P(50) Management Accounting

Business

Management Accounting

Table of Contents
INTRODUCTION......................................................................................................................3
TASK1.......................................................................................................................................3
1 Management accounting and difference between same and finance accounting................3
ii)The importance of management accounting information as decision making tool for
department managers.............................................................................................................4
b) Explanation on Different types of management accounting system..................................5
TASK 3......................................................................................................................................9
a. Different types of budget along with their benefits and drawbacks...................................9
b. Stating the process of preparing budget...........................................................................10
c. Pricing strategies..............................................................................................................11
TASK 4....................................................................................................................................12
4.1 Define balance score card approach and implementation of same................................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................15

INTRODUCTION
In the present landscape, business unit focuses on employing management accounting
system for making improvement in the internal growth and performance. Marginal,
absorption and standard costing, budgeting, variance analysis is the most effectual tools that
assist manager in strategic planning. It enables manager to make continuous monitoring of
business performance and provides indication to firm take suitable action within the specified
time frame. In this way, system of management accounting helps firm in achieving the goals
and objectives to the significant level. The present report is based on the case situation of
Imda Tech. Such business unit offers mobile charger and other electronic gazettes to the
customers at suitable prices. The main objective of such assignment is to highlight the
importance of tools and technique that management accounting system contains. Further,
report will develop understanding about the extent to which balance scorecard is aligned with
the organizational goals and objectives.
TASK1
1 Management accounting and difference between same and finance accounting
Management accounting is the domain which is used to record expenses that are
incurred in the business. There are number of tool s of the management accounting like
variance analysis and budget etc. There is a great significance of the management accounting
for the business firms because by using same cost related decisions are taken by the
managers. There is a huge difference between management and finance accounting. The
domain in respect to which both are used is different. Management accounting is used to
make cost related decisions or it can be said that it is used for costing of product (Zimmerman
and Yahya-Zadeh, 2011). On other hand, finance accounting is used to record the expenses
that are related to business operations that are not related to the production operations.
Management accounting is used to keep track record of the production related expenses that
are increasing of decreasing over a period of time. On other hand, financial accounting is
used to keep track record of indirect expenses like sales and distribution expenses. It must be
noted that in management accounting data that is generated through financial accounting is
not taken in to account. Contrary to this, in the financial accounting production related
expenses are taken in to account. This reflects that there is a huge importance of the

management accounting for the managers. In terms of use also management and financial
accounting are different from each other. Management accounting is used to measure firm
performance in respect to effective use of resources in the business (Macintosh and
Quattrone, 2010). Contrary to this, in case of financial accounting performance of business
firm in terms of profitability is measured. Thus, in different manner performance of the firm
is measured in financial and management accounting.
ii)The importance of management accounting information as decision making tool for
department managers Cost control: Cost control is the one of the most important function of the
management accounting. Production department main aim is to control cost of the
manufacturing. It is the management accounting that helps managers in identifying
the areas where extravagance is made in the business. The information that is
provided by the management accounting has a significant importance for the
managers of the business firm. This is because on basis of same decisions are taken by
the managers. It can be said that there is a significant importance of management
accounting for the managers.
 Responsibility center: Responsibility center refers to the concept under which
managers are made accountable for the results that are coming in existence due to
performance of task from their side. Under responsibility center varied information
are created and on that basis performance of the managers is measured by the top
authority. It can be said that there is huge importance of the responsibility center for
the managers. Use of resources: There is a great importance of management accounting for the
production and HR department (Baldvinsdottir, Mitchell and Nørreklit, 2010). This is
because management accounting helps them in identifying the extent to which human
resources are used effectively in the workplace. Moreover, by using management
accounting productivity of employees is also measured that works in different
departments. Hence, it can be said that there is huge importance of management
accounting for the managers because on the basis of same varied decisions are made
by them in respect to use of employees in the business. Inventory control: Inventory control refers to the process under which level of
inventory is tracked consistently by the managers. They identify the level up to which
order for purchase of raw material must be placed. Moreover, the extent to which

