Unit 5 – Management Accounting

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Unit -5 Management
Accounting

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Understanding of Management accounting systems...................................................................1
Various methods of management accounting reports.................................................................2
TASK 2............................................................................................................................................4
Range of management accounting techniques............................................................................4
TASK 3............................................................................................................................................9
Use of planning tools in MA.......................................................................................................9
TASK 4..........................................................................................................................................12
Organisation use MA to respond financial problems................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting plays a important role in every business entity today and
therefore decision makers in the business must understand how to develop and use good
management accounting information. Good management accounting consist of responsibility to
arrange a broad area of critical management accounting information (Kim, 2020). This report
based on the Pearl Charted accountants are one of UK's best charted accountancy firms that
provides services to their customers like freelancers, small to medium size business entities.
Along with supports in business growth strategies, accounting tax and many others. The firm
provides service of new client Connect Catering Service which is a family owned and operate
catering service that depend on the Oxfordshire. In this report consist of various types of
management accounting systems and reports to analysis the performance of business. Along with
use different budgets to forecast future situation that helps in decision making and analysis
financial problems that sort out by management accounting techniques.
TASK 1
Understanding of Management accounting systems
Management Accounting: It is defined as technique which is used by the different types
of organization for analysing the cost of business. Along with it helps to determine operational
cost for the preparation of financial statements at the end of financial year. Manager of Connect
catering service use this technique on routine basis and provide guidance to top level executives.
Mainly management accounting use by entity for external analysis and supports its stakeholders
in decision making procedure.
Management accounting system: It is a accumulation of internal system of an entity
that presents actual performance of business entity. These systems guides internal stakeholders to
analysis their profitability and increase performance. Such as Connect Catering service use MA
system for track record of each department and make effective decisions (Mahajan and
Deobagkar, 2020).
Inventory management system: This method mainly related with the observing and
tracking stock information for conducting different operations is known as inventory
management system. Such as, Connect Catering use this system to track manufacturing
procedure and observe that how much raw material used by the company at different steps of
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making Pizzas. Along with it helps to keep detailed information of stock for operational
activities. For this use these types of activity:
AVCO: This method apply by company when all the stock analysed on average cost basis
and sale out accordingly.
LIFO: This method directs managers to used those goods firstly that are coming in last
for operational activities.
FIFO: As per the method organisation can use those goods that are coming first in the
company for manufacturing foods.
Manage of company select FIFO methods to manage stock properly and reduce wastages.
Price optimisation system: It is most important system that apply by the every type of
business entity to set effective price of their products. It helps to attract large number of clients
and generate more profitability. For this purpose, Connect Catering apply this system to
determine the price of each products and set preferable rates for customers. The essential
requirement of system to figure out the right price of each product (Kumalawati and Muhammad,
2020).
Cost accounting system: It is a framework which is concentrated on estimation of cost
of different items produced by the entity. Connect Catering service manager use right cost for
manufacturing food and deduct extra expenditure. As a result it helps to generate profitability in
effective manner. The essential requirement of this system that estimating and analysing future
expenditure to perform in effective manner.
Job costing system: Different types of entities operate various activities to bring out
operations and job costing system record all of them. The management of Connect Catering are
using this system to roll up and provide manufacturing cost to different units that are produced
by it. The essential requirement of the system to discriminate expenditure that based on the
different jobs and performed as per the situations.
Various methods of management accounting reports
Management Accounting Report: It is mechanism that is used in the process of
planning, regulating, decision making, and measuring the performance (Farooq and De Villiers,
2019). Management accounting report uses the budget reports is to analyse the employee
performance and their department performance and cost control. Management accounting mainly
focus on the segments in the business. They provide the managers with the accurate and financial
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information. Some of these various methods of management accounting reporting within
Connect Catering Services are as discussed:
Performance Report: Performance report is used to analyse the performance of a entity.
Each and every department should be analyse at the end of a term. It involves collecting of
information, communicating project development and utilization of resources should be decided
in the management team. For the Connect Catering Services, Managers used their performance
to make a important decision about the upcoming of the organisation and to analyse the each and
every employee performance. It modify the management to realize the growth possibility within
the company and identify the overall performance of the company (Khorunzhak, Brukhanskyi
and Ivanyshyn, 2019).
