Management Accounting and Decision Making

The assignment discusses the significance of management accounting in a manufacturing company, focusing on the role of managerial accountants in performing cost analysis and preparing budgets. It highlights how budgets express the company's plan of action and enable managers to allocate resources effectively. The document also touches on the importance of innovation in management accounting and its integration into management control.

Table of Contents
Introduction...........................................................................................................................................1
LO1. Demonstrate an understanding of management accounting systems............................................1
P1. Explain management accounting and give the essential requirement of different types of
management accounting systems...........................................................................................................1
Management Accounting System......................................................................................................1
History..........................................................................................................................................2
Advantages of Management Accounting.......................................................................................3
Impediments of Management Accounting.....................................................................................3
Management Accounting System......................................................................................................4
Processing Costing Overview........................................................................................................4
Activity Based Costing (ABC)......................................................................................................5
Inventory/Stock Management Systems......................................................................................6
Job Costing System.......................................................................................................................7
Price Optimizing System...............................................................................................................8
Contract Costing System...............................................................................................................8
P2. Explain different Methods used for management accounting reporting...........................................9
Budget Reports..................................................................................................................................9
Purpose for Budgeting Report.......................................................................................................9
Performance Report.........................................................................................................................10
Break – even Analysis Report..........................................................................................................11
Investment Appraisal Report...........................................................................................................12
Feasibility System Report................................................................................................................14
Account Receivable Aging Reports.................................................................................................14
M1. Evaluate the benefits of Management Accounting systems and their application within an
organizational context. (Arabian Resources Construction LLC)...............................................15
Percentage Accounting Method.......................................................................................................15
Job Cost Allocation.........................................................................................................................15
Return on Investment (ROI).........................................................................................................16
D1 Critically evaluate how management accounting systems and management accounting
reporting is integrated within organisational processes..............................................................16
LO3. Explain the use of planning tools used in management accounting..................................22
P4. Explain the advantage and disadvantage of different types of planning tools used for budgetary
control..............................................................................................................................................22
Budget.............................................................................................................................................22
Inventory Accounting......................................................................................................................23
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets........................................................................................................................24
Working Capital..............................................................................................................................24
Cash Flow........................................................................................................................................25

Receivable Funds.............................................................................................................................26
Inventory.........................................................................................................................................27
Pricing.............................................................................................................................................29
Standard Costing.............................................................................................................................31
Variance..........................................................................................................................................31
LO4 Compare ways in which organisations could use management accounting to respond to
financial problems.........................................................................................................................33
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.........................................................................................................................33
Swot Analysis..................................................................................................................................33
PEST...............................................................................................................................................33
M4. Analyze how, in responding to financial problems, management accounting can lead
organizations to sustainable success.............................................................................................35
Benchmarking..................................................................................................................................35
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success................................................................35

Introduction
The report is written to critically analyse the Management Accounting System and
Management Accounting Reports as concerned to Arabian Resource Construction. Been a
construction company there are certain Accounting System and Report that are quiet fitting to
the kind of business conducted. The report will attempt at exposing those important
accounting system and report concern. It should be noted that a construction company like
Arabian Resources Construction need Accounting system and Report to be able to keep track
of its Financial plan and consequently deliver standard construction service while scoping on
profit.
LO1. Demonstrate an understanding of management accounting systems.
P1. Explain management accounting and give the essential requirement of different types of
management accounting systems.
Management Accounting System
Management Accounting additionally is known as Managerial accounting is characterized to
be a procedure of giving monetary information and assets to the directors to act. It is utilized
internally in the Company, and this is the main thing which makes it not the same as
Financial Accounting. The aim of the Management Accounting is to utilize this measurable
information and take a superior and exact choice, controlling the undertaking, business
exercises, and advancement.
Financial Accounting however is the introduction of accounting data for the use of
stakeholders of an organization. Management Accounting covers the use of budgeting
information for accounting decision within the company.
History
The Management Accounting is anything but new procedure. Truth be told, it was first tried
in the late 1800s during the Industrial Revolution. Around than ever, most of organizations
were possessed by a little gathering of industrialists. In contrast to the present act of looking
into an Organization record as a consumer, credits and speculations were made dependent on
Relationship and relation. This disposed of the requirement for profoundly point by point
money related announcing. By the end of the century the practice began to mellow down and
eventually end.

With the beginning of 1900 came new government charges. These were joined by legislative
administrative organizations, just as a developing monetary market. New rivalry implied that
more business was done in cooperation with unfamiliar people than it was previously
practice. Accordingly, organizations were required to grow progressively expand financial
revealing strategies to get capital.
The key goal of Management Accounting is to empower the executives to boost benefits or
limit misfortunes. The advancement of the Management Accounting has given showcase
several objectives on Management Accounting.
The principle goals of the Management Accounting are these:
Arranging and strategic policies plan
This includes anticipating based on accessible data/Information, setting objectives; confining
polices deciding the elective blueprints and choosing program of exercises. It helps
significantly this way. It encourages the arrangement of plans and statements in the light of
past outcomes also, it gives estimation for to be expected.
Translation process
The Management Accounting is to introduce money related data to the administration.
Budgetary data is specialized in nature. In this manner, it must be introduced in such a way,
that it is effectively comprehended. It presents accounting data with the assistance of factual
gadgets like outlines, charts, diagrams, and so on.
Aids Decision processes
Decision can now be made in logical and direct fashion with the use of information contain in
management accounting. Procedure processes can now be analytically followed. Strategies of
management of financial issues can be cautiously drafted.
Controlling
Management Accounting is effective for the administration control and direction. Accounting
methods like budgetary and costing control are essentially in execution of control, involving
the execution o each individual unit. Spending plans or budgetary draft are essential for
control of department spending and cost control effectively control standard costing.

Reports
It is a source of information and serve to keep the management consistently updated on the
finances of the company. Through the purpose of reporting, management can have quick
access to any financial information when it needs to make any though official decision.
Encourages Organizing
It allows for efficient organization structure as correct fact are utilize to structure
departmental functions and activity processes and the general company organization are also
effectively drafted in such away that the activities base on financial decision are easily passed
from unit to unit without hitches.
Encourages Coordination of Operations
Budgetary essentially helps in the coordination of spending in the department. Accounting
systems is most effective in this regard as all activities of the company are often coordinated
and directed base on the financial plan and strategies of the company.
Advantages of Management Accounting
It assists the company to expand and increase profit so that fund invested can be judiciously
utilized.
Since management accounting greatly lead to planning and strategizing it thus follow that the
activities of business will fare better as the benefits of judicious planning will aid it.
It ensures that business plan stay within its limit by consistently appraising performance and
ensuring compliance.
It most definitely ensures and increase the productivity of venture.
Impediments of Management Accounting
Despite the Management Accounting several administrative advantages to the board. Still it
has got a few restrictions they include:
For decisive action, and for the process to be effective the decision makers most possess
adequate knowledge of several field of accounting, statistic, tax and even economic. As in all
practical aspect those responsible for such decision often lack these basic skills. The process
is affectual before it is even started.

It also means that the decision taking without the adequate knowledge of this list will be an
error in assumption lacking base and definitely heading towards a failure.
.
Management accounting system usually is very costly to set up and thereby may be necessary
for a large company, but may not be avoidable by smaller company.
It is also often impracticable ensuring compliance of management accounting methods by
every units of the company. Which is a very disadvantage to the process as adequate
compliance is necessary to achieve desired result.
Finally cases that can not be financially understood but that still have serious impact on the
finances of the company is not covered by the process and this render the process less
adequate.
Management Accounting System
Each Management Accounting System (MAS) differ in their utilization Each framework is
intended to give Management various info dependent on the necessities of Management, to
assist in decision. The most fundamental sorts of Management Accounting Systems are:
Process Costing
Contract Accounting System
Inventory Management System
Job Costing System
Price Optimization System
Action Base Accounting
Processing Costing Overview
This costing is often used by manufacturing company especially those that deals in large
scale production. In this kind of production, the expenses are cost as a process because it is
difficult to cost each individual item unit. It thus follows that each expense expel on
individual items production is assumed to be the same with other items in the allotted
production. This process then allow cost to fixed for particular amount of period and then
consequently assigned to the whole units of item delivered in assumption.
Types of Process Costing

