Management Accounting and Business Performance

This assignment delves into the relationship between management accounting and business performance within the context of Zylla Company. Students are tasked with analyzing Zylla's financial data, identifying key performance indicators (KPIs), and evaluating how management accounting practices contribute to achieving the company's strategic objectives. The analysis should consider various aspects of management accounting, including cost control, budgeting, performance measurement, and decision-making processes.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1: Understanding of management accounting systems........................................................1
P1 Management accounting and essential requirements of various types of management
accounting system..................................................................................................................1
P2 Different methods applied for management accounting reporting....................................2
TASK 2............................................................................................................................................3
P3 Calculating cost is appropriate tools and techniques in making income statements.........3
TASK 3............................................................................................................................................6
P4. Various kinds of planning tools and budgetary control system.......................................6
TASK 4............................................................................................................................................8
P5 Comparing organisation adapting management accounting systems to respond to financial
problems.................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
The main objective of this report is to determine management accounting fundamentals
that are applied to the business environment as well as the corporations that are operated in that
environment. The report will also identify how management accounting uses financial data or
information in planning decision, monitoring and managing finance in Zylla Company or
business. The report will determine advantages and disadvantages of different types of planning
tools used in controlling budget. Furthermore, the report will also compare Zylla Company is
adapting management accounting systems to respond various financial issues or problems in an
organisation.
TASK 1: Understanding of management accounting systems.
P1 Management accounting and essential requirements of various types of management
accounting system
Management accounting refers to the procedure of identifying, measuring, interpreting,
communicating financial data or information in the achievement of the business goals and
objectives. It is also referred to us a cost accounting, the major difference between management
accounting and financial accounting is that information of management accounting helps
managers in a company to make effective decisions, on the other hand financial accounting is
aimed at providing data or information to the external parties of a company or organization. The
process of preparing management reports or accounts provides accurate and timely financial as
well as statistical information required by managers in establishing day to day decisions. It
consists reports that are developed in order to meet the needs of the management. Management
accounting systems differs in their applications, each and every system is designed for providing
different managerial information on the basis of management needs which helps in making
decisions. There are various kinds of managing accounting systems which are applied in an
organisation. However, all types of accounting systems help in achieving a common objective
and assist in analysing, identifying and communicating financial data in an organisation. The
different types of accounting systems are described as below -
 Cost accounting system – The cost accounting system is a framework applied by an
organisation to analyse the cost of its products to analyse profit, cost control and
inventory valuation. Cost accounting is known as the most essential concept in
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management accounting as it provides the analytical tools like marginal costing,
budgetary-control, operating costing, standard costing and inventory control.
 Inventory management – Inventory management refers to the technique of overseeing
and controlling the use, ordering and storage of elements which are applied by an
organisation in the production of the goods it offers. There are many functions of
inventory management such as developing purchase order, receiving, adjusting,
reallocating and disposing inventory. This management accounting system assist an
organisation to improve company workflow and enhance inventory accuracy (Fullerton,
Kennedy and Widener, 2017).
 Job costing system – The job costing system refers to the system of allocating
production costs to the individual batches or item of goods. The job costing system needs
accumulating three types of direct information such as labour overhead and direct
material.
 Price optimisation system – It refers to the application of statistical analysis to the
organisation or business in order to determine consumer reaction on different price for
their products and services.
 Utilisation of data – Management accounting information provides data impelled look
at how to develop an effective organisation. The accounting data or information helps in
calculating day to day expenses such as operating cost, hence collecting, measuring and
analysing this data is essential.
 Variable costing – As per the Generally accepted accounting principles, every single
cost of manufacturing products should be mentioned and recorded in the books of
account in an organisation. It assists in identifying the variable cost of production or
operation which is very essential to be determined n order to maintain an effective flow
of finance or money ion a company (Renz and Herman, 2017).