Cost Accounting Report: This report determines the cost of piece that are manufactured
like all raw materials, overhead costs, labour are considered. It is a summary of all the
information related to cost report. In context of Connect Catering Services, they use better
optimization of resources can be achieved all the expenses include inventory, labour costs,
overhead costs. It is also helpful in the organisations to identify where a firm is spending its
money, how much it gain and where money is wasted.
Inventory and Manufacturing Report: Inventory report helps to run the enterprise
without any happening and reduce costs to moving out of stock. In entity, inventory are used to
manufacture goods to be sold and it is the overall current assets of the business. The main
objective of the inventory management is to pitch a proportion between inventory management
and client service. With context of Connect Catering Services, it helps to keep stock, manage
double locations and check exact record keeping. To provide better customer services, fast
delivery, shipping charges is low, reduce costs and meet client demand.
Account Receivable Aging Report: Account Receivable report helps to realize financial
well-being of the entity that determines the power of assets, collections of functions and set the
existing balance in this process. This type of report is interested with succeed of account
receivables for organisations. It helps to keep product and services until the quantity is paid by
the customer on a specific period of time (Bergmann, Fuchs and Schuler, 2019). In case of
Connect Catering Services, it increase the cash flow activities, to identify the doubtful debtors
with the formulation in the account of report, to make the policy will attract the customer in
order for cash purchase. This report helps in decrease non- performing assets of the company.
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TASK 2
Range of management accounting techniques
In the context of business and accounting cost is monetary value that calculated by the
company of manufactured products. It is an expenditure that necessary for manufacturing or
selling products to get ready assets for normal use. It is amount that paid by business for
producing a product, buy stocks and get equipment ready to utilisation in business procedure.
Absorption costing: In this technique companies treated all producing costs in which
consist of fixed and variable manufacturing cost. This type of costing is used by the business to
create inventory valuation that is presented in the accounting books. Total cost modify
proportionately in total activity while fixed cost do not change as activity levels change. Such
costs are not identified as expenditure in the month if a business pays for them rather than they
remain in stock as an asset until stock is sold (Barr-Pulliam, 2019).
Marginal Costing: It is a accounting system that use by the entity for variable costs are
charged to cost units and written off fixed cost in specified period of time. The variable costs are
using for output changes and activated under marginal costing method. It is helping to determine
profitability at various level for the manufacturing and sales.
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TASK 3
Use of planning tools in MA
Budget and budgetary control: Most of the entities are prepared different types of
strategies and plans for controlling expenditure that helps to conduct operational activities.
Budget is a document that prepare by the management to forecast future expenses and income on
the basis of past operational activities. As a result it helps to generate profitability in large
manner and guides to management. Such as, Connect catering create various types of budget like
zero based budgeting, sales, purchase and many others. These are helping top analysing future
situation and help management to allocate funds accordingly.
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In order to facilitate controlling procedure is followed by manager of various entities in
called as budgetary control. It helps to managers to find out the variation in between actual and
budgeted plans. As a result it helps to analysis the actual performance and control those activities
that are not required for the business. Connect catering is concentrating on managers for proper
preparation, coordination and controlling the procedure of allocation of budgets. There are
mentioned different types of planning tools such as:
Zero based budgeting: It is a type of planning tools which is utilised by the manager to
assign funds to various department of business entity as per the necessity. For the preparation of
budget take zero value rather than consider last year budget history. Such as, Connect Catering
service use this method for reduce costs and increase profitability (Gerdin, 2020).
Advantages:
It helps organisations to reduce their extra activities and focus on achieving their goals by
managing each activity. In Connect Catering Services case, zero based budgeting with
provide them ways to identify their opportunities and many cost cutting ways in order to
remove unproductive activities.
Allocation of all resources is done efficient with this budgeting which leads to proper
utilisations of available resources. With this budgeting Connect Catering Services can
fully utilise their resources without looking into their past numbers. This will help
concern entity to make their pizzas with good quality of material at sufficient quantity.
Disadvantages:
Processing of this budget is very time consuming as they are form every year. For
Connect Catering Services it will be difficult to plan their budgets every year. This will
affect their supplies of piazzas to superstores.