There are three sorts of procedure costing, which are:
Weighted Average costs. In this scenario all costs whether they are from the first production
or actually the present are treated as one and ensured under a single production unit. It treats
all product and item as a single cost unit. It then means that ascertaining the varied cost of
each items is often very difficult.
Standard costs. This covers the explanation of standard costing of items. It usually
supersedes weighted costing in nearer to the actual cost of product and very much realistic.
When the standard costing is ascertained by expenses incur from individual cost item. The
difference is often pushed into variance after each product complete expenses have been
decided.
First-in first-out costing (FIFO).
This is an inventory costing strategy that involves the costing of goods initially begun but
unfinished separate from the costing of items been produced in the present.
Process costing is the most ideal way to ensure that some form of costing especially in,
costing of chemical production for instance or oil refineries how can you for example
determine the price of millions of gallons flowing from the treatment plant of an industry
Activity Based Costing (ABC)
Activity based costing (ABC) is a system of allotting overhead expenses by doling them out
into exercises. When expenses are doled out to exercises, the expenses can be allotted to the
cost in question which utilize those exercises. The framework can be utilized for a focused
decrease of overhead expenses. ABC works best in complex conditions, where there are
numerous machines and items, and tangled procedures that are difficult to sift through. On
the other hand, it is of less use in a streamlined domain where creation forms are abridged.
Uses of Activity Based Costing
ABC costing allows for a better understanding of the use of overhead. It also allows the
company to access better information on the whole concern o costing issues and processes.
The costing is of equal assistance to understanding the entire expenses of all activities so as to
be sure that what this activity cost is consequently in accordance with the measure of the

particular sector. It is ideally use to track expenses, ensure compliances and also appraise the
progress of uses of finances with the determinant view of reducing cost where possible.
The framework can assist the company in discovering of unnecessary overhead expenses and
also pinpoint the particular client that is responsible for incurring such expenses. This will
assist the company in exposing clients that are bearing no fruit so as to let them go or for a
more focus on clients that are greatly benefiting the company
Cost distribution can be done more effectively as the company ensure several channels to
dispose of its items or example the Internet, retailers, delivery request, and sell merchant. The
frame work allows the company keep up with vast activity of distribution and consider the
ones that are mostly working and the one causing loss to the company. This understanding of
their overheads will allow the company know the channel to reimburse and the one to dispose
of,
The ABC framework give a detail of cost of items involve in production of a good. This helps
the company understand which cost can be dispose if production is resumed and the cost that
will consistently need to be renewed.
There are certainly many advantages of ABC. It however often relies on the organization
structure. The company that wishes to utilize the framework must structure it in a way that
ensures that information is collected and accessible on every activities.
If a general ABC frame work is used without due diligence to the above it may not produce
the expected information or data. It also however means that since the setting up of the
framework is quiet expensive the organization must conclude on whether the cost of the
frame work is less important the numerous benefits the company will gain.
Inventory/Stock Management Systems
(Stock) speaks to a business' supplied merchandise or materials, and accordingly, the terms
Inventory and stock are regularly utilized conversely. Stock can be seen as either utilized
items to carry out a work, contributions to a processing procedure or products offered to
clients.
Inventory Management System

A stock administration framework consolidates the utilization of bar-code scanner and
printer, mobile devices and desktop software to streamline the administration of stock (for
example products, consumables, supplies, stock, and so forth.)
At its center, stock control works by following two fundamental elements of your stock room
or stockroom — accepting (incoming) and distribution (outgoing). The objective of stock
control is to precisely realize current stock levels and consequently limit under stock and
overload circumstances. By effectively following amounts across stocking areas you'll have
understanding and have the option to settle on more intelligent stock choices.
Functions of Inventory Management System:
Physical stock tallies and cycle checks
Create, run, calendar and offer reports
Create Purchase Orders
Receive, migrate, change and discard stock
Create deals orders
Print standardized tag marks
Advantages of an Inventory Management System:
Improves an organization's primary concern
Improves stock exactness
Improve Company Workflow
Job Costing System
It involves the particular costing of an activities which involve the analysis of the expenses
that a process, activities or construction work incur. Often this costing is necessary as
approve to clients which legally dictates that the client repay the expenses that are incur.
The below three types of information are necessary for job costing;
Materials. This is the gathering of the cost of items utilize in the processing or in carrying out
the activity and the allocating the cost to the individual expenses in an exact and obvious
manner

Labor. The employee charges fall under here, the hours charge and the specific activity or
work done are also highlighted.
Overhead. This involve the aggregates o expenses overhead in the entirety of cost and then
allocating this expenses to the activities.
It is often Practical that a Job costing framework may necessarily be custom-made to the
necessities of the client. few clients might just permit certain expenses to be charged to their
jobs.
Price Optimizing System
This is the appraisal and the consistently monitoring of price movement at various level price.
This are then compare with expenses data and also the levels of inventory And consequently,
using the information to suggest price strategies that will improve the profit level.
A Price Optimization System should factor in three basic valuing components:
pricing or costing technique.
The estimation or value of the item to both purchaser and vendor.
Strategies that deal with all components affecting gainfulness
Price Optimization Systems help organizations decide:
Starting price estimation,
Pricing for promotional Items and
Markdown (or rebate) estimating
Contract Costing System
Contract costing involve the tracking of costing process involve in an agreed upon activities
between a company and its client. Usually the client wanting to carry out a production
process or construction activities will enter to agreement with the company to carry out the
activity or process so as to be reimburse by the client. It then falls of on the company to track
and record every expense incur as prove to the clients.
• Fixed cost. This is a fixed sum that is paid to the company for completing the project.
This involve the company also taking stock of spending behaviour to be sure that the agreed

cost and the actual cost incurred so as to be certain that the company gain or earn a profit in
the venture.
• Cost plus. This allow for the company to be repaid for any extra cost incur during the
contract ventures. This is in addition to the fixed profits that the clients as promised. It is
often the plan that this cost are often investigated by the client who may send an inspector to
check the essential of the extra cost and may allow or disapprove some of this cost.
• Time and materials. This methodology is like the cost plus, although the organization
incorporates a benefit with its billings, instead of being granted a particular benefit. Once
more, the organization must track all agreement costs cautiously, since the client may survey
them in some detail.
In certain businesses, for example, government contracting and business development,
contract costing is the essential undertaking of the accounting unit, or may even be sorted out
as a totally discrete office. Efficient Contract costing can contribute a lot of benefits, as is
regularly set up with highly experienced managers and accountants
P2. Explain different Methods used for management accounting reporting
Management accounting reporting is essential in the management of Company performance.
As regard the Study Arabian Resources Construction needs to used different Management
accounting reports. It will enable the company to know and realise different procedures
through which managerial aspect can be undertaken in efficient manner. The different
management accounting methods that can be used in the company are as follows:
Budget Reports
Budget reports are extremely basic in estimating organization execution and are produced all
in all for private ventures and, division insight for construction bussness. In any case, each
organization makes a general spending plan to comprehend the fabulous plan of their
business. A spending gauge is made dependent on past records; however, an incredible
spending plan consistently provides for unexpected conditions that may emerge. An
organization's budget showcase where all income are coming from into the Company and
also how funds are easing out. An organization attempts to accomplish its objectives and
mission while remaining in the scope of budgeted funds.

Purpose for Budgeting Report
Reports identified with the Budget report can direct management to offer better representative
impetuses, cut expenses and renegotiate terms with contractors and suppliers. In this manner,
a spending report is basic to the construction business.
A spending report assumes a priceless job in assisting with dealing with a business. Toward
the start of the year, each firm readies a Budgeted plan. This gauges the deals that the
organization hopes to accomplish during the year. It additionally gives specifics of the
various costs that the organization will need.
Budgeting is arranged once every year. In any case, fluctuations are typically followed each
month. it is a necessary move. It causes a firm to distinguish the territories that need
consideration.
An audit of the report may find that construction activities are underneath target. On the off
chance that this occurs, the business administrator should start recovering measures. This
may appear as enrolling more labour, adjusting the motivating force program for workers.
Budgeting likewise permits an entrepreneur to survey costs. In the event that the differences
are high, remedial activity may be required. Budget report for the most part contains four
segments:
• Budget – this section contains the subtleties that are set up toward the start of the year.
A firm may conclude that it will focus on yearly deals of A million dollars. Essentially, the
spending limit for costs on workers pay rates might be fixed at lets say $175,000.
• Actual – this section will give insights concerning the genuine outcomes for the
period under audit. It will be contrasted with what the budgeted funds of the particular period.
• Over budget – the over-spending section is the aftereffect of the past two segments. It
reveals to you the aggregate by which the business has surpassed the planned figure.
Obviously, it will give subtleties of under-spending details also.
• Percentage of spending plan – this segment will let you know the under/over rate
accomplishment against the financial limit.

