Zylla Company: Management Accounting and Financial Statement Analysis

This report delves into the application of management accounting principles to address the financial challenges faced by Zylla Company, a multinational corporation undergoing restructuring. It explores various management accounting methods, including financial analysis, historical cost accounting, standard costing, budgetary control, and fund flow statements, to provide insights and recommendations for informed decision-making. The report outlines the benefits of management accounting in planning, controlling, decision-making, problem-solving, and goal setting within the organization. It also critically evaluates the integration of management accounting systems and reporting within organizational processes, emphasizing the importance of simplified and easily understood reports for effective management decision-making. Ultimately, the analysis aims to equip Zylla Company's management with the necessary tools and knowledge to overcome its financial hurdles and achieve its strategic objectives.

Unit 5- Management Accounting
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Contents
Introduction.................................................................................................................................................3
Task 1..........................................................................................................................................................4
P1 Management accounting and different methods of management accounting......................................4
P 2 different methods used for management accounting reporting..........................................................7
Task 2..........................................................................................................................................................9
P3 Example of preparation of financial statement with the help of Marginal and Absorption costing
techniques................................................................................................................................................9
Task 3........................................................................................................................................................11
P4 Advantages and disadvantages of different types of management accounting tools in budgetary
control...................................................................................................................................................11
Task 4........................................................................................................................................................13
P5 Comparison of management accounting with the financial problems of organizations....................13
Conclusion.................................................................................................................................................14
References:................................................................................................................................................15
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Introduction
In the given report the different benefits of management accounting that can be used in solving the
problems of Zylla Company is explained. Zylla Company is a multinational company which has its
operation in many countries. The company has undergone few corporate restructuring over the past years.
This will lead to some financial problems in the company. The management is looking for management
advice in this respect. The changes involved various expansions into the new market and the changes in
the locations where the company works. The report laid down state the different management accounting
tools that can be used by the management of the company to overcome the financial problems which the
company is facing presently (Kothari, 2015).
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Task 1
P1 Management accounting and different methods of management accounting
Management accounting is a concept that will help the management of the organization in taking an
important decision. The management accountant collects various financial and other data and then
converts it into useful information which is provided to the manager of the different departments of the
organization so that decision making can be done by them. The main objective of management
accounting is to prepare report for the management of the company and not for the stakeholders or the
investors of the company. The company will keep the report of the management accounting confidential
as far as possible. The different examples of management accounting report are reports of past years
sales, market survey for the future demand for the products, cash movement in the company through a
given financial period. Therefore the management accounting is only concentrated to the needs of the
management of the company. It will record the business activities carried out in the organization and then
analyze it so that it can be used for taking various decision. Every organization has to develop various
plans so as to achieve the targeted goals of the company (Bennett, 2017).
M1 Benefits of the management accounting approach is organization
The management accounting process is very helpful for the decision making for the organization. The
management accounting improves the quality of the decision taken by the management of the company
for better performance in the financial period of the company. The main advantages of the management
accounting process are given below:
1. Planning: The main element of the management accounting process is planning. The reports
produced by the management accountant helps the various managers of the different departments
of the company to plan different strategies. The manager has to identify the current financial
situation, future earning opportunities, inflation rate in the upcoming years and the past year
performance ratios to ascertain the future performance of the company. The management
accounting process provides with the all the relevant data to the management which will help
them in planning strategies (Renz, 2016).
2. Controlling: The management of the organization has to control the expenses and income from
the business operation throughout the year. This can be only done if the management is given
enough details about the internal financial activities of the company. The management
accountants are assigned to produce reports of internal operation to the management of the
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company. This way they can ascertain that proper control has been implemented on the current
operations of the organization. The reports of the management accounting process should have to
comply with the relevant accounting standards and auditing standards as they are not for investors
or general public (Nitzl, 2018).
3. Decision Making: Decision making is mainly done by the top level management of the company.
The decision-making process involves a lot of evaluation process in which all the available option
are considered and the best option which can generate maximum profit will be selected. The
project selected should not be such that it cannot be fulfilled by the current financial position of
the company and can lead to the liquidation of the company. Various decision-making tools are
available in the management accounting process which will evaluate the different projects on the
basis of net present value of the project, profitability index, IRR rate and opportunity cost of the
project accepted. The financial accounting process provides the historical financial data which is
very huge and maybe not relevant to present situation. The management accounting reports take
in mind the need of the manager while making decision and provide report on that basis.