P2 Different methods applied for management accounting reporting
Management accounting is very much essential in order to have a look into concept that
there are many operations which organization need to precede as per the budget and actual
expenditure which business is having. Management accounting focuses on internal data and
information received through financial accounting. Management accounting is applied for
planning, controlling and making decisions. Managerial accountants depends upon financial
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statements consisting income statement, balance sheet and cash flow statement. The various
methods applied for reporting management accounting can be described as below -
1. Budgets – One of the major component of management accounting is preparing budgets,
Budgets are created by applying budgets of previous year and adjusting them to forecast
future. The budgets of an organisation includes all the revenues sources and expenses,
the company tries to achieve its goals and objectives staying within the budgeted amount.
2. Cost reports – Management accounting analyse or calculate the cost of products
produced. It is done by adding all the costs, raw product overhead, labour and extra cost
in consideration. The sum is then divided into amounts of products manufactured. All the
information or data is compacted in the cost report. This report allows managers to
identify and view the cost value of goods with respect to their selling price. It also helps
managers to plan and control profit margin.
3. Performance report – Management accountants apply budgets to compare expenses and
actual revenues to the budgeted amounts. The differences identified are analysed and
evaluated when shaping or designing new budgets and all data concerned to amounts is
listed within the performance report. These reports are computed every year, but some
organisations developed them monthly or quarterly. This report helps managers to plan
for the upcoming demand s in cost increment and production (Schaltegger and Burritt,
2016).
4. Accounts receivable ageing report – There are huge number of debtors of an
organization like the customers or clients who are yet to pay money to a company or
business. It can be delay in payment or any other issue which becomes a barrier I
payment of a product, services or an order. All these types of dents are recorded in this
type of report so that the organisation can identify the money or revenue yet to be
received.
TASK 2
P3 Calculating cost is appropriate tools and techniques in making income statements.
Marginal costing-
Marginal costing technique would not be including any kind of fixed overheads or cost
as it should be including only variable cost (Cooper, Ezzamel and Qu, 2017). Marginal costing is
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not regarded to as correct method of calculating cost or income as it would not be involving all
type of costing so method is not regarded to as appropriate.
PARTICULARS AMOUNT
cost for one unit (5+8+2= 15)
Sales revenue (1,500 x £35) 52500
cost of sale
production (2,000 x 15) 30000
closing stock (500 x 15) -7500
-22500
contribution 30000
Less: actual fixed overhead cost -15000
profit before distribution cost 15000
distribution costs
fixed cost 10000
variable cost (15% x 52,500) -17875
Loss for the year -2875
Interpretation
This type of costing technique would be including only variable overhead or expense at
the time of calculating income and loss of Zylla Company. In the above table which is showing
income or expense of Zylla Company for the month end of January 2018. After the table is
completed it is depicting that company is having loss for that time of -2875. As there are things
which are to be included within this like company is having sales of about 1500 units which was
sold at £35 and the total sales revenue would be equal to 52500. At the point when cost of sales
and production is been taken out which is of 30000 as the production contribution. Only profits
before distribution cost would be included within this which is about 15000 then variable cost
which is 15% of total sales revenue of 52500 so this comes to -17875. So with the help of this
company is having loss of about -2875.
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Absorption costing-
Under this method which is just opposite of marginal costing which is including all types
of overhead cost. Both variable and fixed cost are to be included within this method so the actual
profit or loss which is to be coming need to be correct and accurate as well. Absorption costing
is correct method used to identify profit and loss of company (Ax and Greve, 2017). So both
indirect and direct methods are to be used under this technique so that cost of firm could be
analysed.
PARTICULARS Amount
Sales revenue (1,500 x £35) 52500
Cost of sale
opening stock 0
production (2000 x 20) 40000
Less: closing stock (500 x20) 10000
-30000
Gross profit 22500
check for over/under charging
charged (2000 x£5) 10000
actual overhead cost 15000
5000
distribution costs -17500
fixed cost 10000
variable cost (15% x 52,500) -17875
Loss for the period -375
Interpretation
On basis of the above listed table of income statement which is based on methods
absorption costing techniques. Thus Zylla Company was taking out sales revenue from sales per
unit of around 1500 and cost of 35 bring out sales to about 52500. Through this process also
company was having loss to around -375 which is the actual and correct loss as both variable
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and fixed cost to be included within this method. Thus it is regarded to company should be using
this absorption technique only which would be helping them to come with appropriate results
and company could be enhancing their operational activities. Zylla Company in order to
maintain maximum amount of profits need to include this absorption costing techniques so that
results would be generated.