Performance Report
Performance Reporting is the way toward gathering crude information, decoding the
rationality between the objectives and process and making and appropriating activities of
construction information to partners. As indicated by Anticlue.net, there is an additional part
of report and that is the explanation of the utilization of assets to get the objectives that have
been set. In this kind of report explanation ought to be done together with information
available on scope, cost, plan quality and acquisition, just as the accompanying sources of
infomation ought to be considered too.
• Data on work execution: This data plots the work that is being performed, finished as
of late and what the subsequent advances will be.
• Units of Performance estimation: These estimations incorporate cost and schedule
performance index, planned value, and cost and schedule variances etc. These qualities help
with detailing unprejudiced and applicable quantifiable data, in this way improving reports.
• Forecast Completion: This measure is the indicator of future barriers that affect the
activity. this forecast is frequently communicated utilizing two components: Forecast at
culmination and Forecast to finish, which gives time and sum expectations for finishing a
venture.
• Measures for quality control: Activities that contrast results with quality norms and
procedures are called quality control measures. These are set up to guarantee the item gave is
of the highest caliber.
• Project Management Plan: This contains the presentation estimation standard, which
is the reason for affirmed the executives control.
• Requested changes endorsement: In the change demand endorsement input, any
progressions that have been affirmed are fit to be set up. After task changes have been
affirmed, they should be put before partners so these progressions can be conveyed and
executed.
• Produced activities: These allude to all the activities, results, items related with
creating and finishing the assignment.
Advantages
• Getting the most out of Company's activities from internal aspect

• Improved deciding activities
• Operational office enhancements because of changes
• Allows the group to dissect the status of the budget and schedule
• Continuous input to colleagues and directors
• Encourage successful correspondence with upper administration and clients
Break – even Analysis Report
This is money related apparatus which causes you to decide at what level the organization, or
a new activity or a new product will be productive. At the end of the day, it's a monetary
computation for deciding the quantity of items or services an organization should offer to
take care of its costs (especially fixed expenses). Break even refer to a situation where the
company is neither bringing in cash nor losing cash, yet the entirety of its expenses have been
secured.
Segment of Break-even Analysis
Fixed expenses
Fixed expenses are likewise called as the overhead expense. These overhead expenses happen
after the choice to begin a financial movement is taken and these expenses are legitimately
identified with the degree of processing or production, rather not with the amount of
production. Fixed expenses incorporate (yet are not restricted to) charges, pay rates, lease,
devaluation costs, work costs, energy costs and so on. These expenses are fixed regardless of
the amount you sell.
Variable expenses /cost
Variable expenses are costs that will increment or decline in direct connection to the product
creation volume. These expenses incorporate expense of crude material, bundling cost, fuel
and different costs that are legitimately identified with the creation.
Advantage of Break – Even Report
Find missing costs: When you're considering another business, it's especially conceivable that
you may disregard some costs. In this manner, on the off chance that you do a break even
examination you need to audit all your budgetary responsibilities to make sense of your earn

back from the original investment point. This examination absolutely confines the quantity of
surprises that may appear.
Set income targets: Once the break-even examination is finished, you will find the realistic
number of goods needed to be sold to get profit. This will support you and your business
group to set increasingly solid deals objectives.
Settle on more brilliant choices: Entrepreneurs frequently take choices according to their
business dependent on feeling. Feeling is significant for example how you feel, however it's
insufficient. So as to be a fruitful business visionary, your choices ought to be founded on
realities.
Finance your business: This investigation is a key segment in any marketable strategy. It's
commonly a necessity on the off chance that you need pariahs to subsidize your business. So
as to subsidize your business, you need to demonstrate that your arrangement is reasonable.
Besides, if the examination looks great, you will be agreeable enough to take the weight of
different methods for financing.
Better Pricing: Finding the Break - even point will help in estimating the items better. This
apparatus is exceptionally utilized for giving the best cost of an item that can get most
extreme benefit without expanding the current cost.
Spread fixed expenses: Doing an equal the initial investment examination helps in taking care
of all fixed expense.
Investment Appraisal Report
The Report is an assortment of procedures used to recognize the allure of a speculation. It is a
way that a business will survey the engaging quality of potential speculations or tasks
dependent on the discoveries of a few diverse capital planning and financing systems. For
merchants, it is a type of key investigation as it can help recognize long haul drifts just as an
organization's apparent profitability.
it is centered around the early periods of a task or program and is acted in corresponding with
the early work on the board plans and conveyance plans.
The presence of discrete arranging and commencement ventures for this capacity is totally
reliant upon the scale and multifaceted nature of the work. In projects and portfolios these
means are vital so as to build up steady examination over all segment activities and projects.

In ventures almost certainly, any arranging and inception of investment appraisal will be
consumed inside definition and identification procedure.
There are various courses through which a business can do Investment Appraisal, yet here are
three of the most well-known strategies:
Net present Value
Net present worth (NPV) is the contrast between the present estimation of money inflows and
the present estimation of money outpourings over a decided period of time. NPV is utilized to
compute the assessed gainfulness of a task and it is a type of capital planning which
represents the time estimation of cash.
Compensation(payback) period
This is the time span between making a venture and the time at which that speculation has
equaled the initial capital incur.
To compute the recompense time frame, you'd take the expense of the speculation and
partition it by the yearly income. Ventures with shorter compensation periods are
increasingly attractive in light of the fact that it will require little time before investors get
back their capital.
The time estimation of cash is the rule that cash is worth more in the present than an equal
sum will be later on in light of the fact that it has longer to win premium. Money inflows and
outpourings are balanced by the guideline of the time estimation of cash, considering
accessible interest rates.
Therefore, NPV decides if it is all the more monetarily judicious to put resources into a task,
or to acknowledge an alternate pace of profit somewhere else based for anticipated future
returns. To compute the NPV, you would subtract the present estimation of investment funds
from the present estimation of expected incomes.
In the event that the NPV is sure, at that point it shows that a venture's anticipated income or
benefits are more noteworthy than the foreseen costs. In the event that the NPV is negative, at
that point the turn around is valid, and the task or speculation probably won't be sought after
by the organization.
Accounting rate of return

The (ARR) is a proportion utilized in capital planning to figure a venture's required return
contrasted with the underlying expense. Not at all like NPV, ARR doesn't represent the time
estimation of cash, and if the ARR is equivalent to or more noteworthy than the necessary
pace of return, at that point the task is esteemed to have satisfactory degrees of benefit.
ARR is introduced as a rate return, implying that an ARR of 20% implies that the
undertaking is gauge to return 20p for each 100p contributed over a one-year time frame. To
ascertain the ARR, you would separate the normal return during a given period by the normal
interest in that equivalent period.
Purpose of Investment Appraisal Report
It is significant for merchants since it is a type of crucial investigation and, all things
considered, it is fit for demonstrating to a dealer whether a stock or an organization has long
haul potential dependent on the gainfulness of its future undertakings and attempts.
In the event that an organization is engaged with various long haul speculation ventures, there
is additionally a more serious hazard that incomes, expenses and sources of income may be
harmed. This is something that a merchant should consider before they take on an
organization's units of shares.
Feasibility System Report
The report is a declaration that endeavours to make a type of activity. They are made to
convince/help the chiefs to pick between accessible alternatives. Recall that your alternative
isn't the one and only one, the decision makers will presumably have numerous to browse.
The report likewise decides if the researched/ investigative activity should be possible with
the measure of assets accessible OR what number of assets will be essential so as to finish the
assignment. This system report might be valuable in various circumstances, for example,
Activities planning, funds.
Reason for Feasibility Report
It enables organizations to figure out what the sum is before a task is at last endorsed. This
permits organizations to deliberately deal with their cash to safeguard the most beneficial
activities are attempted. It likewise assists organizations with deciding if amendments to a
task that from the start appears to be unfeasible will make it achievable.