inventory is excessively stored in the warehouse is also identified on the basis of
management accounting information. On the basis of available information inventory
related decisions are taken by the managers in their business (Ward, 2012). On time
order is placed and it is ensured that inventory cost will remain in control on the
business. Thus, it can be said that there is significant importance of the management
accounting information for the managers.
b) Explanation on Different types of management accounting system
 i) Cost accounting system- It is that type of cost accounting system that are used by
the company for the purpose of estimating cost of products to effectively
understanding of profitability analysis, control cost and inventory valuation. The cost
accounting system are those through which company can able to ascertained the
actual cost of goods which is more critical for business profits. It makes sure to the
company that which product gives them profits or not. It is only possible if the
organization ascertain actual or correct cost of the goods that are only when if they
adopt costing accounting (Klychova, Faskhutdinova and Sadrieva, 2014 ). Imda Tech
Limited adopts the cost accounting system by departments for the purpose of
enhancement of their reports. It prepared in various formats and the basic information
is summarized in different ways that helps in decision making. It will improve the
management reports that involve actual costing in that it record the actual material
cost, labor. The main benefits from actual system in which it only takes the original
cost that is incurred as it does not take any budgeted or standard amount. It is the
simplest method in that there is no need any preplanning of standard costing and it
takes actual cost that must be allocated and compiled. Thus, on the other side there is
a normal costing in which the component of material and labor are to be taken as an
actual cost. The accuracy of cost can be defines when there is a difference in standard
costing and actual cost. Thus, there is an another costing that is standard is the
establishment of estimated standard cost for some activities within the organization.
 ii)Inventory management system- Advancement in the technology due to which
there is an establishment of inventory management system that are adopted by most
the company. It is used for the purpose of manage all the financial and non-financial
information for the purpose of enhancing the management accounting reports. The
main feature of this system is that it track or keep all the record regard to company’s
day to day operations. Thus, it is used as a computer based system through which firm

track the stock levels, sales, orders and deliveries. It is also used by the manufacturing
company in which they develop a bills of material, production-related documents and
sales. Most of the firms used this accounting system software for the purpose of
ignoring the outdated stock level and goods overstock (Taipaleenmäki, 2014). It is
that tool for the purpose of managing the stock data which are earlier stored in into the
hard copy or in excel spread sheets. Therefore, it is highly made up of various
elements that all the people are work together develops a stock that are cohesive for
most companies system. The Imda Company adopts the stock management system for
the purpose of keep all the record regard to their day to day operations. Thus, it is
used as a computer based system through which firm track the stock levels, sales,
orders and deliveries. It is also used by the manufacturing company in which they
developed a bill of material, production-related documents and sales. Therefore
inventory accounting system software for the purpose of ignoring the outdated stock
level and goods overstock. In the modern time period all the stocks are to be prepared
through system application that are highly design to maintaining complex plans
regard to inventory plans. The cited company adopt the ERP system that are across
the all offices, departments, location, factories that help them in controlling the stock
levels, cost, wastage of resources and save time.
 iv) Job costing system- It is a that procedure in which the accumulating data regard
to cost are take which are associated with the service job. Thus, this information are
needed for the purpose of enter the information regard to cost to a client under which
the cost are reimbursed. These data is mainly used for the purpose of measuring the
company’s accuracy. It is also used by most of the organization for the purpose of
assigning the stock cost that are of manufactured products (Lowe and De Loo, 2014).
Imda limited used the job costing system in which they are capable of tracking the
material cost that are mainly used while during the job course. The Company can
tracking the cost of by the manual tracking of that particular material are on the
costing sheets. The data can be charging through the online terminals in the
storehouse and production department. Furthermore, the job costing system that are
used to tracking the cost regard to labor which are used on the job. Thus, if job is
related to the direct labor and services that are highly related to job cost. The cost of
labor is assign to the timesheet, punch lock, network time lock application on the
computer system. Thus, the data can be store in the mobile phones or over the
internet. Furthermore, the Company assign the overhead cost that are at the

accounting period and the cost amount can be assigned to the different jobs that are
highly based upon the allocation methodology.
TASK 2
I) Marginal costing method- It is that type of costing which shows that there is an
increase or decrease in the opportunity cost if there is an additional unit produces
within the company. The calculation purposes to determine the unit cost and
prepared the income statement by the management account. It does not consider
the all types of cost that are only variable cost are the variable overheads expenses
and variable selling, distribution and administration expenses. Therefore, at the
time of determining cost of goods sold it only consider direct material, labor,
variable production and overhead expenses. Thus , the cost of goods sold is
deducting from the sales revenues and after that variable total expensed are also
less to estimate the net profit.
Income statement for the 1 September 2010
Particulars
Amount
(£)
Amount(£
)
Sales value 52500
Less: Cost of Goods sold 37500
Gross profit 15000
Less: Variable expenses
Variable production overhead 7500
Variable administration
expenses 225
Total variable expenses 7725
Net profit 29775
I) Absorption costing method

