Management Accounting: Types, Methods, and Tools for Budgetary Control
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This article provides an in-depth understanding of management accounting, including its types and functions. It also discusses different methods used for management accounting reporting and the advantages and disadvantages of planning tools used for budgetary control. The content covers topics such as cash budgeting, capital budgeting, and more.
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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its types..................................................................................1
P2. Different methods used for management accounting reporting............................................2
TASK 2............................................................................................................................................2
P3 Income statement under absorption and marginal costing.....................................................2
TASK 3............................................................................................................................................2
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................2
TASK 4............................................................................................................................................2
P5. Comparison of organisation in order to sort out financial issues by help of management
accounting system.......................................................................................................................2
CONCLUSION ...............................................................................................................................2
REFERENCES................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its types..................................................................................1
P2. Different methods used for management accounting reporting............................................2
TASK 2............................................................................................................................................2
P3 Income statement under absorption and marginal costing.....................................................2
TASK 3............................................................................................................................................2
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................2
TASK 4............................................................................................................................................2
P5. Comparison of organisation in order to sort out financial issues by help of management
accounting system.......................................................................................................................2
CONCLUSION ...............................................................................................................................2
REFERENCES................................................................................................................................2
INTRODUCTION
Management accounting is a way of recording company's monetary and non monetary
transactions in an effective manner with an objective of management of internal aspects
(Fullerton, Kennedy and Widener, 2013). Under this accounting internal reports are produced for
managers so that they can take suitable actions in the direction of achieving company's goals and
objectives. Basically, the main objective of this project report is to describing and understanding
term management accounting in a detailed way. For better understanding of different task of
project report a business is selected which is Q clothing company. This company is located in
London, United Kingdom and operates in manufacturing of cloths. The project report covers
about vital range of accounting systems, MA reports, income statements as well as role of MAS
in order to assess financial issues.
TASK 1
P1. Management accounting and its types.
The management accounting is broad term which starts with process of collecting
monetary and non monetary outcomes of companies and ends with preparation of internal
reports. This accounting consists a vital range of functions which are mentioned below such as :
Provide data – This is a main function of MA which consists information about
quantitative and qualitative transaction about company.
Modify data – Another function of MA is to analysing and modifying collected data so
that it can be utilised for further use (Kihn and Ihantola, 2015).
Analyse and interpret data – As well as MA is linked with analysing and interpretation of
data so that managers can aware about financial position.
Quantitative and qualitative – This is the main function of MA which states that under it
both kind of information is gathered including financial and non financial transaction.
Types of accounting system:
Financial accounting system – This can be defined as a kind of accounting system
which is applied in companies for collecting and analysing financial information. It is
formulated financial system which are being represented to both stakeholder internal and
external. Within this, it is crucial to perform auditing of whole developed financial
1
Management accounting is a way of recording company's monetary and non monetary
transactions in an effective manner with an objective of management of internal aspects
(Fullerton, Kennedy and Widener, 2013). Under this accounting internal reports are produced for
managers so that they can take suitable actions in the direction of achieving company's goals and
objectives. Basically, the main objective of this project report is to describing and understanding
term management accounting in a detailed way. For better understanding of different task of
project report a business is selected which is Q clothing company. This company is located in
London, United Kingdom and operates in manufacturing of cloths. The project report covers
about vital range of accounting systems, MA reports, income statements as well as role of MAS
in order to assess financial issues.
TASK 1
P1. Management accounting and its types.
The management accounting is broad term which starts with process of collecting
monetary and non monetary outcomes of companies and ends with preparation of internal
reports. This accounting consists a vital range of functions which are mentioned below such as :
Provide data – This is a main function of MA which consists information about
quantitative and qualitative transaction about company.
Modify data – Another function of MA is to analysing and modifying collected data so
that it can be utilised for further use (Kihn and Ihantola, 2015).
Analyse and interpret data – As well as MA is linked with analysing and interpretation of
data so that managers can aware about financial position.
Quantitative and qualitative – This is the main function of MA which states that under it
both kind of information is gathered including financial and non financial transaction.
Types of accounting system:
Financial accounting system – This can be defined as a kind of accounting system
which is applied in companies for collecting and analysing financial information. It is
formulated financial system which are being represented to both stakeholder internal and
external. Within this, it is crucial to perform auditing of whole developed financial
1
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statements in order to evaluate effectiveness. For example: Q clothing company
formulate the income statement for evaluating its profit as well as loss at the year end.
