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PROCESS OF MANAGEMENT ACCOUNTING

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Added on  2019-12-18

PROCESS OF MANAGEMENT ACCOUNTING

   Added on 2019-12-18

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MANAGEMENTACCOUNTING
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ILLUSTRATION INDEXIllustration 1: Income statement using marginal costing.................................................................6Illustration 2: Income statement using absorption costing..............................................................7Illustration 3: Example of Cash budget.........................................................................................12Illustration 4: Example of production budget................................................................................12Illustration 5: Sales budget.............................................................................................................13Illustration 6: Net present value as investment appraisal technique..............................................14Illustration 7: IRR .........................................................................................................................15Illustration 8: Profitability ratio.....................................................................................................17
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INTRODUCTIONThe process of management accounting is to prepare management reports and accountsthat provide appropriate information needed by the managers for taking day-to-day and short-term decisions. Almost all types of organisations use management accounting system forimproving the performance level in the competitive scenario. For better understanding ofmanagement accounting, the organisation which has chosen for the report is 'Nisa RetailLimited'. It is a privately limited company in the UK. Its annual turnover near around £1.5billion and number of employees are 213. Nisa ltd has applied management accounting systemdue to which its efficiency has increased. The report explains management accounting and itsdifferent types with essential requirements. The different methods which has used inmanagement accounting reporting have covered under this report. However, critical evaluationbudgetary control systems will be introduced for forecasting and decision making on furtherbusiness operations. The ways through which an organisation can solve its financial problems aregiven in the report.TASK 1 P1 Management accounting and its different types with their essential requirementsGeneral ManagerNisa LtdManagement Accounting :-It includes different methods which are useful for effectingplanning process, foe selecting among various options of business activities and for controllingby the interpretation and evaluation process (Siegel, and et.al., 2010). The informations are tobe gathered, classified and summarized for taking different policy decisions for the firm likeNisa retail. This is done by the financial accounting department and present is such a mannerwhich suits the management need to review(Management Accounting-Introduction. 2017). It isthe process of analysing, presenting and interpreting the accounting information that is gatheredby the help of financial and cost accounting. This helps to management for creation of policy,decision-making and routine operations of the business.The role of management accounting is very crucial in every type of businesses. Itfocuses on the tracking of costs which as associated with production of products and services in1
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the organisation. Nisa rtail has applied this system in the firm for analysing the results,assessment of risks, allocation of various resources and the presentation of different financialstatements to the managers of the organisation(Parker, 2012). There are four types ofManagement Accounting Systems which are as given below:Traditional cost accounting systemLean accounting system Throughput accounting system Transfer pricing system Traditional cost accounting system – One of the traditional approach of accounting iscost accounting that follows by the different business units. For the identification of cost ofproduct, it involves direct material cost, direct labour cost and direct costs or overhead. In thissystem, there is a cost driver that causes the cost to occur. It helps in the proper allocation ofcost that is related to material, labour and overheads. Its main benefit is it simplifies the processof calculating cost of the product(Modell, 2010). Therefore, this system supports in setting theselling price of product with the profit margins. Lean accounting system – Lean accounting is the revolutionary term in themanagement accounting system. It covers the changes occur in accounting, controlling,management process and the measurement of performance in an organisation such as Nisa retailLtd. Its major focus is on lean thinking and lean manufacturing. This advantage of this system isthat, it is less complex and less costly in comparison to traditional method of accounting.Accounts are able to eliminate thousands and thousands of transactions and reports,reconciliation and meetings that go with them(Ward, 2012). Therefore, this tends to less work inan effective way. By using this organisation's performance can enhance which will give goodimpression on its position in market.Throughput accounting system – This type of management accounting systemincludes identification of constraints within the production system of an organisation. This isbased on the principles and approach of simplified management. It gives support for decisionmaking, in order to improvement in the profitability of Nisa retail. It controls over theinsufficient levels of materials, labour or production capacity from the facilities of the2
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organisation. With the use of this accounting system firm can reduce its overall costs andmaximize its margin of profit.Transfer pricing system – The another management accounting system is transferpricing. Under this system, the identification of that cost which is incurring on the movement ofgoods from one department to another. A small portion of cost is added on the each item whichtransfers to different departments or process. The variable costs and opportunity costs are addedto the transfer price of a product. The flexibility of transfer pricing can be seen as an advantageto this system.P2 Different methods of Management Accounting reportingGeneral ManagerNisa LtdThe management accountant of the organisation like Nisa retail uses various reports forinterpreting the performance or results. The different reports are as given below:Cost reports – The management accounting prepares a cost report that in which all thecosts of produced goods, raw materials, labour charges and other additional costs are areentered. As per the cost reports, firm makes a calculation of all the products that are generallymade through unprocessed data. In calculation of these costs, various charges are taken intoconsideration like cost of raw materials, additional charges, cost of labour etc. The units oramount of products that has been produced is divided with total amount of all expenses. Thecost report includes all significant information of this nature in a summarised form(Vosselman,2014). This also gives a detailed information about the cost of goods against their selling price.As per this report, the management also takes various decisions through which they can enhancesales to increase revenues and decrease expenditures.Budget reports - The budgets are vital reports that are made with the help of previousyear's data on the basis of which allocation of funds are done. This report helps in takingassorted decisions to managers regarding management of funds. On this basis, the managers ofmentioned company can easily allocated required funds to various areas. Apart from this, thebudget reports are helpful in making the predictions for future regarding needs of fund. Thus,3
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