4. Problem Solving: In the management accounting process the comparison of performance of the
management of the company is made. Past year financial performance is compared with the
actual performance of the company to find out the development in performance. The management
accountant creates a number of budgets from different areas and supervises the actions of the
company during the current year so that the budgeted target is achieved by the company. If the
supervisor finds any problem in the actual performance of the department then it can be fixed
within no time and the management does not have to wait for the end of the financial year for the
production of financial report.
5. Goal setting: As it is discussed in the above point that the management accountant mostly
prepares different budgets for different areas of the organization. These budgets are the target for
these departments that have to be achieved by the manager of each department. The budgets can
be for controlling expenses or increasing revenues it is made before the commencement of the
financial period after evaluation of the financial performance and incepting the current progress
desire. These goal set up by the management account will guide the employees of the
organization toward the achievement of the goal and will motivate them from time to time ( Latan,
2018).
D1 Critical evaluation of how management accounting systems and management
accounting reporting are integrated within organizational processes
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The management accountant of the company is responsible for creating a good management accounting
system as per the structure of the company. The management accounting report which is prepared for the
management of the company will be as per the management accounting system developed and installed in
the company. The reports should be simplified and should be easily understood by the management of the
company so that proper decision making can be done in proper time. The main objective of this report is
to assist in decision making and a complex report cannot assist in decision making. It should be brief and
should include only those points which are needed for decision making by the manager of different
departments. The report includes cash flow statement, fund flow statements, capital budgeting etc which
assists in decision making. With the help of Management Accounting system, the fluctuations of the
Monetary Fund can be controlled easily in the long-term.
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P 2 different methods used for management accounting reporting.
There are different management accounting techniques available for the management accountant of
different industries. These techniques can be applied in every condition for proper decision making by the
manager. Some of the important management accounting techniques are as follows:
Financial analysis: The main objective of every business organization is to earn some return on the
amount invested in the business. Therefore financial planning is an important tool management
accounting which helps the manager of the company to plan in advance the finance activities which are to
be carried out in the future. It can be long term and short term both depending on the need for the
management of the company. it involves planning of various activities like source for obtaining funds for
future, expense to be carried out, future capital expenditure etc. The purpose behind the formation of
financial policies is not to achieve the maximum return on the capital employed but also for the
calculation of the product cost can also be done (Johnson, 2015).
Analysis of financial statement: The financial statement of the company includes the statement of profit
and loss, balance sheet, cash flow statement, statement of change of equity. The financial statement of the
company represents the historical performance of the company which can be used to compare them with
the actual; performance of the company. The trends of the company can be found out with the help of this
financial statement. The trend of the company will help in making budget for the future of the company.
Historical Cost Accounting: The management needs the data of each department of the manufacturing
unit in order to identify the cost profit center of the organization and then steps can be taken to reduce this
cost center. The report of the management accountant can provide details about cost incurred in each
department. This tool can help the management of the company in overall cost reduction for the company.
Standard costing: This helps in the identification of cost control analysis and a proper determination of
cost can be conducted with the help of standard costing which is Management Accounting techniques.
Standard costing approaches comparing the actual cost which is incurring producing the goods or services
and then comparing the actual cost with the standard cost. Standard cost is the standard cost of the
product which will be incurred as per the budget. It is standard cost per unit multiply by the number of
units produced. Now the difference can be positive or negative and the management can find that the
particular product is manufactured at predetermined cost or not.
Budgetary Control: The Budgetary control technique of the management accounting is used to control the
outcome of different departments of the company. The business operation can be carried out with the help
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of budgetary control as per the desired manner. The actual if deviated than preventive measures can be
taken to correct it. The main reason for the preparation of budget is to prepare a standard for the
employees of the company that has to be followed in order to achieve the overall business objective of the
company.
Fund Flow statement: Fund Flow stamen is prepared to keep a track of the total fund of the company
which is received and spent in the given financial period for which the fund flow statement is prepared.