It helps in giving legitimate and specialized proof of the undertaking's essentialness,
manageability and cost-adequacy.
The announcing procedure permits the senior administration to get the necessary data
required for settling on key choices on planning and speculation arranging.
An elegantly composed attainability study report format helps in creating answers for Project
Analysis.
FSR causes interface venture proficiency to planned expenses.
It helps in Risk Mitigation since it assists with possibility arranging and development of
hazard treatment methodology.
Account Receivable Aging Reports
On the off chance that your business depends intensely on expanding credit, at that point
record of sale maturing reports are fundamental to it. Separating the rest of the parities of
your customers into explicit timeframes permits directors to recognize the defaulters just as
discover issues in the organization assortment process. For the situation that there are
numerous defaulters, at that point the organization may require a total change to more tightly
acknowledge arrangements as income is basic to the activity of any business. There is in
every case some terrible obligation that should be discounted, in any case, you can't make it a
propensity. You should consistently realize who owes you what.
It is valuable to recognize unpaid receipt of the clients that are unpaid and credit updates that
is unused as indicated by date alongside contact data for the clients.
M1. Evaluate the benefits of Management Accounting systems and their application
within an organizational context. (Arabian Resources Construction LLC)
During the execution of a task, methodology for venture control and recordkeeping become
essential devices to administrators and different members in the construction processes.
These instruments fill the double need of recording the monetary exchanges that happen just
as giving directors a sign of the advancement and issues related with an undertaking.
Construction organizations use Accounting Management to gauge and break down their
budgetary findings. Business enterprises regularly have extraordinary Accounting standards
to follow when recording finances issues. When it comes to Construction related with

utilizing Accounting management a blend of the Managerial and Financial Accounting is
sort after. Each kind of Accounting Management helps entrepreneurs and administrators
comprehend operational adequacy and the benefit for every development venture. This data
likewise assists supervisors with settling on business choices in regards to new undertakings.
Percentage Accounting Method
Accounting Methods related with Construction depends widely on the completing
percentage accounting strategy. This technique gauges every development venture
separately. It additionally utilizes a subjective investigation for deciding each venture's
phase of fruition. Subjective investigation for the most part depends on the entrepreneur's or
general development supervisor's examination of each task. These people are answerable for
giving the Accounting office data identifying with the task's completion procedure.
Quantitative strategies utilize scientific recipes to ascertain the finish level of each
undertaking. Subjective strategies frequently require business innovation, for example, a
financial module to assemble monetary data from operational modules. This offers Company
in construction a valid source of data identified with ventures of Construction type.
Job Cost Allocation
Occupation costing consistently alludes to the costs that are caused from assembling
merchandise. Those expenses are recorded for every particular activity rather than every
individual procedure. The expenses incorporate every individual unit that is required, while
likewise including the expense of the pay rates of the laborers during the activity.
Construction Accounting utilizes this type of cost assignment strategy from the Management
Accounting. it includes an organization ascribing a particular funds of
construction/Development assets to each job. The process generally separate Construction
assets dependent on each activity's composed offer or proposition. Development assets
incorporate direct material, work, subcontractor costs, overhead, insurance/protection,
support and other development related expenses. Each task is overseen independently on the
general record to guarantee a precise complete expense is kept up for each bookkeeping
venture. Cost Apportion is a significant development Financial methodology. It is often
Advised that Organizations in Construction need to stay away from development costs
invading a task's profits expected. Since it is common that, organizations to may not be able
charge customers for extra assets utilized on construction ventures. Utilizing significant

expense development assets can likewise influence the normal profits from construction
ventures.
Return on Investment (ROI)
At the point when a business completes a task, they need to realize how fruitful it was in
returning income. One approach to decide a task's prosperity is to Analyse the Return on
Investment. A ROI investigation shows how much income a task created, contrasted with
amount of funds the undertaking consumes. Organizations need to have a higher ROI on
ventures, since then the undertaking produced more income comparative with its expense to
actualize.
Processing Costing is marginally unique, as it utilizes the costs that are brought about,
legitimately or in an Indirect way, for a particular activity or procedure. These expenses are
frequently put on an average value for every processing unit and are best utilized for the
companies in construction who performs similar construction often again and again. This
accounting highlight permits organizations to know precisely what the company
consumptions are every month that they full in activities, particularly those that are
performed by various units.
D1 Critically evaluate how management accounting systems and management
accounting reporting is integrated within organisational processes.
Financial Reporting of a Management level and Project level is basic for a Construction
organization to remain above water and flourish. Accounting System reports give a general
image of the organization's Financial circumstance while A project level reports are explicit
to every individual activity's exhibition. Ensuring the data is exact and auspicious, alongside
utilizing the reports carefully will guarantee the organization's general wellbeing and
increment the organization's potential for proceeded with development and productivity.
Financial or a Management level Reports give a major image of how the organization is
performing. Majorly Construction organizations are often delivering these reports when bank,
examiner, or surety organization demands for it. Managers ought to comprehend and survey
the reports below consistently in other to be able to provide on time analysis of these
requests:

Balance Sheet: a preview of the organization's Financial situation at a solitary point in time –
shows the organization's advantages, liabilities, and value
Income Statement: quantifies the organization's Financial activities over a predefined
financial period (month to month, quarterly, yearly) – shows the organization's incomes,
costs, and total compensation or misfortune
Cash flow statements: gives information with respect to all money inflows/outpourings from
activities, contributing, and financing sources during a given period
Other Essential contents Reports Needed in Construction Company
Net benefit by work: expansive outline of the profitability of each activity – a total job
income minus an evaluated work costs, which incorporates costs acquired to date in addition
to expenses to finish the activity (just records for direct expenses – no overhead or
under/over-billings included)
job/work overhead designation: a pivotal report in deciding an organization's productivity –
assigns overhead or aberrant expenses to the activity – choosing the best technique for
allotting gives contractual workers a smart thought of their actual exhibition at the particular
employment level with the circuitous costs applied to each activity
Under/over-billings: needs checked on consistently to give the board an increasingly precise
proportion of profits and to help make them mindful of problem alluring Jobs so adjustments
can be made auspicious – offers the board the chance to address under-billings on a vocation
(could cause income issues or be an indication of the activity being less beneficial than
recorded)
Income by work: recognizes whether certain work are subsidizing other failing to meet
expectations occupations just as helping the board decide whether the organization has the
money related assets and credit extensions accessible to deal with the foreseen work volume
Project level reports give a smaller concentration than Mangement level reports and answer
the inquiries of when, where, why and how of each activity. These reports help
administrators: distinguish where the activity stands at the moment; conjecture where the
activity is going; track processing inside the activity; and make a database of history to help
better decision and to use for future offers.

Regardless of what sort of Construction exchange, both levels of reports are imperative for all
organizations to run a monetarily stable and profiting business.
In addition, however, when maintaining a construction business, you have to represent your
incomes and costs accountably. You can accomplish this undertaking by following the
Accounting cycle - that is, the ordered occasions of Financial Reporting. The bit by bit
Accounting process for a construction business includes recording, characterizing and
outlining Financial information and data.
Investigate Source Documents
Analyze your source archives, for example, Cash receipt book and Invoices, to guarantee
their exactness. Check for wrong calculations and some other blunders of exclusion or
commission. Request Debtors and Creditors notes for bougth invoices that were
undercharged or cheated by the providers of your development materials and types of gear.
Also, compose charge notes for any undercharges and credit notes for cheats in your business
solicitations.
Record Transactions
Archive your exchanges in the books of company original entry, for example, a purchase
diary, deals diary and general diary. Watch the twofold or double section rule when recording
or journalizing your exchanges. In double entry accounting, each credit passage must have a
comparing charge section and the other way around.
Move to General Ledger
When you've recorded the exchanges, move the diary sections to their individual records in
the general record. A general record is an outline of the considerable number of records in the
construction business. Double- entry section rule applies while moving your diary records to
the general record.
Get ready Unadjusted Trial Balance
Affirm the precision of the data posted in the general record by setting up an unadjusted
preliminary parity. Post all the charge and credit passages of the general record to the charge
and credit sides of the preliminary equalization, individually. The absolute charges must be
equivalent to the total credits. These sums won't balance if your general record has mistakes.