Cost accounting system: This system includes procedures of projecting future cost as
well as assigning funds consequently. It is essential system within firm as they required
this for effective utilisation of available financial resources. Therefore, this is
significantly required in organisation for minimising as well as controlling total cost of
several activities. For example: Q clothing company are applying this system for
reducing the whole activities and operations cost of manufacturing cloths.
Management accounting system: It is the system which aids firms monetary
information as well as prepare reports for managers to make decisions (Kihn and
Ihantola, 2015). Mainly, this system is significant to making effectual decisions as this
reports includes financial and non financial data which are required through managers. Q
clothing company use this system to take decision regarding various activities as well as
operations associated to clothing production. For example: Utilisation of price
optimisation system leads towards effectual setting of price.
Tax accounting system: This is also considered as the kind of accounting system. Its
main aim is to manage whole taxation activities. Herein, firms have to company given
regulations as well as rules while calculating tax return. For example: there are global
taxation rules that are crucial for organisation to utilise into procedures of computing tax
rate. So, Q clothing company can calculate tax at the end of the year through assistance
of this accounting system.
P2. Different methods used for management accounting reporting.
Management accounting reporting can be considered as the procedures of formulating
internal reports for helping broad of directors into decision making. Few kinds of management
accounting reporting are discussed below:
Cost accounting report: Within this particular report, data about whole cost of activities is
involved. Through utilising this report, organisations can approximate the future time
periods. Also, this become simple to evaluate those activities that outcomes in higher cost
in compare to last accounting duration. Q clothing company accountants prepare this
report in order to aware whole expenses within accounting period.
2
formulate the income statement for evaluating its profit as well as loss at the year end.
Cost accounting system: This system includes procedures of projecting future cost as
well as assigning funds consequently. It is essential system within firm as they required
this for effective utilisation of available financial resources. Therefore, this is
significantly required in organisation for minimising as well as controlling total cost of
several activities. For example: Q clothing company are applying this system for
reducing the whole activities and operations cost of manufacturing cloths.
Management accounting system: It is the system which aids firms monetary
information as well as prepare reports for managers to make decisions (Kihn and
Ihantola, 2015). Mainly, this system is significant to making effectual decisions as this
reports includes financial and non financial data which are required through managers. Q
clothing company use this system to take decision regarding various activities as well as
operations associated to clothing production. For example: Utilisation of price
optimisation system leads towards effectual setting of price.
Tax accounting system: This is also considered as the kind of accounting system. Its
main aim is to manage whole taxation activities. Herein, firms have to company given
regulations as well as rules while calculating tax return. For example: there are global
taxation rules that are crucial for organisation to utilise into procedures of computing tax
rate. So, Q clothing company can calculate tax at the end of the year through assistance
of this accounting system.
P2. Different methods used for management accounting reporting.
Management accounting reporting can be considered as the procedures of formulating
internal reports for helping broad of directors into decision making. Few kinds of management
accounting reporting are discussed below:
Cost accounting report: Within this particular report, data about whole cost of activities is
involved. Through utilising this report, organisations can approximate the future time
periods. Also, this become simple to evaluate those activities that outcomes in higher cost
in compare to last accounting duration. Q clothing company accountants prepare this
report in order to aware whole expenses within accounting period.
2
Inventory report: This report includes information regarding the availability of stored
commodities within warehouses (Messner, 2016). With the usages of this particular
report, manufacturing department can able to make effective decisions in respect to
purchasing and producing. Q clothing company formulate this report for producing
cloths according to available quantity into warehouses.
Account receivable ageing report: This report involves data regarding credit transactions
develop through organisation with clients or another parties (Arunruangsirilert and
Chonglerttham, 2017). Through utilising this report, organisation can get knowledge bout
how much amount is required to be accumulated from debtors into marketplace. Q
clothing company formulate this particular reports with an intent to identify those debtors
who are delaying into payment even after pre set payment date.
Purpose of financial statement:
Balance sheet: Firms formulate balance sheet to check the net assets and liabilities
amount at year ended.
Profit an loss account: The main aim of formulating profit and loss account through firm
to get knowledge about net profitability. With the assistance of evaluated net profit,
dividend rate is compared.
