiate the meaning of management
accounting and financial accounting. Different type of management reports are explained which
help in making plans and procedures. Various type of budgets are discussed and their importance
are bifurcated in practical demeanour. Absorption and marginal costing concept is illustrated
with a practical scenario. How budgetary-control process help in deciding the price and control
the cost also explained in this report.
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REFERENCES
Books and Journals
Dumitru, M. and et. al. 2011. A historical approach of change in management accounting topics
published in Romania. Accounting and Management Information Systems. 10(3). p.375.
Zamora, V. L., 2011. Using a social enterprise service-learning strategy in an introductory
management accounting course. Issues in Accounting Education. 27(1). pp.187-226.
Gullkvist, B. M., 2013. Drivers of change in management accounting practices in an ERP
environment.
Moser, D. V., 2012. Is accounting research stagnant?. Accounting Horizons. 26(4). pp.845-850.
Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of
Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Lachmann, M., Knauer, T. and Trapp, R., 2013. Strategic management accounting practices in
hospitals: Empirical evidence on their dissemination under competitive market
environments. Journal of Accounting & Organizational Change. 9(3). pp.336-369.
Hasniza Haron, N. and et. al., 2013. Management accounting practices and the turnaround
process. Asian Review of Accounting. 21(2). pp.100-112.
Mahesha, V. and Akash, S. B., 2013. Management Accounting Benefits: ERP Environment.
SCMS Journal of Indian Management. 10(3).
Lennox, C. S., Francis, J. R. and Wang, Z., 2011. Selection models in accounting research. The
Accounting Review. 87(2). pp.589-616.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6). pp.407-419.
Pärl, Ü., 2012. Understanding the role of communication in the management accounting and
control process. Tampere University Press.
Michalak, J., 2013. Management accounting in networks-mapping the research streams. Zeszyty
Teoretyczne Rachunkowosci. 72(128).
Online
Balance scorecard connects with organisational goals, 2017. [Online] Available through
<http://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard>
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