LO1 Demonstrate an Understanding of Management Accounting Systems
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Added on 2021-02-22
LO1 Demonstrate an Understanding of Management Accounting Systems
Added on 2021-02-22
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Table of ContentsIntroduction...........................................................................................................................................1LO1. Demonstrate an understanding of management accounting systems............................................1P1. Explain management accounting and give the essential requirement of different types ofmanagement accounting systems...........................................................................................................1Management Accounting System......................................................................................................1History..........................................................................................................................................2Advantages of Management Accounting.......................................................................................3Impediments of Management Accounting.....................................................................................3Management Accounting System......................................................................................................4Processing Costing Overview........................................................................................................4Activity Based Costing (ABC)......................................................................................................5Inventory/Stock Management Systems......................................................................................6Job Costing System.......................................................................................................................7Price Optimizing System...............................................................................................................8Contract Costing System...............................................................................................................8P2. Explain different Methods used for management accounting reporting...........................................9Budget Reports..................................................................................................................................9Purpose for Budgeting Report.......................................................................................................9Performance Report.........................................................................................................................10Break – even Analysis Report..........................................................................................................11Investment Appraisal Report...........................................................................................................12Feasibility System Report................................................................................................................14Account Receivable Aging Reports.................................................................................................14M1. Evaluate the benefits of Management Accounting systems and their application within anorganizational context. (Arabian Resources Construction LLC)...............................................15Percentage Accounting Method.......................................................................................................15Job Cost Allocation.........................................................................................................................15Return on Investment (ROI).........................................................................................................16D1 Critically evaluate how management accounting systems and management accountingreporting is integrated within organisational processes..............................................................16LO3. Explain the use of planning tools used in management accounting..................................22P4. Explain the advantage and disadvantage of different types of planning tools used for budgetarycontrol..............................................................................................................................................22Budget.............................................................................................................................................22Inventory Accounting......................................................................................................................23M3 Analyse the use of different planning tools and their application for preparing andforecasting budgets........................................................................................................................24Working Capital..............................................................................................................................24Cash Flow........................................................................................................................................25
Receivable Funds.............................................................................................................................26Inventory.........................................................................................................................................27Pricing.............................................................................................................................................29Standard Costing.............................................................................................................................31Variance..........................................................................................................................................31LO4 Compare ways in which organisations could use management accounting to respond tofinancial problems.........................................................................................................................33P5 Compare how organisations are adapting management accounting systems to respond tofinancial problems.........................................................................................................................33Swot Analysis..................................................................................................................................33PEST...............................................................................................................................................33M4. Analyze how, in responding to financial problems, management accounting can leadorganizations to sustainable success.............................................................................................35Benchmarking..................................................................................................................................35D3 Evaluate how planning tools for accounting respond appropriately to solving financialproblems to lead organisations to sustainable success................................................................35
IntroductionThe report is written to critically analyse the Management Accounting System andManagement Accounting Reports as concerned to Arabian Resource Construction. Been aconstruction company there are certain Accounting System and Report that are quiet fitting tothe kind of business conducted. The report will attempt at exposing those importantaccounting system and report concern. It should be noted that a construction company likeArabian Resources Construction need Accounting system and Report to be able to keep trackof its Financial plan and consequently deliver standard construction service while scoping onprofit.LO1. Demonstrate an understanding of management accounting systems.P1. Explain management accounting and give the essential requirement of different types ofmanagement accounting systems.Management Accounting SystemManagement Accounting additionally is known as Managerial accounting is characterized tobe a procedure of giving monetary information and assets to the directors to act. It is utilizedinternally in the Company, and this is the main thing which makes it not the same asFinancial Accounting. The aim of the Management Accounting is to utilize this measurableinformation and take a superior and exact choice, controlling the undertaking, businessexercises, and advancement. Financial Accounting however is the introduction of accounting data for the use ofstakeholders of an organization. Management Accounting covers the use of budgetinginformation for accounting decision within the company.HistoryThe Management Accounting is anything but new procedure. Truth be told, it was first triedin the late 1800s during the Industrial Revolution. Around than ever, most of organizationswere possessed by a little gathering of industrialists. In contrast to the present act of lookinginto an Organization record as a consumer, credits and speculations were made dependent onRelationship and relation. This disposed of the requirement for profoundly point by pointmoney related announcing. By the end of the century the practice began to mellow down andeventually end.