Kinds of management accounting system
There are many types of accounting system that are discussed below: Inventory management system: This type of accounting system is used through
organisation for assessing quantitative aspects of unused material as well as develop
goods (Hanif, Rakhman and Nurkholis, 2019). This system is being utilised in firm
through coordination of manufacturing department. As they obtain key information from
this that becomes a bases for making decision for operative activities. Q clothing
company can utilise this accounting system which aids them to processed as well as
unprocessed clothing materials like cotton, wool and others. Job costing system: This is considered as the accounting system which is related with the
procedures of allocating as well as compiling manufacturing cost of specific units.
Mainly, this is appropriate for those company wherein board range of goods are
manufactured. For computing the cost of every produced units as well as become possible
only through checking number of jobs allotted into various operations.
3
commodities within warehouses (Messner, 2016). With the usages of this particular
report, manufacturing department can able to make effective decisions in respect to
purchasing and producing. Q clothing company formulate this report for producing
cloths according to available quantity into warehouses.
Account receivable ageing report: This report involves data regarding credit transactions
develop through organisation with clients or another parties (Arunruangsirilert and
Chonglerttham, 2017). Through utilising this report, organisation can get knowledge bout
how much amount is required to be accumulated from debtors into marketplace. Q
clothing company formulate this particular reports with an intent to identify those debtors
who are delaying into payment even after pre set payment date.
Purpose of financial statement:
Balance sheet: Firms formulate balance sheet to check the net assets and liabilities
amount at year ended.
Profit an loss account: The main aim of formulating profit and loss account through firm
to get knowledge about net profitability. With the assistance of evaluated net profit,
dividend rate is compared.
Kinds of management accounting system
There are many types of accounting system that are discussed below: Inventory management system: This type of accounting system is used through
organisation for assessing quantitative aspects of unused material as well as develop
goods (Hanif, Rakhman and Nurkholis, 2019). This system is being utilised in firm
through coordination of manufacturing department. As they obtain key information from
this that becomes a bases for making decision for operative activities. Q clothing
company can utilise this accounting system which aids them to processed as well as
unprocessed clothing materials like cotton, wool and others. Job costing system: This is considered as the accounting system which is related with the
procedures of allocating as well as compiling manufacturing cost of specific units.
Mainly, this is appropriate for those company wherein board range of goods are
manufactured. For computing the cost of every produced units as well as become possible
only through checking number of jobs allotted into various operations.
3
Price optimisation system: This is related with the procedures of directing the
organisation's manager for setting product price as well as services (Zvezdov and
Schaltegger, 2015). Within this, price are set through accumulating consumers feedbacks
upon alternative prices as well as demands into marketplace. Thus, this system is required
within firm to keep product prices at level that is acceptable through whole consumers
and advantageous for organisations. Q clothing company can executed this system that
help them to set cost of manufacturing cloths according to the analysis of clients
feedbacks.
TASK 2
P3 Income statement under absorption and marginal costing.
Absorption costing – It is a kind of costing method in which both costs are absorbed for
preparation of income statements.
Marginal costing – Under this method, fixed cost is taken as unit cost while variable cost as unit
cost.
Case 1 :
(a) Cost card using marginal costing :
Cost card (Marginal costing method)
£/unit
Direct material 50
Direct labour 15
Variable overhead 5
Marginal cost 70
Selling price 150
Marginal cost 70
Contribution 80
4
organisation's manager for setting product price as well as services (Zvezdov and
Schaltegger, 2015). Within this, price are set through accumulating consumers feedbacks
upon alternative prices as well as demands into marketplace. Thus, this system is required
within firm to keep product prices at level that is acceptable through whole consumers
and advantageous for organisations. Q clothing company can executed this system that
help them to set cost of manufacturing cloths according to the analysis of clients
feedbacks.
TASK 2
P3 Income statement under absorption and marginal costing.
Absorption costing – It is a kind of costing method in which both costs are absorbed for
preparation of income statements.
Marginal costing – Under this method, fixed cost is taken as unit cost while variable cost as unit
cost.