Make a suspension account and use it to follow calculation blunders. A suspense account is a
brief record explicitly used to distinguish mistakes in the general record.
Fix Errors
Record altering sections in the general record of the company to address any mistakes. The
altering section turns around an inappropriate figure and presents the perfect sum.
Make Adjusted Trial Balance
Set up a balanced preliminary equalization mirroring the precise credit and charge adjusts of
the considerable number of exchanges in the company
Create Financial Statements
Concentrate your budget reports from the balanced adjusted trial balance. This ought to
incorporate a revenue report, income statement and balance sheet. Income Statement shows
the benefit or loss of the company. Revenue or cash flow report show the situation of
construction resources and liabilities. The cash flow separates the salary and costs from the
operational, financing and investing exercises of the construction business.
Close Temporary Accounts
Move the equalizations in the cost, income and profit records to the held income accounts.
This progression shuts the three records, since they are transitory and can't be conveyed
forward to the following accounting time frame.
Affirm Accuracy
Set up a post-shutting preliminary parity to affirm the precision of the Accounting
information and data of the company after the end process.
2.1 Calculate revenues and costs using appropriate techniques and prepare actual
income statements for the year ended December 31, 2019 under absorption costing
and marginal costing.
FS HOUSING INDUSTRIES, DUBAI-UNITED ARAB EMIRATES
COMPUTATION OF ACTUAL INCOME STATEMENT FOR THE YEAR ENDED
31ST DECEMBER 2019
USING ABSORPTION COSTING
AED’000 AED’000

SALES PER UNIT 20000
LESS: PRODUCTION COSTS
OPENING STOCK -
MATERIAL COST 4400
LABOUR COST 3600
VARIABLE FACTORY OVERHEAD 2800
FIXED FACTORY OVERHEAD 1000
GOODS AVAILABLE FOR SALE 11800
LESS: CLOSING INVENTORY (----)
ADD: UNDER ABSORBED FPO -----
LESS: OVER ABSORBED FPO (-----) 11800
GROSS PROFIT 8200
LESS: NON-PRODUCTION COSTS
VARIABLE SELLING/MARKETING EXPENSES 2000
VARIABLE ADMINISTRATIVE EXPENSES 1200
FIXED SELLING/MARKETING EXPENSES 500
FIXED ADMINISTRATIVE EXPENSES 500 4200
NET PROFIT 4000
FS HOUSING INDUSTRIES, DUBAI-UNITED ARAB EMIRATES
COMPUTATION OF ACTUAL INCOME STATEMENT FOR THE YEAR ENDED
31ST DECEMBER 2019
USING MARGINAL COSTING
AED’000
AED’000
SALES PER UNIT
20,000
LESS: PRODUCTION COSTS
MATERIAL COST 4,400
LABOUR COST 3,600
VARIABLE FACTORY OVERHEAD 2,800
10,800
LESS: CLOSING INVENTORY ( - )
10,800
LESS: NON-VARIABLE PRODUCTION COST
VARIABLE SELLING/MARKETING EXPENSES 2000
VARIABLE ADMINISTRATIVE EXPENSES 1200
(14,000)
TOTAL CONTRIBUTION
6000
LESS: PERIOD COSTS
FIXED FACTORY OVERHEAD COST 1000
LESS: NON-PRODUCTION COSTS
FIXED SELLING/MARKETING 500
FIXED ADMINISTRATIVE EXPENSES 500
2000

NET INCOME
4000
FS HOUSING INDUSTRIES, DUBAI-UNITED ARAB EMIRATES
PROJECTED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER
2019
USING ABSORPTION COSTING
AED’000 AED’000
SALES PER UNIT 27,500
LESS: PRODUCTION COSTS
OPENING STOCK -
MATERIAL COST 2200
LABOUR COST 2420
VARIABLE FACTORY OVERHEAD 1650
FIXED FACTORY OVERHEAD 1000
GOODS AVAILABLE FOR SALE 7270
LESS: CLOSING INVENTORY ( - )
ADD: UNDER ABSORBED FPO (----)
LESS: OVER ABSORBED FPO (----) 7270
GROSS PROFIT 20230
LESS: NON-PRODUCTION COSTS
VARIABLE SELLING/MARKETING EXPENSES 990
VARIABLE ADMINISTRATIVE EXPENSES 550
FIXED SELLING/MARKETING EXPENSES 500
FIXED ADMINISTRATIVE EXPENSES 500 2540
17690
Absorption costing sometimes called full costing is a managerial accounting method for
capturing all costs associated with manufacturing a particular product. The theory of
Absorption costing allocates fixed overhead costs to a product whether or not sold in the
period. This type of costing means that more cost is included in the ending inventory, which
is carried over into the next period as an asset in the balance sheet. The direct and indirect
costs such as direct materials, direct labor, rent and insurance are accounted for using this
method.
From the books of FS housing industries direct and indirect costs (total costs) are taken
into consideration in the computation, According to the theory of absorption costing the
year 2019 which is the actual year under consideration a net profit of AED 4000 was
realized and AED 17690 was realized for the projected year 2020 after all cost had been
deducted.
FS HOUSING INDUSTRIES, DUBAI-UNITED ARAB

EMIRATES
PROJECTED INCOME STATEMENT FOR THE YEAR
ENDED 31ST DECEMBER 2019
USING MARGINAL COSTING
AED’000 AED’000
SALES PER UNIT 27,500
LESS: PRODUCTION COSTS
OPENING STOCK -
MATERIAL COST 2200
LABOUR COST 2420
VARIABLE FACTORY OVERHEAD 1650
6270
ADD: VARIABLE NON-PRODUCTION COST
VARIABLE SELLING/MARKETING COST 990
VARIABLE ADMINISTRATIVE COST 550 (7810)
CONTRIBUTION 19690
LESS: PERIOD COSTS
FIXED FACTORY OVERHEAD COST 1000
LESS: FIXED NON-PRODUCTION COST
FIXED SELLING/MARKETING EXPENSES 500
FIXED ADMINISTRATIVE EXPENSES 500 (2000)
17690
Marginal costing is a costing technique where variable cost is charged to units of costs, while
the fixed cost for the period is completely written off against the contribution. It can also be
defined as the ascertainment of marginal cost and of the effect on profit of changes in volume
or type of output by differentiating between fixed cost and variable costs.
From the books of FS housing industries, the contribution realized in the year 2019 is
AED6000 and profit generated is AED 4000 while the projected contribution and profit are
AED 19690 and AED 17690 respectively.
FS HOUSING INDUSTRIES, DUBAI-UNITED ARAB EMIRATES
(UAE)
STATEMENT OF PROFIT FOR THE YEAR ENDED 31ST
DECEMBER 2019
FIXED FLEXED
ACTUAL VARIANCE
BUDGET BUDGET
Unit Sales 110000 100000
100000
Units Produced 110000 100000
100000
AED’000 AED’000
AED’000 AED’000
Sales (A) 27500 25000
20000 5000(A)

LESS: Variable cost (B)
Material cost 2200 2000 4400
2400(A)
Labour cost 2420 2200
3600 1400(A)
Variable fixed overhead 1650 1500
2800 1300(A)
Variable selling expense 990 900
2000 1100(A)
Variable administrative exp 550 500
1200 700(A)
Fixed factory overhead 1000 1000
1000
Fixed selling expenses 500 500
500
Fixed administrative exp 500 500
500
9810 9100
16000
Profit (A)-(B) 17690 15900 4000
NOTE:
The (A) under variance means Adverse and (F) means Favourable.
COMPUTATION OF VARIANCE
Direct material price variance= Actual qty (standard price- actual price)
= 100000(20*44)
= 2000000-4400000
= 2400000 (A)
Sales volume variance= standard contribution (actual qty-projected qty)
= AED 179 (100,000-110000)
= AED 179* 10000
= AED 1790000 (A)
Sales Price variance= actual quantity sold (actual SP- standard SP)
=100000(AED200- AED250)
=AED 5000000(A)
This report considers the possible causes of variances in FS hosing Emirates
Selling Price variance: the adverse selling price variance of AED 5,000,000 means that the
actual selling price was lower than the standard selling price. Possible causes are:

 There was an unplanned price increase
 Competition in the market was not as fierce as had expected when the standard
selling price was determined
Material Price Variance is adverse because actual price is higher than the standard price.
Possible causes of material price being adverse are;
 Purchase of inferior materials at lower prices
 Making use of substitute material due to the unavailability of the intended material
Labour cost variance: is adverse because actual labour cost per unit is higher than the
standard labour cost per unit. This is due to;
 Use of inferior quality material
 Machine breakdown
 Lack of proper workshop supervision.
This report considers the possible causes of variances in FS hosing Emirates Selling Price
variance: the adverse selling price variance of AED 5,000,000 means that the actual selling
price was lower than the standard selling price. Possible causes are:
 There was an unplanned price increase
 Competition in the market was not as fierce as had expected when the standard
selling price was determined
Material Price Variance is adverse because actual price is higher than the standard price.
Possible causes of material price being adverse are;
 Purchase of inferior materials at lower prices
 Making use of substitute material due to the unavailability of the intended material
Labour cost variance: is adverse because actual labour cost per unit is higher than the
standard labour cost per unit. This is due to;
 Use of inferior quality material
 Machine breakdown
 Lack of proper workshop supervision.