This budget require trained managers and high workforce. As their company is expanding
it will be difficult for them to invest so much at this stage.
Master Budget:
Master budget is a planning tool that include all lower level budget including forecast of
cash flow, financial plan and budgeted finance statements. Its a planning document that
including both operating and financial budget. Operating budget include activity related to
income generation for the firm. Financial budget show firms financial position through inflow
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and outflow of cash. In the context of Connect Catering service, it is important tool that measure
the performance and coordinate activity.
Advantage of Master Budget:
Planning in Advance: Master budget helps to find the problem in advance and solve
them. If a division of the selected company is not working well and increases the expenses then it
will lower the profitability of the business.
Helps in Achieving Goal: Master budget helps to achieve the long term goals of the
business by optimum utilization of company's resources and it also helps to control and monitor
business activities in Connect Catering (Bedford, 2020).
Disadvantage of Master Budget:
Difficult to Update: It is very difficult to make any small changes in the master budget.
Any change in master budget need lots of steps which take more time and efforts.
Rigidity: Through master budget owner of Connect Catering service create pressure on
staff to achieve target and the manager cannot focus on new opportunities for the business.
Sales Budget
Every organisation requires to prepare a plan which can facilitate operations of
organisation. This can be ensured when an accurate plan is made as how the finances will be
spent. The major aim of sales budgeting is to forecast sales and take appropriate measures to
achieve it so that maximum profit is earned. To prepare sales budget, sales manager is required
to cater information from market on basis of past experiences and also through ongoing tastes
and preferences of consumers in Connect catering service.
Merits
Budget makes a detailed study which can resolve issues which might occur in future.
Budget makes operations worthy thus expenses can be controlled in Connect catering
service (Bochulia and Melnychenko, 2019).
Through budgeting, goals and objectives which are prepared can be evaluated at regular
intervals and make their accomplishment quick and easy.
It eliminates wastes and saves time which can enhance productivity and efficiency of
organisation.
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Demerits
When budget is followed blindly there are chances of failures as budget is an
approximation not accuracy (Giacomini, 2020).
At times of contradiction in thoughts, budget can be mismanaged as it is not followed
precisely.
Budget making is a time taking process and can delay further operations.
Several times due to dynamism it becomes hard to change the budget plan and can
hamper the whole process.
TASK 4
Organisation use MA to respond financial problems
Financial problem: It is a situation that face by the most of the organisations due to face
financial losses. There are different reasons of overspending of financial resources that impact on
the business entity. Connect Catering service face many financial problems such as:
Unplanned expenditure: Many time organisations can not plan some expenses that are
occurred in the mid of financial year. As a result it impact on the business entity in
negative manner and the major one of repairing food machinery. To deal with this
problem require to utilised funds in particular time period.
Late payments from clients: Connect catering is family based business in which many
relatives do not paid amount on time and it offers credit to its customers like retailers. So
they make refuses to make payments on time that may impact on the availability of
money for operational activities (Allawi, Mijbil and Salloomi, 2019).
Poor management of money: When company do not monitor cash inflow and outflow in
proper manner so it will impact on the business in negative manner. Such as, connect
catering service is not manager cash flows as a result create financial problem. At this
situation manager can not manage all the information and actual availability of funds.
In order to respond above financial problem require use different types of management
accounting techniques mentioned below:
Key performance indicator: This technique use by the business for qualitative and
quantitative measurement. On the basis of measurement company analysis their failure
and success of the procedure. Such as, Connect catering use this to identify poor
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management of money due to do not aware about the inflows and outflows (Rauscher and
Zielke, 2019).
Benchmarking: It is defined as management accounting technique that apply in small to
large organisations to compare policies with their rivalry. It supports to identify the error
in business that arise at any time and impact in negative manner. The manager of Connect
Catering use this technique to compare their credit policies with their competitors for the
improvement.
Balance score card: This management tool used by the managers to adjust routine basis
activities of all the employees. This tool supports to identify, enhance and control a
business activities and carry out results. This tool mainly utilised for the improvement in
internal functions as well as efficiency of staff members to recognise the problem.
Financial governance: Most of the organisations can use this technique to follow with the
particular financial principles at the time of preparing of financial accounts and arranging
funds properly. The manager of Connect Catering deduct the chances of poor
management of funds so it directs to all accounting professionals to apply accounts as per
the rules and conditions (Ozkan and Ozkan, 2020).
