Management Accounting and Its Methods : Assignment
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Added on 2020-01-16
Management Accounting and Its Methods : Assignment
Added on 2020-01-16
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Management Accounting
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1P1 Management Accounting and essential requirements of different types of managementaccounting systems......................................................................................................................1M1 Benefits of management accounting systems.......................................................................3P2 Different methods used for management accounting reporting.............................................4D1 Integration of management accounting systems and reporting with organisationalprocesses.....................................................................................................................................4TASK 2............................................................................................................................................4P3 Preparation of income statements..........................................................................................4M 2..............................................................................................................................................7D 2...............................................................................................................................................7TASK 3............................................................................................................................................7P3 Advantages and disadvantages of different types of planning tools......................................7P5 Compare how organisation can manage their results and performances with accountingmanagement system..................................................................................................................13CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................17
INTRODUCTIONThe process of analysing, interpretation and presentation of information related toaccounting is known as management accounting. This information is gathered using costing andaccounting information and it helps the management in making decision for short term period orday-to-day operations. The management accounts and reports are very useful for the managers indecision-making, formulation of various policies and regulation of commercial activities ofbusiness (Cullen and Whelan, 2011). This report provides several relevant information includingamount of cash available, position of accounts receivable and payable, number of orders in hand,outstanding debt, inventory, revenue generated from sales, raw materials and variance charts,statistics, trend charts and like. The process of management accounting involves measurement ofperformance, assessment of risk, preparation and presentation of financial statements to themanagement. The present assignment provides a detailed understanding of managementaccounting and different methods used for its reporting in R. L. Maynard Ltd. The company isbasically engaged in the business of construction and development of property. Further, thereport focuses on preparation of income statements on the basis of marginal and absorptioncosting method and the reason of difference between the two methods. Lastly, the study focuseson the use of management accounting system by R. L. Maynard for responding to financialproblems. TASK 1P1 Management Accounting and essential requirements of different types of managementaccounting systemsThe process of analysing, interpretation and presentation of information related toaccounting is known as management accounting. This information is gathered using costing andaccounting information and it helps the management in making decision for short term period orday-to-day operations. The process of management accounting involves measurement ofperformance, assessment of risk, preparation and presentation of financial statements to themanagement (ter Bogt and van Helden, 2012). It encapsulates the three major aspects of abusiness – management, accounts and finance. The management report projects all kinds ofinformation in relation to business strategies, financial status of the organisation which assists themanagement of R. L. Maynard Ltd. to ascertain performance of business and make correctivedecisions wherever needed. 1
There are different types of management accounting systems that can be used by anorganisation for collection and presentation of financial and statistical information. The citedorganisation uses different systems of management accounting that helps it to carry out theactivities of construction and development effectively (Burritt and Schaltegger, 2010). It takesinto consideration several factors such as cost of production related to the goods produced andservices provided by R. L. Maynard Ltd. The management accounting systems used by the citedorganisation are described below :Traditional cost accounting system : This method is also known as conventionalmethod of accounting. All direct and indirect costs are considered in traditionalaccounting system and it highlights the cause and effect relationship. The costs incurredin the production are allocated to the product produced and indirect costs are assigned tothe unit of production which are incurred in the production process. The basis of thisaccounting system is volume of units of production, overheads related to production anddirect labour overheads (Cadez and Guilding, 2012). As per traditional costing, averageoverhead rate is the basis of allocation of costs of a product. All the indirect