Since, there is no record of closing inventory, no adjustment has been made regarding the
fixed cost potion in the inventory. It is also consequently assumed that the profit under
marginal costing and absorption costing are calculated as in similar way as there is an
absence of closing inventory.
LO3. Explain the use of planning tools used in management accounting.
P4. Explain the advantage and disadvantage of different types of planning tools used for
budgetary control.
Budget
An organization Financial Plan or Budget is a detailed financial statement that exhibits jobs
cost on a periodic time of monthly, quarterly, or annual basis. By factoring in historical
results, management foresight and the internal and external constraint that might chance. It
helps company to determine how actual production cost or spending tally with forecast, this
allow for a more on point planning in advance.
Budgeting and Financial Forecasting
Company budgets or Financial Plan usually contain Income statements, balance sheets and
cash flow statements. Cash flow statements, are essential for tracking the flow of cash into
and out of a business
Capital Budgets
This are budget strategies of a company over all expenses, this often showcase the fixed
assets a company is expecting to invest in, it also includes the commercial estate,
manufacturing facilities, high cost equipment and commercial real estate. It is the strategy of
obtaining and putting up a financial plan of the estimation of cost to require, expand and
changed fixed assets.
Advantages of Budgeting
Budgeting plays an important role in the effective use of resources and achieving overall
organisational goals.
It forces and encourages management to study problem and issue on time. It activates a pre-
emptive mood of caution, and a detail study of plans by managers before embarking on
activities.
It helps in controlling revenue and expenditure of a company as it is a spending plan.

It provides a system tool that allows all management related activities and financial strategies
are often tested, evaluated and adopt as an ideal strategy for a company.
It helps to channel resources into the appropriate channel of activities, production and cost.
Disadvantages of Budgeting
Although budgeting performs several functions it is observable that it as its limitation that
company must be warry of so as to run into financial trouble.
Budgeting is not always on point; it uses assumption and personal opinion which is not an
always reliable and not often accurate. There is often need to prepare yet for unforeseen
circumstances.
All members of company must participate in and be cooperative to make the process
successful often budgeting failed as a result of the lips services often paid by the Managers in
charge of the execution.
If budgeting is dependent upon too much management performance may be lowered as
employee attempt to manufacture figure to satisfy the project appraisal instead of relating
actual situation. In other to reduce blame on them, employee over estimate future cost or
revenue, they may also fail to take advantage of market environment as it deviates from
budget objectives this may lead to miss opportunity.
Inventory Accounting
Inventory accounting and management are key functions in manufacturing companies. It
usually comprises of crude materials, finished goods and items in production. Large
manufacturing usually invests a lot in their inventory management as it is vocal core point of
sale and goods conditions. Inventory account Management is often the valuation of stock at
hand at the end of a financial plan like wise the estimation of stock disposed during the same
period.
The benefits of inventory accounting is that it helps to take stock, avoid wastage ensure that
goods are commensurable with demands.
The limitation is the over dependent of stock to determine activities which may not take into
account of unforeseen circumstances and may thus not benefit from it or even loss from it.

M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
Advantages and Disadvantages of planning tools used by Delight Garments Factory,
Dubai - United Arab Emirates (UAE) and Choice Garments Factory, Sharjah ( UAE)
in their budgetary control system
Working Capital
Delight Garments make use of Net working Capital which means that only the current assets
are accounted for over current liabilities. Current assets consist of items such as cash, bank
balance, stock, debtors, bills receivables, etc. and current liabilities include items such as bills
payables, creditors, etc. Excess of current assets over current liabilities, thus, indicates the
liquid position of an enterprise.
Benefits
The use of Net working Capital It will help the organization to have a vivid reality of the
Accounting situation.
It will give it a good standing for loans and borrowing in banks.
Disadvantages
Less likely to receive loan from bank in financial situation is in trouble.
Investors will sport issues quickly
Choice Garment make use of Gross working Capital with gross working capital working
capital is calculated by adding up a company's current assets such as cash, short-term
investments, accounts receivable, inventory, and marketable securities. Liabilities is often not
considered when in this kind of working capital, this mean only a limited and an undetailed
accounting situation is recorded.
Benefits
It raised a company financial standing up
Make loan easy for the company
Allow company to take calculated risk

Disadvantages
Its misleading and may lead to error of judgements.
Banks may opt out of giving loan as the financial appraisal will not be detail enough
Cash Flow
Delight Garment Company Cash flow, AED policy and Overdraft policies is quiet peculiar.
The policy that emphasis the long-haul forecasting of once a year for the company financial
plan is further limited by the Cash at hand (AED). Which is quiet smaller compare to it
competitors. And the limiting default of not cashing out on idle fund through interest is quite
disadvantageous. There is also the restricted of the borrowing percentage which is already put
at 5% per annum.
Benefit of the above policies for Delight Garment
Management will be forced to follow through with the restricted financial plan as there is no
chance of a redraft.
Can lead to a more focused approach and a more strident approach to fund due to limited
cash at hand. And also, the zero chance of receiving further fund. If the borrowed fund is
exhausted.
The company as lower percentage of borrowing.
The company Net working Capital support the chance of getting the appropriate loan.
Disadvantages
Might run into financial trouble as the 12-month financial forecast is bad practice of financial
report which is often needed on a periodic basis especially for the manufacturing business
nature.
It may not be able to obtain required loan, and may run out of its limited fund quickly
Limited source of extra fund, as the company is not utilizing its idle fund.
There is not preparation for an unforeseen situation.
Choice Garment make us Company Cash flow, AED policy and Overdraft policies is
reasonably better. The policy that emphasis the long-haul forecasting of 6 months is still
periodic for the company financial plan is higher compare to the competitors and the set fund

is even allowed to accumulate interest which is an extra fund that the company may utilize in
its next periodic financial plan
The borrowing percentage is slightly higher compare to the options utilize be the competitor.
Benefit of the above policies for Choice Garment
The Cash flow forecast means that financial issue are remedy before the financial year runs
out.
There is a reasonable preparation for cash at hand to run activity through the cash disbursed
at hand, and also through the interest it might yield before the cash I seven needed.
The company arrangement of it borrowing policy enables it to bypass the banks strident rule
which the company may not qualify to obtain loan due to its gross working capital policy.
Disadvantage
The company pay back on its loan is relatively high and may impact on company profits.
The company can mismanage the presume excess fund, as the through financial nature may
not accounted, even the interest accrue by the surplus fund may not be well utilize.
Receivable Funds
Delight Garment credit base policy of 6o days is quiet long, its aging schedule of 11% is
quiet long enough and allow consumer to be unserious with payment. The arrangement with
factoring company is further compounded as it reduces the profits on the goods as the
factoring company will add own interest.
Benefits of the above polices
Customers are likely to be more at ease of doing business due to the long credit period. Thus,
more customer which means more profit.
The discount amount is likely to encourage customer to pay within the 1 months.
The arrangement with factoring company further helps to ease the burden of ageing report as
the factoring company is jointly sharing risk with the Company. Since customer are not
aware the relationship with the customer is further protected.
Disadvantages
High bad debt as customers may feel reluctant to pay.