Case 1 :
(a) Cost card using marginal costing :
Cost card (Marginal costing method)
£/unit
Direct material 50
Direct labour 15
Variable overhead 5
Marginal cost 70
Selling price 150
Marginal cost 70
Contribution 80
4
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(b) Profit and loss account:
Profit and loss statement for month of January:
Particulars DR CR
Sales revenue (12000 * 150) 1800000
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Variable cost (15000*5) 75000
Fixed production overhead 30000
Less : Closing stock (3000*70) 210000
Less: Cost of sales 870000
Profit 930000
Profit and loss statement for month of February
Particulars DR CR
Sales revenue (14000 * 150) 2100000
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Variable cost (12000*5) 60000
Add : Opening stock (3000*70) 210000
Fixed production overhead 24000
Less- Closing stock (1000*70) 70000
Less: Cost of sales 1004000
Profit 1096000
5
Profit and loss statement for month of January:
Particulars DR CR
Sales revenue (12000 * 150) 1800000
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Variable cost (15000*5) 75000
Fixed production overhead 30000
Less : Closing stock (3000*70) 210000
Less: Cost of sales 870000
Profit 930000
Profit and loss statement for month of February
Particulars DR CR
Sales revenue (14000 * 150) 2100000
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Variable cost (12000*5) 60000
Add : Opening stock (3000*70) 210000
Fixed production overhead 24000
Less- Closing stock (1000*70) 70000
Less: Cost of sales 1004000
Profit 1096000
5
Profit and loss statement for month of March
Particulars DR CR
Sales revenue (11000 * 150) 1650000
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Variable cost (10000*5) 50000
Add : Opening stock (1000*70) 70000
Fixed production overhead 20000
Less: Cost of sales 790000
Profit 860000
Case 2.
(a) Cost card using absorption costing :
Cost card (Absorption costing) For January
£/unit
Direct material (50*15000) 750000
Direct labour (15*15000) 225000
Production overhead (fixed + variable) [7*15000] 105000
Total cost 1080000
Absorption cost of product 1080000 / 15000= 72
6
Particulars DR CR
Sales revenue (11000 * 150) 1650000
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Variable cost (10000*5) 50000
Add : Opening stock (1000*70) 70000
Fixed production overhead 20000
Less: Cost of sales 790000
Profit 860000
Case 2.
(a) Cost card using absorption costing :
Cost card (Absorption costing) For January
£/unit
Direct material (50*15000) 750000
Direct labour (15*15000) 225000
Production overhead (fixed + variable) [7*15000] 105000
Total cost 1080000
Absorption cost of product 1080000 / 15000= 72
6
Selling price 150
Less- Total cost 72
Profit 78
(b) Profit and loss account for month of January:
Particulars DR CR
Sales revenue (12000*150) 1800000
Variable cost:
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Less- Closing stock (3000*70) 210000
Fixed production cost (30000+3000) 33000
Less: cost of sales 798000
Profit 1002000
Cost card (Absorption costing) For February
£/unit
Direct material (50*12000) 600000
Direct labour (15*12000) 180000
Production overhead (fixed + variable) [7*12000] 84000
7
Less- Total cost 72
Profit 78
(b) Profit and loss account for month of January:
Particulars DR CR
Sales revenue (12000*150) 1800000
Variable cost:
Direct material (15000*50) 750000
Direct labour (15000*15) 225000
Less- Closing stock (3000*70) 210000
Fixed production cost (30000+3000) 33000
Less: cost of sales 798000
Profit 1002000
Cost card (Absorption costing) For February
£/unit
Direct material (50*12000) 600000
Direct labour (15*12000) 180000
Production overhead (fixed + variable) [7*12000] 84000
7
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Total cost 864000
Absorption cost of product 864000 / 12000= 72
Selling price 150
Less- Total cost 72
Profit 78
Profit and loss account for month of February
Particulars DR CR
Sales revenue (14000*150) 2100000
Variable cost:
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Add- Opening stock (3000*70) 210000
Less- Closing stock (1000*70) 70000
Fixed production cost (24000+3000) 27000
Less: cost of sales 947000
Profit 1153000
Cost card (Absorption costing) For March
£/unit
8
Absorption cost of product 864000 / 12000= 72
Selling price 150
Less- Total cost 72
Profit 78
Profit and loss account for month of February
Particulars DR CR
Sales revenue (14000*150) 2100000
Variable cost:
Direct material (12000*50) 600000
Direct labour (12000*15) 180000
Add- Opening stock (3000*70) 210000
Less- Closing stock (1000*70) 70000
Fixed production cost (24000+3000) 27000
Less: cost of sales 947000
Profit 1153000
Cost card (Absorption costing) For March
£/unit
8
Direct material (50*10000) 500000
Direct labour (15*10000) 150000
Production overhead (fixed + variable) [7*10000] 70000