The Absorption costing method in which it can be define as a full costing in that it takes all
type of expenses that are fixed and variable. Thus, at the time of calculating cost of goods
sold it takes direct material, labor, variable production, selling expenses and also take fixed
selling, administration expenses. Therefore, at the time of calculating they net profit in which
cost of goods sold, variable and fixed expenses are to be deducting from the sales revenue.
Income statement for the 1 September 2010
Particulars
Amount
(£)
Amount(£
)
Sales value 52500
Less: Cost of Goods sold 37500
Gross profit 15000
Less: Variable expenses
Variable production overhead 7500
Variable administration
expenses 225
Total variable expenses 7725
Less: Fixed expenses
Fixed production overhead 15000
Fixed administration expenses 10000
Total fixed expenses 5000
Net profit 24775
Interpretation
From the above table it has been interpreted that in table 1 there the Imda limited Company
adopt the marginal costing techniques in which the net profit is £29775. On contrast, they
adopt the Absorption costing techniques in that the net profit is £24775. Therefore, there is a
slightly difference among both the management net profit in which the marginal costing is
higher than the Absorption costing technique. The main reason behind this is that the
marginal costing does not considering all types of cost that are only variable cost are the
variable overheads expenses and variable selling, distribution and administration expenses.
Therefore, at the time of determining cost of goods sold it only consider direct material,

labor, variable production and overhead expenses. Thus , the cost of goods sold is deducting
from the sales revenues and after that variable total expensed are also less to estimate the net
profit.
There are several studies has been done over the management costing techniques in
which it has been investigated that Absorption costing is the best to prepared net profit. The
main reason behind this is that it takes all the type of cost that sold it takes direct material,
labor, variable production, selling expenses and also take fixed selling, administration
expenses
TASK 3
a. Different types of budget along with their benefits and drawbacks
Budget may be served as a financial expression of activities which business unit will
perform in the near future. It clearly entails sources of income and areas of expenses
pertaining to the specified time frame.
Incremental budgeting: In the case of incremental budgeting system managers
prepares financial framework by adding some percentage in the previous year budget. Hence,
Imda Tech can easily prepare such budget with the high level of ease and thereby would
become able to act accordingly.
Advantages
 Ease of preparation and implementation
 Assists in eliminating rivalry and builds value of equality among the departments
Disadvantages
Disconnect from reality is one of the major aspects which in turn affects the
significance of incremental budgeting system to a great extent (Rubin, 2016). Moreover,
funding requirement vary according to the market trend, customers expectations and
competitors framework.
Zero base budgeting: In such technique manager starts with zero based and prepare
financial plan according to best alternatives assessed for performing each activity.

Advantages
 Facilitates focused operations, lower cost and disciplined execution
 Ensure optimum allocation of funds according to the importance of activities
(Bogsnes, 2016)
Disadvantages
 Highly time intensive process
 It is highly difficult for the manager to justify each and every aspect of activity and
associated expenses.
Activity based budgeting
Advantages
 ABB technique assists in making optimum allocation of overhead on the basis of cost
driver
 Better planning and controlling the performance
Disadvantages
 In this, manager of the firm has to devote more time to develop competent financial
framework.
 Business entity has to organize training for developing understanding among the
personnel regarding such budgeting system (Baiocchi and Ganuza, 2014). This in turn
imposes high cost in front of firm.
b. Stating the process of preparing budget
 Defining goals and objectives: In the first step, manager of Imda Tech makes
assessment of goals and objectives. Moreover, financial framework is highly aligned
with the organizational aims and objectives.
 Analyzing activities: Once goals have been evaluated thereafter manager makes
assessment of activities which needs to undertake for ensuring smooth functioning of
operations. Hence, at this stage manager identifies the fund requires for incurring
material, labor and overhead expenses.
 Preparing budget: In this, manager makes estimation of sales revenue and other
income level or aspect. Hence, budget is prepared by higher authority through the