There is also the risk of foregoing or forgetting debts. Firstly, due to the long credit period
and secondly due to the fixed one-time financial plan which may further make discovery
hard.
Fund may not often be available for activities since customer buying on credits are high and
the payment ratio high enough.
The factoring company may be reluctant to let out cash as they only do it for vouched
customer which may be limited or the said customer are not even buying on credit that
moment.
Profit is further lost when receivable is factored.
Excess use of the factoring company my spill lack of financial muscle for investors
Choice Garment credit base policy of 3o days is quite reasonable, its aging schedule of 9%
is low compare to competitors it gives customer time enough for payment and yet not making
them over comfortable with the debiting cash. The arrangement of promissory notes means
that it chances of receiving back the credits sold is relatively plausible.
Benefits of the policies
The customer is likely to pay back credit goods on time due to the shorten credit timeframe,
which means fund are consistently available for use by the company.
The discount of 5% is high enough to convince the customer to pay back credit within 15
days. Which further discourages long drag of debt.
For customer which seems to drag debt, the promissory notes mean the company can cash out
on credit goods when the need arises with no impact on its initial profits.
Disadvantages
There may be a strain in the relationship with consumers
Company is at a risk of loosing totally from customer that did not issue the promissory notes
Inventory
Delight Garment Company make use of perpetual inventory and Lifo for its inventory
approach. The limitation and benefits of this are discussed below;

A perpetual inventory tracking system records stock after each transaction to make an
adjustment. This means that the stock is not close down for a physical inventory taking as the
stock runny is consistently updated. adjustments to inventory balances after every transaction
through point-of-sale inventory systems.
The benefit of this approach to the company is that there is a detail inventory taking.
It allows a high degree of stock control by the Management. It a provide a detail sale
transaction of items, including where, when and what price goods was disposed. This further
allow for accountability. It is ideal for a manufacturing company of the very nature.
The limitation is that it is often very difficult to, maintain, the employee in charge of the
stock must be efficient, competent and honest as the employee action affects the company’s
decision.
Last-in-First-out or LIFO inventory accounting method estimates and values stock on the
assumption that stock brought in last is sold or disposed out fist.
The key benefit of this approach is that LIFO method matches the recent cost of goods with
the current revenue. It often allows the consideration of the recent stock bought as used in
estimating the cost of goods to be sold. Also, in a sudden Inflatory market environment the
potential reduction of tax helps the company maximize profits.
The limitation of the approach is that in times of price hack there will be a higher charge of
goods cost been sold this will bring about very low tax cost and profit gain.
Some environment does not permit reduction as the approach may limits tax. The situation
also often lead to unrealistic estimation of inventory at hand as it utilize a historical and old
costs.
Choice Garment Company make use of periodic inventory and fifo for its inventory
approach. The limitation and benefits of this are discussed below;
Periodic inventory management allows a company to take note of the start of inventory and
the ending of it in the scope of a financial plan. In this approach employee are made to take a
physical account of inventory after a financial plan timeframe is expired.
The benefits of the approach it is easier to carry out and cost less. It also has no need for
specialised inventory arrangement.

The limitation is that it is not ideal for a large manufacturing company with a big inventory. It
is too tacky. Limited details on stock information is acquired.
First-in-First-out or FIFO inventory accounting method values stock possessed and on sale
on the estimation that the stock sold and purchased firstly are also be used or disposed first.
The benefit of the approach is the selling the old stock first helps to reduce the impact of
obsolesce loss. Since it aims at utilizing the latest items purchase price, it achieves a more
realistic and current value. It is mostly favoured by all market environment.
The limitation is that FIFO may not be as accurate in times of high inflation the cost of goods
is often high in those periods yet the cost of goods still remains historic in nature. Also the
approach may result in a a low profit in the time of inflation as tax cost is increase.
Pricing
Pricing is a process of setting the cost of a product which will be received by the
company in exchange of services and goods. The pricing decisions of a company has an
impactful weight on company goal.
Pricing Methods
The Pricing strategies that are considered before price of services and goods are sets. Several
factors influence a pricing strategies target audience, company’s interest and Competitor.
Cost-Plus Pricing: This method involves manufacturing company to calculates what
production cost and then add up a percentage of mark up to achieve a selling price. The mark
up stands as the profit calculated on the overall cost e.g. Fixed and Variable cost.
Target-Return pricing: This type of pricing required a rate of return on an investment
which the company has already set a price to yield that. It means that price of product is fixed
on profit expected.
Mark-up Pricing: This is a method of pricing which allot a fixed amount or a cost
percentage is then added to the product’s costs to achieve or allot the selling costs of the
product, This type of pricing is often common in a situation where a retailer sells a product
to retrieve or earn an income.
Value Pricing: This pricing method allows company to engineer a low-cost goods and yet
maintain the expected quality of it. Although the prices are not reduced, however product are

re- engineered to reduce what it cost to produce it while at the same time maintain the quality
as well.
Competition-based Pricing: in this method of pricing the competition prices is usually
considered and often the base of setting the cost of a product. The company may price its
goods higher, lower or even the same as the competitor goods after adequate consideration.
Pricing and Estimation Techniques for both Delight Garment Company and Choice
Garment Company
Delight Garment Company make use of Cost pricing techniques, which involves a fixed
percentage of overall cost. It also makes use of Geographical segmentation for several of its
forecast. This approach focused on location to determine its estimation strategies. The
company also uses incremental techniques annually.
These approaches have a limited advantage for the company.
The Cost pricing techniques requires little information and it is also simple and ensures that
sellers are well insured even if changes in cost happens.
The company will benefit from Consideration of several cultural differences of the country, it
will also help to focus on a specific target market and maximize on it. Quiet ideal for the
socio-economic diversity and significant consumer behavioural differences of the country.
The use of incremental budgeting allows the budget to be prepared on time as there is already
a starting base. It means the success of previous budget can be carried over. While adjustment
will subsequently be made as time goes on
Disadvantages
Price is often set with little consideration to its influence on Demand. It discourages
efficiency as price is sets rather too low or too high. Also, as all cost pass through to the
customers it there leave no room to save money on production
The use of geographical Segmentation of assimilation assumes that the consumers are only
restricted to a location which is usually unlikely. It is also a limited and microscopic kind of
segmentation which often needs other segmentation method to be effective.

Increment approach utilize by the company also as the limitation of carry over issues as the
majority of the expenditure which is often related to base part of the activities is usually the
same unchanged. This means past inadequacies and wastage are repeated in the new process.
Choice Garment Company make use of Target pricing techniques prices are used to
determine what cost will be. It means the company must have a profit ratio in mind which it
will then calculate by adding it to the cost of production of an item to determine the price.
Sometimes the company look into the market to check the average competitors pricing and
then it removes the ratio of its profit and limit the cost of goods to the reminder. It also
makes use of Demographical segmentation which considers the lifestyle of the consumers for
its estimation. It lastly utilizes Rolling Budgeting to ensure the periodic and consistent update
of financial plan.
Advantages of the above policies
Target costing is advantageous because of it acceptance of the fact that business does not
possess a total control on what pricing would be. Thus, it limits product to what will pay
thereby ensuring that its product will find Marketing acceptance. It does ensure a level play
where all party consumers and producers’ benefits.
The Demographic segmentation utilize by the company is easier and simpler to use, as data is
often obtaining easily and at a reduced cost. Easy to understand by all units of the company
from Management to sales employee and even customer service units. It’s a good tool for
adequate profiling of consumers and help to tailor services. It can help company to evolve
products as the demographic of the customer changes.
Rolling Budget is to always to have an overview / extended budget to the next period. Just to
keep up planning and budgeting for the next period. So, an adequate appraisal report of past
performance is incorporated in the recent budget. It limits repeats of errors and correct
wastage on time. Ot allows for a revaluation of budgetary activity especially in response to
pressing concerns.
Disadvantages
Business are usually designed around cost which might be a tedious process for a company
that could not afford a developmental team. In other to make it profit and as well as meet the
market price company may often be force to cut corners by utilizing low cost of materials
which would destroy company’s Image.

The use of Demographic segmentation only creates a descriptive segments pf the consumers
not much information to understand the consumers personally of usually related. It works on
the often-wrong assumption that a same demographic group have a similar lifestyle or needs.
Rolling budget approach limitation for the company is the often-lengthy process of budgetary
which might make Management accounting look rather tardy or unsure. It doesn’t allow for a
long-time planning as budgetary activities with a financial is broken down.
Standard Costing
This is the determination of the cost of standards operations and their periodic activities to
determine what the reasons for changes or variances. It helps management determine and
control costs. is the establishment of cost standards for activities and their periodic analysis to
determine the reasons for any variances. Standard costing it involves the assumption of an
estimated cost for some or all the activities in a company. One of the major reasons for
utilizing this is to in processing where it is time consuming for a company to get the actual
cost of a product it used an approximate one.
Variance
A variance is the difference that occur between what the actual cost of a product is and the
estimated or standard cost. It is also what differs between sales forecasted and sales realised.
It thus means variance is applicable to both expenses and revenue.
Application of Standard and Variance by the Delight Garment Company
The company uses single overhead rate to allocate the items of overhead among
different products of the organization.
Using a single overhead rate to the direct costs of manufacturing products. Means that the
overhead is applied on the basis of labour hours that is often required to make the item.
Really the use of this approach is best suited for when the overhead of a company is low
compared to the direct costs of production. It cost less to implement are inexpensive to
implement. It is often used to serve external reports as it is easier to use and understand.
However, it does not depict actual picture of the costs of a product, as all the product suffers
the overhead costs without actual consideration of to the individual products that consumes
the overhead.