The main job of the fund flow statement if to assist in the long-term financial planning of the company.
The fund flow statement keeps the track of where the funds are being spent during the financial period
and from where the funds are coming into the organization. Management accounting system involves the
use of fund flow statements for the purpose of identification of the flow of cash within an entity and
outside it.
Cash flow statement: Cash flow statement is prepared as per the cash basis of accounting. The movement
of cash within the organization in tracked with the help of cash flow statement. The cash flow in the
financial year is divided into operating activities, financing activities, and investing activities. The cash
increase and decrease can be compared with the help of cash flow statement as compared to the previous
year. It is one of the important finance reports which forms part of the financial statements which are laid
down in the annual report of the company. It should be prepared as per the Accounting standards
provision (Anessi-Pessina, 2016).
Statistical and Graphical Techniques: The information present in the form of graphs can be easily
understood by the user of information. The management accountant uses various stats and graphs for
presenting the information so that the information can be understood easily and in no time so that the
decision can be taken by the manager of the different departments in time. With the help of such
meaningful and presentable data that have been provided through the medium of graphs by management
Accountant to the various departmental managers, it becomes easy for the various managers to make
decisions as per the data that have been provided to them.
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Task 2
P3 Example of preparation of financial statement with the help of Marginal and Absorption costing
techniques
Marginal costing Approach
Income statement for the month of September
Amount (in Euro)
Selling price(Note1)
Sales 63000
Direct Material(5x2000) 12000
Direct Labor(8x2000) 19200
Variable Production overhead(2x2000) 4800
Closing Inventory(500X15) -9000
Selling & Distribution and Administrative expenses 9450
Contribution 26550
Fixed Selling & Distribution and Administrative
expenses
12000
Fixed production overhead 18000
Profit/(Loss)(note6) -3450
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Absorption costing approach
Income statement for the month of September
Amount (in euro)
Selling price(Note1)
Sales 63000
Direct Material(5x2000) 12000
Direct Labor(8x2000) 19200
Variable Production overhead(2x2000) 4800
Fixed Overhead 12000
Closing Inventory(500X20) -12000
Selling & Distribution and Administrative expenses 9450
Fixed Selling & Distribution and Administrative
expenses
12000
Profit/(Loss)(note6) 5550
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Task 3
P4 Advantages and disadvantages of different types of management accounting tools in budgetary
control
The management of the company uses different types of budget in order to plan the income and expenses
that are going to arise in the future period of the company. Budgets created by the management are for
comparing the actual performance with the planned performance so that the overall objective of the
organization can be achieved within the time limit. Following are some of the planning tools in budgetary
control:
Cash Budget: The cash budget is simply making estimates for the future cash flow of the organization. It
specifies the future expenses that can take place in the company and the expenses that the management is
expecting to occur in the future.
Capital budget expenditure: Capital expenditure of the company is the expense that will be made on the
long-term assets and contract of the company. The company will lay down the future investment of the
company in assets of any company. The long-term asset can be Land, Building, and Machinery etc.
Sales or revenue budgets: These budgets are the prediction of the future sales of the company which is
expected by the management of the company. The expectation is made on the basis of the past sales of the
company and the future expectation of the management. This budget should not be made by an optimistic
manager because he will predict very huge sales that will be totally impractical.
Project budgets: This budget focus on the profit of the company for the future period. The budget is
regularly compared with the actual performance if there is any different than the expenses will have to be
decreased and sales have to be increased (Gooneratne, 2016).
M3 Analysis of the different planning tools and their application for forecasting the budget
1. Financial statement analysis: The management accountant can use the historical information in
the financial statement which is laid down annual report to predict the future of the company. The
management of the company can calculate a number of performance ratios with the help of
financial statement.
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2. Cash Flow Analysis: The management of the information can identify the major impact on the
cash of the company can be caused by which activity. There are three different activities such as
investing activities, operating activities and financing activities are shown separately.
3. Budgetary control techniques: A proper analysis of all the expenditures can be done with the help
of the budgetary techniques and because of which the unnecessary expenditures that are incurred
by the company can be controlled and the profits of the company can be increased. With the help
of budgetary control techniques, the various departmental managers can take managerial
decisions as per the report generated by the budgetary control techniques.
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