Total cost 720000
Absorption cost of product 720000 / 10000= 72
Selling price 150
Less- Total cost 72
Profit 78
Profit and loss account for month of March
Particulars DR CR
Sales revenue (11000*150) 1650000
Variable cost:
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Add- Opening stock (1000*70) 70000
Fixed production cost (20000+3000) 23000
Less: cost of sales 766000
Profit 884000
Reconciliation statement between absorption and marginal costing:
9
Direct labour (15*10000) 150000
Production overhead (fixed + variable) [7*10000] 70000
Total cost 720000
Absorption cost of product 720000 / 10000= 72
Selling price 150
Less- Total cost 72
Profit 78
Profit and loss account for month of March
Particulars DR CR
Sales revenue (11000*150) 1650000
Variable cost:
Direct material (10000*50) 500000
Direct labour (10000*15) 150000
Add- Opening stock (1000*70) 70000
Fixed production cost (20000+3000) 23000
Less: cost of sales 766000
Profit 884000
Reconciliation statement between absorption and marginal costing:
9
Profit/ marginal costing (for all three months) 2886000
Marginal cost/unit 70
Absorption cost/unit 72
Difference 2
Profit/Absorption costing 3039000
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.
Budgetary control is considered as the procedure od approximating the monetary as well
as non monetary results with the assistance of budgets. By utilising this, firms can able to
compare their exact performance.
Budget is considered as the procedures of creating projection of future revenue as well as
expenditures for comparing exact results. Mainly, the budget is developed for approx a year. So,
some kind some kinds of budgets are discussed below: Cash Budget: This kind of budget involves activities related to approximated cash
receipts as well as payable at certain time duration (Luft, 2016). With the assistance of
this, they can understand the cash position in future time. Q clothing company accountant
formulate this particular budget in managing as well as enhancing cash position.
Advantage: With the help of this, firms allocates cash in several operative activities
which aids respective company to savage from unnecessary expenditure.
Disadvantage: It bounds spending power as well as because of this they fail to obtain
appropriate opportunity on time. Capital Budget: It is the kinds of budget that is developed through organisation for
evaluating their efficiencies for long term investments (Aouni and Abdulkarim, 2017).
Also, firm formulate future decisions for long term investment through the assistances of
10
Marginal cost/unit 70
Absorption cost/unit 72
Difference 2
Profit/Absorption costing 3039000
TASK 3
P4. Advantages and disadvantages of different types of planning tools used for budgetary
control.
Budgetary control is considered as the procedure od approximating the monetary as well
as non monetary results with the assistance of budgets. By utilising this, firms can able to
compare their exact performance.
Budget is considered as the procedures of creating projection of future revenue as well as
expenditures for comparing exact results. Mainly, the budget is developed for approx a year. So,
some kind some kinds of budgets are discussed below: Cash Budget: This kind of budget involves activities related to approximated cash
receipts as well as payable at certain time duration (Luft, 2016). With the assistance of
this, they can understand the cash position in future time. Q clothing company accountant
formulate this particular budget in managing as well as enhancing cash position.
Advantage: With the help of this, firms allocates cash in several operative activities
which aids respective company to savage from unnecessary expenditure.
Disadvantage: It bounds spending power as well as because of this they fail to obtain
appropriate opportunity on time. Capital Budget: It is the kinds of budget that is developed through organisation for
evaluating their efficiencies for long term investments (Aouni and Abdulkarim, 2017).
Also, firm formulate future decisions for long term investment through the assistances of
10
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this particular budget. For example: Q clothing company can generate this particular
budget for making effective decision regarding purchases of new machinery for
producing clothes.
Advantage: With the aids of this, Q clothing company can choose alternatives for
investment from essential range of options.
Disadvantage: Formulation of this particular budget needs knowledgeable personnel
which is tough for all firm to identify this kinds of staff. Also, this is quite costly.
Alternative budgeting method: Activity based budgeting: Within this budgeting method, the cost of every activities is
allotted separately as well as as per this the budgets get formulated.
