Management Accounting - Sample Assignment

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is the procedure of identifying, measuring, analysing,
interpreting and communicating information to managers for the pursuit of an organization's
goals (Quattrone, 2016). The manager can use all statistical and financial information for
decision making process. This process has been analysed by operation and costs which is
incurred by a business in order to prepare the internal financial reports, accounts and records in
order to provide support the decision making process. To understand the concept of management
accounting selected Crest dairy company, it is a leading British dairy products company. It is
trading in cathedral city cheddar cheese, country life butter, utterly butterly, Vitalite and clover.
The company has been listed into London stock exchange and in April, 2019 it is acquired by
Saputo. The following report contains the full information about the requirement of several
management accounting system and different methods which are used to in management
accounting reporting. It also refers the several techniques in order to determine the cost and
operation of income statement. This report also tells about the merit and demerit of several
planning tools which compares that how organisations are applying different management
accounting system to overcome the financial problems.
TASK 1
Covered In PPT
TASK 2
Absorption costing method
Absorption
Sales 960000
Less – Cost of goods Sold 691200
Gross Profit 268800
Less – Selling and administrative
expenses 70000
Income 198800
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Marginal Costing Method
Sales 960000
Less – Marginal cost of sales 690000
Contribution 270000
Less – Fixed Cost 100000
Net income 170000
Interpretation –
Merit and Demerit of different types of planning tools used for budgetary control
Budgetary Control – It is the process of evaluating several actual results with budgeted
results for the business for the following period. To compare the performance set standard of
amount then compare with predicted amounts with the actual performance for compute variances
(Christensen, Nikolaev and Wittenberg‐Moerman, 2016).
Budgets – It is considering as predication of future income and expenses for particular
accounting period. A budget is a document which is developed by manager to analysis income
and expenses of different departments in upcoming period. It serves as plan of action where
include costs, revenues and different resources over a specified period.
Advantage – Budget can take as planning tool which can use in budgetary control and
there are defined advantage of budgets - Planning Orientation – The process of preparing of budget conduct daily activities of an
organisation then prepare plan of budget. In Dairy Crest planning about the future income
and expenses and provide to top management. With the help of this they are preparing
effective strategies and control business activities.
 Profitability Review – A properly structured budgets can indicate different aspects which
is directly related to profitability. Through plan of budget estimate about the profit and
take appropriate decisions. In dairy crest apply the plan to evaluate the profitability of the
business.
Disadvantage – There are mentioned demerits of the company where defined how this
method create problems -
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 Time Required – It is very time consuming tool because there is need to analysis of each
department to create a budget. Before prepare of budget need to collect information then
analysing them according to future in the end prepare budget. In dairy crest various
department such as production, finance, marketing and there is required to analysis of
every department. So as a result it can take much more timing (Duellman, Hurwitz and
Sun, 2015).
 Expense Allocation – The main disadvantage of this planning tool that expenses can be
allotted on pre assumption basis. But many times in future create different situations and
it will become reason of expenses. That will be became reason to less profit so as per the
assumption basis it is not properly apply in Dairy Crest.
Variance analysis – It is considering as effective planning tool which can examine the
difference between actual and planned behaviour. Variance analysis is the study of the deviant of
actual behaviour versus predicted behaviour in reference to management accounting. It is
important to Dairy Crest to know about the how much differences come from actual and planned
behaviours which can show the performance of business in effective manner.
Advantage – There are identified benefits with variance analysis in the context to Dairy
crest to provide help in decision making process. Competitive Advantage – A variance Analysis can help a business to be active in
achieving their business goals and objectives. Through the analysis know about the future
risks and recognise about market situation. In reference to Dairy Crest through analysis
builds trust in between all team members
 Identifying the changes required in the business strategy - Many times compare actual
results with budgeted result that time come out various different points which can not
match. So that time re-evaluate these points and target to customer base of product line of
company.
Disadvantage -
 Source of variance – Most of the times there is not getting variances in accounting
records so as a result personnel needs effected by these activities. Such as labour routing,
bills of material and overtime records for add on activity.
 Detailed Analysis – When Budgeting is not performed and focusing on the detailed
analysis of each factor that time budgeting process might be loosely and done with real
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numbers. Examine variances might not make sense in such scenario (Hilary and et.al.,
2016).
Responsibility Centres – It is kind of company where manager have authority and
responsibility. The manager of the company can analysis the detailed information of a company
through chart which is a logical source for recognising responsibility centres. It is considering as
functional entity where a business have specific goals and objectives, policies and procedure,
dedicated staff and financial reports. The dairy Crest mainly used responsibility centres to
analysis of revenues and expense which invested to individuals.
Advantage -
 Delegation and Control – It will provide delegation as well as control to staff members to
done any work in effective manner.
 Helpful In decision making -
Disadvantage -
 It is follow the traditional way to allocate expenses to needs to be subjected to a further
analysis which becomes difficult.
 To presenting daily posts has been classified due to different from responsibility centres
and need to divided as per system.