All the management accounting techniques would be including firm to analyse the
financial profitability and maximising profits which company is earning (MITCHELL and
NØRREKLIT, 2017). On the bases of both marginal and absorption costing techniques income
was calculated which is showing or depicting profit or loss of company.
TASK 3
P4. Various kinds of planning tools and budgetary control system
Budgets is that proposal plan for company which is enabling firm to use all sources of
funds for that specified period of time so that they would be able to make assumptions of price
and profits of firm. This is very much important for company to implement use of correct
budgetary system so that they are to determine what profits they could made. All budgets would
be as per long or short run goal or objective of firm which is according to financial position and
cash flow statements as well. There are mainly two types of budget one is master and another
one is capital both of them are been prepared by company on bases of specified period of time.
Master budget-
This is the long term budget which is been prepared over certain time period and it would
be including all types of budget prepared by different departments like production or marketing
(Nielsen and Kristensen, 2017). All overheads and expenses are to be included like direct labour,
material and expense as well this would be involved under production department of firm. So all
budgets which are prepared by each of the departments would be called off and included to as
one master budget.
Capital budgets-
This type of budget would be related to only flow of capital both inflow and outflow
which is prepared in keeping into account all expenditure and income in respect to investments
made by firm.
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There are many techniques which are to be included within capital budgeting like that of
accounting rate of return and payback period method. Both of them are having their own
advantages and disadvantages which is included like that of:
Payback period-
If company is making any kind of investment in any project of certain amount then in
how much time the investment would be coming back for company (Tyagi, 2017). The time
which is taken by company the amount of cash inflow from the total amount which is invested
should be equal to cash outflow which is expressed in one year. Under this type of budgeting
control method how much time it would be taken to pay back the cost of project. All the project
which is not to be included within this payback period would not be included by company as
that would be exceeding the expected period.
Advantages of payback period method
 The method is very easy to calculate and person could be easily understanding this
method.
 The method is not incorporating any type of accounting profits as only focus is on flow
of cash over that period.
 This technique would also be used as eliminating stage of projects which is not to be
used or applied as well.
 In case of short terms project of firm both the important factor of business and financial
risk would be incorporated or used in this type of method (Lachmann, Trapp and Trapp,
2017).
 At the time of those projects which are giving or generating huge amount of additional
cash is also good as this would be having capital rationing in this situation.
Disadvantage of payback period
 The time which is taken in this type of method is clearly been ignored as only amount
which is invested should be coming back to company with tracking any time of that.
 After the end of the project all cash flow and total amount returned would be ignored.
 If two projects are having same payback period then it becomes impossible for company
to compare them both.
Accounting rate of return
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Comparable to Payback period method this type of method is been used to analyse the
amount of return which is been generated by particular investment during the period of time.
This is a financial ratio which is helping company to calculate the return generated from amount
invested or net income without taking any time value of money and this is calculated on
percentage bases (Honggowati and et.al, 2017). This is also called to as Return on Capital
Employed (ROCE) which is estimating the rate at which project is yielding out money on yearly
bases.
If the rate of return would be exceeding the targeted one then that project is regarded to
as profitable and would be used or accepted as well. It is also having some merits and demerits
like that of:
Merit of ARR
 The method or technique would be regarded to as easy and simple to use or apply.
 Under this method whole project life would be included as return is based on overall
bases.
Demerit of ARR
 As this concept is not including any amount of cash flow from overall project and only
based on accounting profits which are having many different types of correct actions to
be taken (Askarany and Yazdifar, 2017).
 The length or duration till which project would be lasting is not been included in this
ARR.