Traditional historic budgeting: This is the kinds of budgeting methods where budgets are
formulated through undertaking previous year figures as well as do changes according to
desired results (Vann, 2016).
(b)Production budget in units:
11
budget for making effective decision regarding purchases of new machinery for
producing clothes.
Advantage: With the aids of this, Q clothing company can choose alternatives for
investment from essential range of options.
Disadvantage: Formulation of this particular budget needs knowledgeable personnel
which is tough for all firm to identify this kinds of staff. Also, this is quite costly.
Alternative budgeting method: Activity based budgeting: Within this budgeting method, the cost of every activities is
allotted separately as well as as per this the budgets get formulated.
Traditional historic budgeting: This is the kinds of budgeting methods where budgets are
formulated through undertaking previous year figures as well as do changes according to
desired results (Vann, 2016).
(b)Production budget in units:
11
Products
Particulars Sofas Beds Chairs
Budgeted sales 50 40 100
Add- Desired closing stock 600 1000 800
Total needs 650 1040 900
Less- Opening stock 500 800 700
Required production 150 240 200
(c) Material purchase budget (In quantities and values):
Raw material Wood Varnish
Total material usage 5200 2360
Add- Closing stock of raw material 8000 9000
Material required 13200 11360
Less- Opening stock 11000 10000
Material to purchase 2200 1360
Purchase price per KG 8 4
Total material purchase cost 17600 5440
(d) Material usage budget:
Particulars Wood (In KG) Varnish (In Litre)
Product:
Sofa 1800 600
Beds 2400 960
Chair 1000 800
Total consumed material= Closing stock+sales- opening stock
12
Particulars Sofas Beds Chairs
Budgeted sales 50 40 100
Add- Desired closing stock 600 1000 800
Total needs 650 1040 900
Less- Opening stock 500 800 700
Required production 150 240 200
(c) Material purchase budget (In quantities and values):
Raw material Wood Varnish
Total material usage 5200 2360
Add- Closing stock of raw material 8000 9000
Material required 13200 11360
Less- Opening stock 11000 10000
Material to purchase 2200 1360
Purchase price per KG 8 4
Total material purchase cost 17600 5440
(d) Material usage budget:
Particulars Wood (In KG) Varnish (In Litre)
Product:
Sofa 1800 600
Beds 2400 960
Chair 1000 800
Total consumed material= Closing stock+sales- opening stock
12
13
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Case 5
(a)
(b) Calculation of variances:
14
(a)
(b) Calculation of variances:
14
Particulars Budgeted Actual Variances
Variable cost
Material 700000 560000 140000F
Labour 250000 200000 50000F
Direct variable expenditure 50000 40000 10000F
Factory OH
Variable 200000 160000 40000F
Fixed 100000 100000
Selling OH
Fixed 13000 13000
Variable expenses 117000 93600 23400F
Distribution expenses
Fixed 14000 14000
Variable expenses 56000 44800 11200F
Administration expenses (fixed) 50000 50000
Total cost of sales 1550000 1275400 274600F
TASK 4.
P5. Comparison of organisation in order to sort out financial issues by help of management
accounting system.
Financial problem raise in organisation when a firm do not has sufficient funds for
operating its business activities (Cazier, Tian and Wilson, 2015). Few kinds of financial
problems are discussed below:
Low Sales: Within this kinds of financial problems, organisation fail to accomplish the
criteria of budgeted sales. Because of this, revenues started reducing as well as financial
15
Variable cost
Material 700000 560000 140000F
Labour 250000 200000 50000F
Direct variable expenditure 50000 40000 10000F
Factory OH
Variable 200000 160000 40000F
Fixed 100000 100000
Selling OH
Fixed 13000 13000
Variable expenses 117000 93600 23400F
Distribution expenses
Fixed 14000 14000
Variable expenses 56000 44800 11200F
Administration expenses (fixed) 50000 50000
Total cost of sales 1550000 1275400 274600F
TASK 4.
P5. Comparison of organisation in order to sort out financial issues by help of management
accounting system.
Financial problem raise in organisation when a firm do not has sufficient funds for
operating its business activities (Cazier, Tian and Wilson, 2015). Few kinds of financial
problems are discussed below:
Low Sales: Within this kinds of financial problems, organisation fail to accomplish the
criteria of budgeted sales. Because of this, revenues started reducing as well as financial
15
problems arises. For example: In Q clothing company, they are dealing with this particular
problems as its clothing sales is minimising continuously.