With the beginning of 1900 came new government charges. These were joined by legislativeadministrative organizations, just as a developing monetary market. New rivalry implied thatmore business was done in cooperation with unfamiliar people than it was previouslypractice. Accordingly, organizations were required to grow progressively expand financialrevealing strategies to get capital. The key goal of Management Accounting is to empower the executives to boost benefits orlimit misfortunes. The advancement of the Management Accounting has given showcaseseveral objectives on Management Accounting. The principle goals of the Management Accounting are these: Arranging and strategic policies planThis includes anticipating based on accessible data/Information, setting objectives; confiningpolices deciding the elective blueprints and choosing program of exercises. It helpssignificantly this way. It encourages the arrangement of plans and statements in the light ofpast outcomes also, it gives estimation for to be expected. Translation processThe 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 factualgadgets like outlines, charts, diagrams, and so on. Aids Decision processesDecision can now be made in logical and direct fashion with the use of information contain inmanagement accounting. Procedure processes can now be analytically followed. Strategies ofmanagement of financial issues can be cautiously drafted. ControllingManagement Accounting is effective for the administration control and direction. Accountingmethods like budgetary and costing control are essentially in execution of control, involvingthe execution o each individual unit. Spending plans or budgetary draft are essential forcontrol of department spending and cost control effectively control standard costing.
ReportsIt is a source of information and serve to keep the management consistently updated on thefinances of the company. Through the purpose of reporting, management can have quickaccess to any financial information when it needs to make any though official decision. Encourages OrganizingIt allows for efficient organization structure as correct fact are utilize to structuredepartmental functions and activity processes and the general company organization are alsoeffectively drafted in such away that the activities base on financial decision are easily passedfrom unit to unit without hitches.Encourages Coordination of OperationsBudgetary essentially helps in the coordination of spending in the department. Accountingsystems is most effective in this regard as all activities of the company are often coordinatedand directed base on the financial plan and strategies of the company. Advantages of Management AccountingIt assists the company to expand and increase profit so that fund invested can be judiciouslyutilized. Since management accounting greatly lead to planning and strategizing it thus follow that theactivities 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 andensuring compliance. It most definitely ensures and increase the productivity of venture.Impediments of Management AccountingDespite the Management Accounting several administrative advantages to the board. Still ithas got a few restrictions they include: For decisive action, and for the process to be effective the decision makers most possessadequate knowledge of several field of accounting, statistic, tax and even economic. As in allpractical aspect those responsible for such decision often lack these basic skills. The processis affectual before it is even started.
It also means that the decision taking without the adequate knowledge of this list will be anerror in assumption lacking base and definitely heading towards a failure. . Management accounting system usually is very costly to set up and thereby may be necessaryfor a large company, but may not be avoidable by smaller company.It is also often impracticable ensuring compliance of management accounting methods byevery units of the company. Which is a very disadvantage to the process as adequatecompliance is necessary to achieve desired result. Finally cases that can not be financially understood but that still have serious impact on thefinances of the company is not covered by the process and this render the process lessadequate.Management Accounting SystemEach Management Accounting System (MAS) differ in their utilization Each framework isintended to give Management various info dependent on the necessities of Management, toassist 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 OverviewThis costing is often used by manufacturing company especially those that deals in largescale production. In this kind of production, the expenses are cost as a process because it isdifficult to cost each individual item unit. It thus follows that each expense expel onindividual items production is assumed to be the same with other items in the allottedproduction. This process then allow cost to fixed for particular amount of period and thenconsequently 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 productionor actually the present are treated as one and ensured under a single production unit. It treatsall product and item as a single cost unit. It then means that ascertaining the varied cost ofeach items is often very difficult. Standard costs. This covers the explanation of standard costing of items. It usuallysupersedes 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. Thedifference is often pushed into variance after each product complete expenses have beendecided.First-in first-out costing (FIFO). This is an inventory costing strategy that involves the costing of goods initially begun butunfinished 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 exampledetermine the price of millions of gallons flowing from the treatment plant of an industryActivity Based Costing (ABC)Activity based costing (ABC) is a system of allotting overhead expenses by doling them outinto exercises. When expenses are doled out to exercises, the expenses can be allotted to thecost in question which utilize those exercises. The framework can be utilized for a focuseddecrease of overhead expenses. ABC works best in complex conditions, where there arenumerous machines and items, and tangled procedures that are difficult to sift through. Onthe 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 thecompany 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 tobe 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 theprogress 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 andalso pinpoint the particular client that is responsible for incurring such expenses. This willassist the company in exposing clients that are bearing no fruit so as to let them go or for amore focus on clients that are greatly benefiting the companyCost distribution can be done more effectively as the company ensure several channels todispose of its items or example the Internet, retailers, delivery request, and sell merchant. Theframe work allows the company keep up with vast activity of distribution and consider theones that are mostly working and the one causing loss to the company. This understanding oftheir overheads will allow the company know the channel to reimburse and the one to disposeof, The ABC framework give a detail of cost of items involve in production of a good. This helpsthe company understand which cost can be dispose if production is resumed and the cost thatwill consistently need to be renewed. There are certainly many advantages of ABC. It however often relies on the organizationstructure. The company that wishes to utilize the framework must structure it in a way thatensures 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 producethe expected information or data. It also however means that since the setting up of theframework is quiet expensive the organization must conclude on whether the cost of theframe 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 termsInventory and stock are regularly utilized conversely. Stock can be seen as either utilizeditems to carry out a work, contributions to a processing procedure or products offered toclients. Inventory Management System
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