means of proper allocation of income and expenditure. In this third stage, managers
prepares budget and send it for final approval.
 Evaluating variances: To monitor the performance manager makes comparison of
actual performance in against to the standard aspects (Holston, Issarny and Parra,
2016). Hence, such assessment or evaluation helps manager in identify the department
which fails to perform in accordance with the budgeting framework.
 Taking corrective measure or action: In the last stage of budget preparation, manager
makes efforts to assess the causes of deviations. By evaluating this, manager would
become able to undertake suitable measure timely. For instance: By making
assessment manager of Imda tech has been identified that labor variance occurred
because employees failed to perform activities in an effectual way. Hence, by
organizing training session as well as conducting workshops business unit can motive
personnel and thereby raise their efficiency level.
Hence, by following the above mentioned steps firm can develop suitable budget and
become able to carry out activities in the best possible way.
c. Pricing strategies
There are several kinds of pricing strategies that Imda Tech can undertake to
determine the suitable price of chargers and electronic gazettes is enumerated below:
 Cost-plus pricing strategy: In accordance with such strategy by adding gross margin
in the cost per unit Imda Tech can set suitable price of charger. Hence, by following
the below mentioned formula firm can determine cost of per or each charger is
enumerated below:
Cost per unit = Total cost / Number of chargers manufactured
Price per charger = Cost + (Cost per unit * gross margin%)
 Penetration pricing strategy: It entails that business unit should set lower price of the
products offers on initial level (Pricing strategies, 2017). Once, loyalty has been built
towards the brand then company would become able to charge higher prices for the
products offered. Hence, such pricing strategy helps company in getting benefits in
long run.

 Skimming strategy: According to such pricing strategy, business entity sets higher
prices of the product. However, by using such strategy firm can attains success for
short duration.
 Competitive pricing: This pricing tactic implies that business should set price after
making evaluation of competitor’s framework. Usually, customers compare price with
the quality of the products offered. Hence, by making evaluation of competitors
strategy Imda tech can set price and thereby would become able to attract large
number of customers.
On the basis of above mentioned analysis, it is suggested to Imda Tech to undertake either
competitive or penetration pricing strategy. Hence, by making selection of suitable pricing
tactic firm can offer charger and other equipments at effectual price level.
TASK 4
4.1 Define balance score card approach and implementation of same
Balance score card is the approach under which performance of the business is
evaluated. There are four components of the balanced score card namely financial, customer,
internal business process and learning as well as growth perspective. There is a significant
importance of the balance score approach for the managers because by using same
performance of the firm in different areas is measured by the managers. In order to
implement same in the business varied sort of data is collected by the managers in the
business. By using relevant data performance of the firm is measured on different
parameters. It can be used to great extent to identify and respond to financial problem and
under this data related to sales in the domestic and international market can be collected.
Apart from this data related to investment can also be collected. Values will reflect whether
firm give good performance or bad in its business. Accordingly strategy can be prepared to
respond to financial problems (Zimmerman and Yahya-Zadeh, 2011). It can also be used to
improve financial governance and strategy development. Under this separate rules and
regulations can be prepared and it can be identified whether according to related rules and
regulations all finance related activities are performed by the business firm. By collecting
relevant information and putting same in KPI decisions can be made in respect to
effectiveness of financial governance at the workplace. Strategy can be formulated and under
this roles and responsibility as well as accountability of relevant employees can be clearly

defined. By doing so it can be ensured that corporate governance will be implementing
effectively in the firm.
CONCLUSION
Summarizing the whole report it has been concluded that on employing management
accounting system for making improvement in the internal growth and performance.
Marginal, absorption and standard costing, budgeting, variance analysis is the most effectual
tools that assist manager in strategic planning. It enables manager to make continuous
monitoring of business performance and provides indication to firm take suitable action
within the specified time frame. In this way, system of management accounting helps firm in
achieving the goals and objectives to the significant level. . Imda Tech Limited adopts the
cost accounting system by departments for the purpose of enhancement of their reports. It
prepared in various formats and the basic information is summarized in different ways that
helps in decision making. It will improve the management reports that involve actual costing
in that it record the actual material cost, labour. The main benefits from actual system in
which it only takes the original cost that is incurred as it does not take any budgeted or
standard amount. It is the simplest method in that there is no need any preplanning of
standard costing and it takes actual cost that must be allocated and compiled. Thus, on the
other side there is a normal costing in which the component of material and labour are to be
taken as an actual cost. It has been also analyzed that Management accounting is the domain
which is used to record expenses that are incurred in the business. There are number of tool s
of the management accounting like variance analysis and budget etc. There is a great
significance of the management accounting for the business firms because by using same cost
related decisions are taken by the managers. There is a huge difference between management
and finance accounting. The domain in respect to which both are used is different.
Management accounting is used to make cost related decisions or it can be said that it is used
for costing of product. It has been also analyzed that There are several studies has been done
over the management costing techniques in which it has been investigated that Absorption
costing is the best to prepared net profit. The main reason behind this is that it takes all the
type of cost that sold it takes direct material, labor, variable production, selling expenses and
also take fixed selling, administration expenses

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Online
Pricing strategies. 2017. Online. Available through: <
http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html>. [Accessed on 7th
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