The company adopts the standard costing technique to control the production cost in
the organization.
The company approach 0use of standard cost to control production is focused on estimated
cost yet unknown. It helps in getting an estimated cost to work with rather than waste time
finding actual cost which might still prove elusive.
However, the approach suffers from the assumption that the estimated cost is close enough to
the actual cost which might become problematic if it is not.
The variance reports are prepared annually for decision making for the future.
The annual preparation of variance reports which ought to mitigate or soften the error of the
Standard cost is allowed to drag a full financial year. This approach is to tacky for an
accounting process as they, have to wait for the end of financial year to make changes
appropriately,
Also since resources is kept hand by the company in accordance with the assumption cost
without any application to its spending gauge the company may run into a finical mess which
might drag through a whole financial year. Which will definitely impact negatively on the
company.
Application of Standard and Variance by the Choice Garment Company
The company uses activity-based costing approach to allocate overhead rate to allocate
the items of overhead among different production departments of the organization.
Activity-based costing is the most accurate, to use and quite difficult. It is quite suitable for
the Manufacturing company of the company of study kind as each product cost is accurately
calculated. In addition, areas of wastage and unproductive goods are quickly discovered.
Although it is quite accurate, it could be time consuming, cost more to achieve. It is however
worth the price as it aims to make the venture more profitable through the strict analysis.
The company adopts the standard costing technique to control the production cost in
the organization.
The adoption of the Standard costing technique will relatively be closer to the actual cost due
to the Activity based costing with time.
Also since the spending is control by standard costing this will over a strident management of
resources and will not encourage waste. It will also help to prevent financial problems as the

spending is restricted to the estimated figures.
It however means that quality may be forego for profit as Manger aim at meting spending
plans rather than the quality of product
The variance reports are prepared semi-annually for decision making for the future.
The policy of semi-annual variance reports means that problems are tackle down on time
before moving into the next quarter of the year and this will help to stop the effect of a
dragging problem. And the allow company to recover on loss and maximise it profit in the
preceding quarters due to the lessons learnt from the year gone.
LO4 Compare ways in which organisations could use management accounting to
respond to financial problems
P5 Compare how organisations are adapting management accounting systems to
respond to financial problems.
Swot Analysis
Swot stand s for the strength weakness and Opportunity plus threat analysis of a company.
The management is responsible for conducting this internal process to ensure that weakness
and threat in the internal structure is discovered and mitigate against and the opportunity and
strength is highly utilize encouraged and propelled to achieve even better.
Swot analysis will help the Manager discover errors that can impar business goal, it will also
help it form a fiscal estimation and strategies that can help to guide management action
towards fulfilment of goal.
PEST
This stand for the political, economic, Socio and Technological issues that will impact
positively on company goals and objective. This are often external constraint and the swot
analysis is often derived from them A managers utilize this system to greatly manage the
effect of external situation on business and product so it can formulate a financial plan that
will enable it meet goals and objective. The external environment is a necessary factor they
influence how a company will fare financially. It is the role of the manager to ensure
adequate sturdy of the factor, formulation of plan and direction of activities according to
formulated plan. How well and on pointy this is done, is greatly determine by the Managers
skills and how well it is done also determine of successful a business venture will be.
PEST is a necessary tool to be utilize by a company that is attempting to penetrate a new

market. It helps management to formulate a starting financial plan and strategy for the
company.
In addition the role of top management and indeed good managers is to enable to make
changes where necessary so that overall objective goal will not be affected. When there is a
good relationship between employee and manager and manger feel their input is considered.
It will impact positively affect business objective.
Setting Corporate Culture
The corporate policies and acceptable behaviours generally start at the top level of
management. The managers must ensure that procedures and processes are well established
and expectations are met through those policies. How manager direct policies and procedures
through its daily running of the company will greatly help in establishing those corporate
cultures the company.
For example, a Manger policy that allows innovations and creativity will make a company to
be successful by continually improving on new ideas. The other length is that a company run
by a manager that does not possess this quality will be laid back and contribute to a stifling
corporate culture.
Communicating Company Goals
The goals and vision of the company guide the work that is completed by the employees.
The company manage must be able to communicate the goal effectively to employee and the
differs unit of the company. they need to understand where the direction of the company is
heading to. It is also the role of the managers to ensure the direction of the units under them
to propel and push them to achieve establish goals and to reach higher achievements for the
company the goal set must be measurable and achievable so it can drive real focus by all unit
involve.
Providing Support for Asset Management
The role of the Management Accounting is to provide the necessary units with tools for
analysis and provide top management with budget report and other financial reports to enable
them take decision. A company's financial decisions typically come from the top level of
management. This often include, Unit financial plan. It is often necessary that finance tools
needed are approved promptly so that employee will have tools to and resources to finish job.

A good manager will ensure that they fully supports the units with fiscal tools needed to
ensure performance and also coordinate appraisal of those tools and activity to ensure that
maximum utilization is ensured.
Ensuring Management Involvement
A good manager ensure that it is involves in all related activity of the company and carry
along the employee so must it be interested in Employee relation so that issues can be
discovered on time and the manager will be approachable by the employee in case of such
problems in need of reporting.
M4. Analyze how, in responding to financial problems, management accounting can
lead organizations to sustainable success.
This is a view of the Financial performance from the point of view of Stakeholders,
shareholders about what organization development and growth. It is constituting the measure
of a company financial health ad often express the suggestion on company use of it assets
from its core business and also from income generated. Ffinancial performance is a core
anchor an organisation’s sustainability and survival.
Managements Accounting is concern with the provision of data and information to those in
charge of managing and directing activities and it operation especially within a Company. to
achieve sustainability the key focus of management accounting are in the following areas;
Decision Making
It provides informed financial information that allows the managers operations create a well-
grounded Company decision. Through Financial Ratios, Variance analysis and Budgeting it
play a vital role in improving the decision of the company management and thus evade
financial problem while improving financial performance. As a result of the sustainable data
and information streaming in.
Management accountants help the business executive to generate value for shareholder by
exploiting and identifying where opportunities that will further generate that while taking

concern about cost management and risk. A successful Management must consist of
Competent personnel, clear goal and well supervised and managed activity performances.
Benchmarking
It is the process whereby a company compares its performance along with that of a rival
especially in similar sector or environment of market. The compared competitor must of that
which is widely accepted as best practice in the sector. It often measures up to that standard
and the company may choose to benchmark specific unit of production or services in the
business.
benchmarking can be used to pinpoint areas where a company is ahead and provide managers
incentives to improve their own operations.
Benchmarking can also provide the chance for company to attain standards by the
examination of both internal and external information. It provides a standard of excellence
which the company can then compare and measure to and this assist the company in
achieving good performance.
D3 Evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organisations to sustainable success.
Management accounting system under the control of Managers play a vital role in response to
financial issue. Through the following underlisted process;
planning process through the process of planning in long term and by utilizing the budgeting
system company will be able to establish a future financial plan that will be foul prove. Th
provision of historical data will help the company gauge its business feasibility and cost
goods at value that will ensure profit. It will also help to include market, pricing strategies
and inventory management to ensure that all run at a course that will guarantee profit. The
detail presented by the Managerial accountant helps in the forecast and plan as earlier
mentioned. Managers utilize the information to achieve a peculiar specific goals and
methods in the future. Manager use the plan to align actions or activities with business
objective. Although the ability of the forecast and adequate planning depends of the Budget
or financial plan developed.

Controlling: it also helps the management control the compares of achieved and planned
activities. For example, a drawn performance report will ensure that actual and estimated cost
of goods are in order so as to control pricing. Managers often take note of activities mot
accounted for in budget and direct or ensure immediate action against that. A manager in
decision making for a manufacturing company for example may be require to which goods is
best to produce by having to choose between two alternated items in other to remain
productive and achieve profits. Managerial accountant is thus usually prompt to perform cost
analysis of a product or units. The decision of the managerial accountant is subject to data
gotten from the Management Accounting system.
Organization of internal roles and duties in such a way that success is maintained, Manager
identify certain element of organization unit or structure which is appropriate for a proper
functioning of the Management Accounting and the achievement of financial plan. The
preparation of budget helps in determining the organization allotment of roles and duty.
Preparing budget is the basic activity of the Manager. Budget showcase the Organization plan
and action. It enables manager to fix assets an d resources to units that requires it most its
allow th elimination of units that are inadequately utilizing the resources.
Preparing budgets is a basic activity for managerial accountants. Budgets express the
company’s plan of action using quantitative figures. The budgeting process allows managers
to allocate.

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