Enhanced expenses: This is the another problems that is generally faced through mos t of
the firms. Main reason of having this problems is in appropriate allocation of funds into activities
as well as lack of control over expenditures.
Methods of finding financial problems: KPI: This is the kinds of tools that is associated to concentration upon those activities
that are becoming the reason of more expenditure (Brown, Hopper and Maroun, 2015).
Through performing this, Q clothing company can identify those problems that outcomes
into enhanced expenditure. So , with the help of this tools they can able to resolve the
problems of enhanced expenses. Benchmarking: This is defined as the tool of comparing monetary as well as non
monetary aspects of company. As in the above, Q clothing company is facing the
financial problems of low sales so with the assistance of this they can able to measure
their performance and try to resolve them.
Basis Q clothing company PC clothing limited
Financial
problems
Respective organisation is facing
the financial problems of low
sales which outcomes in reducing
incomes at the year end.
It is dealing with the financial
problems of enhances expenditures
into present year. Because of it, they
do not perform its another business
activities.
Methods to
reduce financial
problems
It is applying benchmarking tools
for identifying the exact financial
problems. As with the aids of
this, they can able to compare its
sales with other firm's sales
(Libby and Salterio, 2017).
It is utilising KPI for knowing exact
financial problems. As with the
assistance of this, respective company
can concentrate upon the activities that
are the main cause of enhancing
expenses of whole operative activities.
Management
accounting
system
For resoling the financial
problems, they are utilising the
price optimisation system. As
This particular organisation used the
cost accounting system. As this guide
the finance department to assign fund
16
problems as its clothing sales is minimising continuously.
Enhanced expenses: This is the another problems that is generally faced through mos t of
the firms. Main reason of having this problems is in appropriate allocation of funds into activities
as well as lack of control over expenditures.
Methods of finding financial problems: KPI: This is the kinds of tools that is associated to concentration upon those activities
that are becoming the reason of more expenditure (Brown, Hopper and Maroun, 2015).
Through performing this, Q clothing company can identify those problems that outcomes
into enhanced expenditure. So , with the help of this tools they can able to resolve the
problems of enhanced expenses. Benchmarking: This is defined as the tool of comparing monetary as well as non
monetary aspects of company. As in the above, Q clothing company is facing the
financial problems of low sales so with the assistance of this they can able to measure
their performance and try to resolve them.
Basis Q clothing company PC clothing limited
Financial
problems
Respective organisation is facing
the financial problems of low
sales which outcomes in reducing
incomes at the year end.
It is dealing with the financial
problems of enhances expenditures
into present year. Because of it, they
do not perform its another business
activities.
Methods to
reduce financial
problems
It is applying benchmarking tools
for identifying the exact financial
problems. As with the aids of
this, they can able to compare its
sales with other firm's sales
(Libby and Salterio, 2017).
It is utilising KPI for knowing exact
financial problems. As with the
assistance of this, respective company
can concentrate upon the activities that
are the main cause of enhancing
expenses of whole operative activities.
Management
accounting
system
For resoling the financial
problems, they are utilising the
price optimisation system. As
This particular organisation used the
cost accounting system. As this guide
the finance department to assign fund
16
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this aids them to set the effective
price of cloths which is
appropriate for clients. Through
doing this, Q clothing company
can enhance its sales along with
revenue.
efficaciously. Also through using this,
they can minimises its useless
expenses and solved their financial
problems.
CONCLUSION
As per the above report, it have been concluded that management accounting is plays
crucial role in organisation as this help them to manager all financial reports, information and
others effectively and efficiently. There are some management accounting system such as cost,
tax etc. which assist them to set price and so on. Moreover, there are few management
accounting report like inventory, cost accounting and may others aids them in making decisions
in effective and efficient manner.
17
price of cloths which is
appropriate for clients. Through
doing this, Q clothing company
can enhance its sales along with
revenue.
efficaciously. Also through using this,
they can minimises its useless
expenses and solved their financial
problems.