TASK 4
P5 Comparing organisation adapting management accounting systems to respond to financial
problems
For surviving in profitable situation for any business there are numbers of issues
problems and obstacles that means trouble in work, are generated and from these obstacles
business is affected. Obstacles made a wrong image of that organisation. So it is compulsory to
avoid them or make the remedies of such type of issues in a proper manner (Covaleski, Dirsmith
and Samuel, 2017). So that Zylla, a company faces financial obstacles and work against this and
boost up its financial conditions. The present section is work on financial problems that causes
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reduce profit and revenue, declining return on investment, increasing cost and expenses. Further
management of Zylla is determining various systems of management accounting in order to
make better the workplace with reducing these types of issues.
In addition, these all systems or methods are determined under-
Financial Governance– for solving all the financial related problems, some part of corporate
governance are help within the work place of Zylla is called Financial Governance. It applies for
showing that how to use financial resources by employees of organisation. Possible solutions
made by utilising various effective techniques only when if outcome are not desired. From use
of this method problems related to can be easily solve out and performance of Zylla is to be
improve.
Balance Scorecard– in the industry it is one of the best technique for assessing business
performance. Next, it consists of basically four functions these are financial, customer, learning
and growth as well as growth. By utilising the first most effective technique, Zylla calculate
various financial aspects and on the basis of that it finds that how's going performance well or
not (Nguyen, 2018). If any problem occurred then it must be clear by BSC technique.
Variance Analysis– a different approach of management accounting is to determine variance
analysis. In this technique budgeted and real data both are compared with each other. In Zylla
capable to achieve forecasted information then it can say that business is performed in well
condition in their industry. On other side if objectives are not get then proper action will be used
for improve the results and reached the better position in their respective sector
CONCLUSION
Arranged the base of directly above report, it can be decided that here has been
assessment of numerous costing and budgeting methods. Various reporting methods and the
performance appraisals existed and appraised which in turn show to be obliging for Zylla
Company executives to make all the pertinent evidence which are upsetting working enactment
of commercial. More, there have been calculations which are relevant with the marginal and an
absorption costing system which in turn characterises that absorption costing will be helpful for
managers as it carries the maximum suitable consequences. Afterward the procedure the
preparation tools then they will simply be employment in resolving the monetary difficulties to
withstand in the marketplace in addition for the accomplishment of Zylla Company. The
application will formerly be controlled by the advanced authority to see that around is no
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consumption of the capitals of the firm. If the firm is intelligent to resolve the problem of all the
fiscal matter. The maintainable accomplishment of business is also very significant. If the firm
essential to revenue out the income of year then they will commercial performance in Zylla
Company.
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REFERENCES
Books and Journals
Askarany, D. and Yazdifar, H., 2017. Management accounting and the shortcomings of current
performance measurement systems.
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.59-74.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-
1025.
Covaleski, M.A., Dirsmith, M.W. and Samuel, S., 2017. Analysing and interpreting qualitative
data in management accounting research. The Routledge Companion to Qualitative
Accounting Research Methods, p.387.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2017. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.Journal
of Operations Management, 32(7-8), pp.414-428.
Honggowati, S. and et.al, 2017. Corporate governance and strategic management accounting
disclosure. Indonesian Journal of Sustainability Accounting and Management.1(1). pp.23-
30.
Lachmann, M., Trapp, I. and Trapp, R., 2017. Diversity and validity in positivist management
accounting research—A longitudinal perspective over four decades. Management
Accounting Research.34. pp.42-58.
MITCHELL, F. and NØRREKLIT, H., 2017. Introduction. In A Philosophy of Management
Accounting (pp. 15-34). Routledge.
Nguyen, N.P., 2018. Performance implication of market orientation and use of management
accounting systems: The moderating role of accountants’ participation in strategic decision
Nielsen, H. and Kristensen, T.B., 2017. Lean and management accounting: Survey evidence of
the roles of finance functions. In 9TH CONFERENCE ON PERFORMANCE
MEASUREMENT AND MANAGEMENT CONTROL.
Renz, D.O. and Herman, R.D. eds., 2017. The Jossey-Bass handbook of nonprofit leadership and
management. John Wiley & Sons.
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