Analysis of the use of planning tools and their application
Different planning tools can be used to preparing and forecasting budgets in effective
manner. These planning tool can be applied by selected organisation which can help to know
performance of business in future. Through these tools investigate about potentiate income and
expenses in order to now about profitability of an organisation. Budgets can be used to predict
future income and expenses and prepare for every department. Responsibility centres apply to
know detailed information through logical resources. It can help to achieve organisational goals
and objectives. Through variance analysis know that how much differences coming in actual and
budgeted planning then control on business activities in effective manner (Holzhacker, Krishnan
and Mahlendorf, 2015).
Analysis of how organisations are adapting management accounting system to respond to
financial problem
Financial Problem – It has been considered as financial situation where money is
important factor other wise it become reason of stress. Without money a company can not
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survive and they can not conduct their business operations in difficult situation. It is considering
as hard time which become reason of low wealth management. In present time every
organisation face of financial problem which can affect to efficiency and productivity. In the
context to Dairy Crest recognise different financial problem like much more expenses and many
others. Spending more than earning – Many times company can not control their expenses in
effective manner so as a result company spend their money in huge way which can affect
in negative manner.
 Improper management of money – The company can not focus at their money
management. On the time of transaction can not record in the books so as a result create
problem of improper management. Company can not getting when and how much
amount invest in different things.
Management accounting approaches – These approaches has been applied by Dairy
crest to solve financial problem. But before solve problem there is need to identify problems
through management accounting techniques such as KPI, benchmarking and financial
governance. Through KPI and Benchmarking identify financial problem and financial
governance provide best solution of these issues in effective manner -1. KPI – Key performance indicator is a measuring tool which can measure performance of
company in financial and non financial way. Through this technique those problems
which can affect to gain profitability and influence to growth of the company. In the
context to Dairy Crest need to analysis result of budgeted with actual then try to reduce
differences (Kholis and Maksum, 2017).2. Benchmarking – With the help of this management accounting technique measure
performance of company with another company which is related to same industry. After
measurement carry out those problems which become reason of financial problem. In
Dairy crest to identify financial problems through compare other company and it can help
to company to know their actual position into market.
3. Financial Governance – It is effective financial tool which can help to collect financial
information from various sources. After collection analysing these information to control
business activities in effective manner. With the help of KPI and Benchmarking know
about existing financial problem then sort out the problem with specific solution.
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Dairy Crest Delaware Dairy
In the firm recognised financial problem that
company spending more than earning as well
as improper money management during to
tackle business activities.
The firm identified financial problem which
can create problem of debt confusion due to
business can not record every transaction ion
daily routine basis.
To sort out the financial problem has been
applied key performance indicator.
To sort out of [articular problem apply
benchmarking as financial tool.
The company has been followed the cost
accounting management system to set cost of
products and record every translation in
effective manner (Laine, Korhonen, Suomala
and Rantamaa, 2016).
There are firm followed the system of job
costing where include information about direct
material, labour and overhead.
Analysis how management accounting can respond to financial problems to gain sustainable
success
Management accounting and their techniques can help to recognise financial problem in
effective manner. The company apply financial tool which can help to know which type financial
problem become reason of slow growth and influence to productivity as well as profitability. To
identify the financial problem the firm applied key performance indicator and benchmarking
which can help in different manner. Mostly companies applied KPI and benchmarking to
recognise problem then financial governance can help to sort out with specific strategies.
Planning tools responding to solve financial issues to lead sustainable success
In present time each company apply effective planning tool in order to know which type
financial problem solve through specific strategies. In the Dairy Crest apply planning tools in
each departments to solve problem of and applied in effective manner like responsibility centres,
budgets and variance analysis to know These tools can help to evolute the internal system in
effective manner and help to become strongly manner. Then develop strategies for business in
effective manner (Mora, and Walker, 2015).
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CONCLUSION
As from the above report, it has been concluded that management accounting is helpful
for the organisation in order to provide relevant information about the business of company. As
different management accounting system has been used by the organisation so that adequate
information can be provide to the company about the business. As planning tools are used by the
organisation to resolve the financial problems which arises in the organisation. To resolve the
financial problems financial governance can be used by the corporation and income statement
has been prepared in context to the marginal and absorption costing.
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REFERENCES
Books And Journals
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Christensen, H. B., Nikolaev, V. V. and Wittenberg‐Moerman, R., 2016. Accounting information
in financial contracting: The incomplete contract theory perspective. Journal of
accounting research. 54(2). pp.397-435.
Duellman, S., Hurwitz, H. and Sun, Y., 2015. Managerial overconfidence and audit fees. Journal
of Contemporary Accounting & Economics. 11(2). pp.148-165.
Hilary, G., and et.al., 2016. The bright side of managerial over-optimism. Journal of Accounting
and Economics. 62(1). pp.46-64.
Holzhacker, M., Krishnan, R. and Mahlendorf, M. D., 2015. Unraveling the black box of cost
behavior: An empirical investigation of risk drivers, managerial resource procurement,
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