expendituresare pooled together and assigned equally on the basis of an appropriate cost driver whichmay be direct labour hours, machine hours and direct material hours. Throughput accounting : Throughput can be defined as the quantity of product or rawmaterial which is passed through a process or system. Throughput accounting inmanagement accounting system is mainly determined as a costing activity. The mainreason behind this is that the focus is on determination of constraints which arises duringmanufacturing of units. These constraints may be in relation to labour turnover, rawmaterials, wastage in capacity of plant etc. Basically, this method focuses on eliminationof all such constraints and insists more throughputs in order to ensure that the quantityand quality of production is enhanced. In throughput costing, only direct materials areallocated to the costs of inventory while all other manufacturing costs including variablefactory overheads and direct labour are treated as period costs (Englund and Gerdin,2011). Selling and distribution overheads are also charged as period costs under thismethod. This method ensures that costings are minimised for each units produced. Itenables in effective and efficient production while working in line with job and processcosting.2
Lean accounting : It is a new concept in the field of management accounting whichdiffers from other accounting systems. Under conventional method of costing, the focusis mainly on the allocation of costs that are incurred in the process of production but leanaccounting focuses on reducing of costs by maintaining control over the wastages whichare caused in the production process. Various tactical methods are combined under thistechnique which emphasizes on elimination of non value added activities (wastes) andenables R. L. Maynard Ltd. to offer quality products on time. It involves value streamingassessment, measurement of profits and decision-making by the assigned officers(Morales and Lambert, 2013). Any excess costs are cut down with the help ofinformation provided by above mentioned categories. The main benefits of leanaccounting are – increase in revenue generated through sales due to reduction ofwastages, enhancing the capacity of plants as reducing the capacity utilised in thegeneration of waste materials, cost step down helps in saving money etc. Transfer pricing : Transfer pricing is generated when the goods are transferred from onedepartment to other or from one process to other or from holding company to itssubsidiary. Whenever the goods are transferred or shifted from one place to another, itleads to generation of some extra costs due to such transfer.M1 Benefits of management accounting systemsTraditional cost accounting system : R.L. Maynard Ltd. uses this method as ittakes into account cause and effect relationship and it enables managers to makeappropriate decisions as all direct and indirect costs are considered.Throughput accounting : This method ensures that the constraints of the citedfirm are minimised for each units produced (Cullen and Whelan, 2011). It enablesin effective and efficient production while working in line with job and processcosting.Lean accounting : The main benefits of lean accounting for R.L. Maynard Ltd.are – increase in revenue generated through sales due to reduction of wastages,enhancing the capacity of plants as reducing the capacity utilised in the generationof waste materials, cost step down helps in saving money etc. 3
Transfer pricing : Transfer pricing includes price of shifting and opportunity pricewhich includes the amount that is borne by R. L. Maynard Ltd. in outsourcing ofgoods and services outside the organisation.P2 Different methods used for management accounting reportingManagement accounting is the process of preparation of management reports andaccounts that assists the managers in providing accurate and timely information regardingfinancial status and strategies of business which help them in decision-making. R. L. MaynardLtd. several methods for management accounting reporting which are explained here under :Cost reports : The procedure of providing information related to the costs to themanagers that enables the management in controlling the future costs is known as costaccounting (Burritt and Schaltegger, 2010). The cost is computed on the basis of costs ofraw materials, labour, overheads and any other additional costs. To arrive at cost per unit,the total costs incurred in the production is divided by the number of units produced. Costreports summarizes all the above information and assist managers in ascertaining the unitcost of manufactured products and provide internal report system.Budget : Budgets are prepared as an internal part that enables the managers to comparethe actual results of an organisation with the estimated ones and measure the performancelevel over a specified period. Performance reports : The performance report summarizes the differences projected inthe budgets and help managers in preparation of new budgets.D1 Integration of management accounting systems and reporting with organisational processesManagement accounting systems and management accounting reporting are closely interlinked and dependent on each other (Malmi, 2010). The preparation of management reports isnot possible without the systems and the system would lose its utility if the timely and accuratereports are not provided to the managers for decision-making. Thus, it is imperative to integratethe management accounting system and reporting with the operations of R.L. Maynard Ltd. toensure that the organisational goals are achieved.TASK 2P3 Preparation of income statementsTable: 1 Income statement for marginal costing4
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