CONCLUSION
As per the above report, it have been concluded that management accounting is plays
crucial role in organisation as this help them to manager all financial reports, information and
others effectively and efficiently. There are some management accounting system such as cost,
tax etc. which assist them to set price and so on. Moreover, there are few management
accounting report like inventory, cost accounting and may others aids them in making decisions
in effective and efficient manner.
17
REFERENCES
Books and Journals
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and
Society. 38(1). pp.50-71.
Kihn, L. A. and Ihantola, E. M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting & Management. 12(3).
pp.230-255.
Kihn, L. A. and Ihantola, E. M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting &
Management. 12(3). pp.230-255.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Hanif, H., Rakhman, A. and Nurkholis, M., 2019. The Construction of Entrepreneurial
Accounting: Evidence from Indonesia. Reference to this paper should be made as
follows: Hanif, H. pp.104-117.
Zvezdov, D. and Schaltegger, S., 2015. Decision support through carbon management
accounting—A framework-based literature review. In Corporate carbon and climate
accounting(pp. 27-44). Springer, Cham.
Luft, J., 2016. Cooperation and competition among employees: Experimental evidence on the
role of management control systems. Management Accounting Research. 31. pp.75-85.
Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure
requirements and the standardization of accounting practices on earnings management
through the reserve for income taxes. Review of Accounting Studies. 20(1). pp.436-469.
Brown, J., Dillard, J., Hopper, T., Atkins, J., Atkins, B.C., Thomson, I. and Maroun, W., 2015.
“Good” news from nowhere: imagining utopian sustainable accounting. Accounting,
Auditing & Accountability Journal.
Libby, T. and Salterio, S. E., 2017. Deception in Management Accounting Experimental
Research:" A Tricky Issue" Revisited. Journal of Management Accounting Research.
Aouni, B., McGillis, S. and Abdulkarim, M .E., 2017. Goal programming model for management
accounting and auditing: a new typology. Annals of Operations Research. 251(1-2).
pp.41-54.
Vann, C .E., 2016. Strategic benefits of integrating the managerial accounting function with
supply chain management. Journal of Corporate Accounting & Finance. 27(3). pp.21-
30.
Arunruangsirilert, T. and Chonglerttham, S., 2017. Effect of corporate governance characteristics
on strategic management accounting in Thailand. Asian Review of Accounting. 25(1).
pp.85-105.
18
Books and Journals
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and
Society. 38(1). pp.50-71.
Kihn, L. A. and Ihantola, E. M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting & Management. 12(3).
pp.230-255.
Kihn, L. A. and Ihantola, E. M., 2015. Approaches to validation and evaluation in qualitative
studies of management accounting. Qualitative Research in Accounting &
Management. 12(3). pp.230-255.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Hanif, H., Rakhman, A. and Nurkholis, M., 2019. The Construction of Entrepreneurial
Accounting: Evidence from Indonesia. Reference to this paper should be made as
follows: Hanif, H. pp.104-117.
Zvezdov, D. and Schaltegger, S., 2015. Decision support through carbon management
accounting—A framework-based literature review. In Corporate carbon and climate
accounting(pp. 27-44). Springer, Cham.
Luft, J., 2016. Cooperation and competition among employees: Experimental evidence on the
role of management control systems. Management Accounting Research. 31. pp.75-85.
Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure
requirements and the standardization of accounting practices on earnings management
through the reserve for income taxes. Review of Accounting Studies. 20(1). pp.436-469.
Brown, J., Dillard, J., Hopper, T., Atkins, J., Atkins, B.C., Thomson, I. and Maroun, W., 2015.
“Good” news from nowhere: imagining utopian sustainable accounting. Accounting,
Auditing & Accountability Journal.
Libby, T. and Salterio, S. E., 2017. Deception in Management Accounting Experimental
Research:" A Tricky Issue" Revisited. Journal of Management Accounting Research.
Aouni, B., McGillis, S. and Abdulkarim, M .E., 2017. Goal programming model for management
accounting and auditing: a new typology. Annals of Operations Research. 251(1-2).
pp.41-54.
Vann, C .E., 2016. Strategic benefits of integrating the managerial accounting function with
supply chain management. Journal of Corporate Accounting & Finance. 27(3). pp.21-
30.
Arunruangsirilert, T. and Chonglerttham, S., 2017. Effect of corporate governance characteristics
on strategic management accounting in Thailand. Asian Review of Accounting. 25(1).
pp.85-105.
18
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