There are comparing the the performance of a business with another organisation in order
to respond financial problems effectively:
Management
accounting
technique
Rolls Royce Aston Martin
Financial
Problem
The company face the problem of late
payments from clients due to poor
credit policies. As a result increase
debt of company and do not survive in
proper manner.
The financial problem arise in the
business of poor management of
money. Thus, it impact on the
business procedure and its position. It
create financial problem in the
business.
Management
accounting
To identify this problem in the
business use Benchmarking where set
For the identification of such financial
problem use KPI technique that
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technique criteria for each activities. If entity do
not able to conduct business activities
that time use this technique to find out
cause of late payment in the business.
mainly utilised by business of
financial and non financial activities.
Management
accounting
system
This problem sort out by Inventory
management system in which mention
about different client who take
inventory from the company on credit
policies basis. Through this system
tighten credit policies and take
payment on time.
For this problem use Price
optimization system in order to set
effective price of each product after
that record all the transactions in
routine basis. With the help of this
system calculate price of each items
that sale out company and computed
profitability.
CONCLUSION
As per the above report it has been concluded that management accounting is used by the
every type of business entity whether small or large. This accounting supports organisation to
analysis actual position of business and track a way by the different systems like price
optimization, inventory and many others. Along with use different costing technique for the
calculation and get different results. Moreover, apply different planning tools like master, sales
and zero based budget for forecasting and predicting things. At the end of report sort out
different financial problem by management accounting system effectively.
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REFERENCES
Books and Journals
Kim, K. I., 2020. The Impact of SMEs' Smart Factory Systems Implementation on Management
Accounting. Journal of Convergence for Information Technology. 10(9). pp.8-14.
Bochulia, T. and Melnychenko, O., 2019. Accounting and analytical provision of management in
the times of information thinking. European Cooperation. 1(41). pp.52-64.
Mahajan, A. V. and Deobagkar, S., 2020. Practical Application of the Management Accounting
Tools for Decision Making During Recession-Survey and Analysis. The Management
Accountant Journal. 55(2). pp.85-90.Williams, K., 2019. Management Accounting:
Expanding Relevance. Strategic Finance. 100(12) pp.38-43.
Kumalawati, N. and Muhammad, R. N., 2020. The Implementation Analysis of The
Environmental Management Accounting at PT. PINDAD (Persero). Indonesian
Accounting Literacy Journal. 1(1). pp.54-65.
Farooq, M. B. and De Villiers, C., 2019. The shaping of sustainability assurance through the
competition between accounting and non-accounting providers. Accounting, Auditing &
Accountability Journal.
Khorunzhak, N., Brukhanskyi, R. and Ivanyshyn, V., 2019. Logic-statistical information models
in control function of accounting. Independent Journal of Management & Production.
10(7). pp.846-871.
Bergmann, A., Fuchs, S. and Schuler, C., 2019. A theoretical basis for public sector accrual
accounting research: current state and perspectives. Public Money & Management. 39(8).
pp.560-570.
Barr-Pulliam, D., 2019. The effect of continuous auditing and role duality on the incidence and
likelihood of reporting management opportunism. Management Accounting Research.
44. pp.44-56.
Gerdin, J., 2020. Management control as a system: Integrating and extending theorizing on MC
complementarity and institutional logics. Management Accounting Research. 49.
p.100716.
Allawi, K. M., Mijbil, S. H. and Salloomi, R. K., 2019. The compatibility between lean
accounting and cleaner production for achieving competitive advantage. Polish Journal
of Management Studies. 20.
Bedford, D. S., 2020. Conceptual and empirical issues in understanding management control
combinations. Accounting, Organizations and Society. 86. p.101187.
Giacomini, D., 2020. Use of accounting information by mayors in local
governments. International Journal of Public Administration. 43(4). pp.341-349.
Rauscher, S. and Zielke, A., 2019. Part II: Qualitative Study–Status quo in Accounting.
In Nudging in Management Accounting (pp. 25-45). Springer Gabler, Wiesbaden.
Ozkan, M. and Ozkan, O., 2020. Financial evaluation of mental accounting.
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