Unit 5 – Management Accounting

Management
Accounting
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK1.............................................................................................................................................3
P1 Definition of management accounting and interpretation of their relevant system...............3
P2 Reporting system of managerial accounting:.........................................................................4
M1 Evolution of advantages of managerial accounting system..................................................5
D1 Integration of accouting systems of management and their report.......................................6
TASK2.............................................................................................................................................6
P3Statment of income by managerial accounting techniques.....................................................6
M2 Uses of management accosting reports for financing report:..............................................11
D2 Interpretation of financial activites through report..............................................................11
Task 3.............................................................................................................................................11
P4 Description of various planning control tools....................................................................11
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M3 Uses of budgetary planning tools for forecasting business activities.................................13
TASK 4..........................................................................................................................................14
P5 Needs of managerial accounting tools for financial problem...............................................14
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success:.........................................................................................16
D3 Evaluating manner in planning tools for accounting respond to solve financial
problems/issues to lead entity to sustainable successes:............................................................16
CONCLUSION..............................................................................................................................17
REFRENCES.................................................................................................................................18
INTRODUCTION
The term accounting of management is provision of accounting data and suggestion or advice for
enterprises to use it for business enterprises and future development of the business. In other
words, it is a process of systematically use financial information collects from analysing
(Cooper, Ezzamel and Qu, 2017), recording, accounting information. In order to understand this
concept Creams limited has been selected. This organization runs their business activites from
United Kingdom. It is medium size enterprises which provides ice cream, doughnuts, waffles and
other foods and drinks product at small level of market environment of UK. In this report
meaning of the term management accounting has been defined and various system implement by
mangers for taking essential decision clearly mention. This report also included the uses of
various managerial accounting technique for analysis causes of financial problem and solving
issues related to these problems. Business organization use management accounting to increase
their rate of profitability and efficiency this report describes it in a detailed manner.
TASK1
P1 Definition of management accounting and interpretation of their relevant system
Management accounting technique used to formulate policies and help in decision making
procedure following are the systems have been used in the management accounting policy. To
provides benefits to the Creams limited:
Job Costing system: This system has been developed for identifying cost of each product
manufacturing in organization. It will help in identifying the whole procedure and expenses
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incurred in each step of production making. Manager of Creams limited will be used this system
of management accounting in order to analysis their cost value of each procedure (Jamil and
et.al., 2015).
Price Optimisation system: It is the most useful framework for business organizations. By using
price management system, managers can identify which pricing strategies is beneficial for their
organization. It includes various types of pricing strategies; thus system also help in gearing
profits by maximize value of selling price.
Inventory management system: This system has been developed to verify and check stock
storage of the organization. It includes various types of inventory mechanism technique through
which managers can check, evaluate their inventory level and formulated polices to control and
manage their raw material, finished goods inventories. Manager of Cream limited will uses EOQ,
ABC analysis, JIT technique to control their inventory through within they can control extra cost
of managing the stock.
Cost managerial system: Management accounting system includes various techniques to
controlling of cost. Job costing, process, standard and marginal costing is part of this system. All
these systems help in evaluation of cost of organization. Manager of the Creams limited will
used this technique in order identify their cost, it will help in decision making and profit
increasing (Lisi, 2015).
P2 Reporting system of managerial accounting:
Report is formulated to define detailed summery of an event activites. Normally reports are
prepared for writing all the essential steps and advises suggestion and decision taken in meeting.
Management accounting reporting are prepressing for taken as proof of the business activites
following are the types of management accounting reports business organization uses:
Budgeting report: These are the detailed summery of all the activites of business organization.
It is prepared on the basis of data collected from various budgets of the company. Budget report
is providing all the essential information regarding cash flow, sales, expenses production,
marketing etc. With the uses of this budgeting report mangers can identify their future revenues.
Manager of Crèmes limited used to implement this report for verifying their budget and to
analysing their future income of the enterprises.
Account receivable report: It is a framework which is used to analysis the present situation of
business organizations debtor account. Main reason this report is to identify causes of problem
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and issues related to debtor policy which is reason of shortage of cash inflow within the
organization. Creams limited formulated this report for verify their debtor’s position and
implement policy through which they can identified ways to manage their debtor policy by
providing them satisfaction (Hajnal and Riordan, 2020).
Inventory report: Managers formulated this report in order to analysis their stock level. This
report provides brief summer of maximum level, minimum level of stock time taken of covering
operating cycle, cost incurred on managing stock, etc. Inventory report also describe the polices
uses by business organization to manage all the functions and software of inventory. Manger of
Cream limited uses it for taking essential knowledge regarding inventory.
Performance report: This report plays essential role for every business entity. Every business
entity formulated performance report to analysis result of their department outcomes it is a the
summery of all reports manger prepares it by collection data from each department of the
company. This will help identify the actual result and budget and standard results of the company
it is use as proof for auditing process. Manager of Creams limited use performance report in
order to analysing their workforce performance level (Watkiss, Hunt, Blyth and Dyszynski,
2015).
M1 Evolution of advantages of managerial accounting system
Management accounting systems provides various benefits to business organizations.
Creams limited is medium size organization and they have lack of resources thus their manger
use cost accounting system to determine costs and uses inventory cost techniques through which
they effectively use their scarce resources for manufacturing and selling process. Pricing system
help them to increase their sales revenue by determine effective price policies for their products
which satisfy customer and also useful for generates profits by selling various food products
(Jakhar, 2015). Here are several key advantages in context of respective corporation of described
MA systems, as follows:
System Benefits
Job Costing system: This method in Creams Limited is useful for
making polices related to control wastage and
additional activities during the manufacturing
process.
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Price Optimizations System For manager of Cream limited this mechanism
is advantageous to identify pricing policies of
their organization which can overcome cost of
product and help in gain profit (Silvius,
Kampinga, Paniagua and Mooi, 2017).
Inventory management system This could be benficial for Cream Ltd to
control risks related to inventories loss and
minimising inventories costs.
Cost management system This is beneficial for respective entity to
ascertain main cause of any increasing costs
and in optimising costs.
D1 Integration of accounting systems of management and their report
Manager of Cream limited use managerial accounting system and various repost for taken
as proof for their future audit process and implement useful polices for their business
organization. Both will use for providing essential accounting information which help in taking
decision and plans and policies for future use of their medium size organization. With the use of
these they can control extra cost of managing ice-cream and waffle food item and maintain
(Melitski and Manoharan, 2014).
TASK2
P3Statment of income by managerial accounting techniques
Business organization implements various methods of management accounting to calculate
cost and profit earned during specific period. Following are the technique use by Creams limited
to identify profit and cost value
Absorption costing: It is the technique of calculating cost of particular product by taking all
material together directs as well as indirect material or labour cost.
Marginal cost: It is also known as variable cost. This method includes only variable cost. It is
use to analysis effect of additional units on manufacturing cost and profit of the company
(Michalski, 2012).
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M2 Uses of management accosting reports for financing report:
Management accounting techniques uses for framing financial report with the use of information
collected by applying all those technique, manger could make their finance report and they also
can use it to identify tax amount. Manager of Creams limited use absorption costing system to
identify their cost and they also use standard costing to determine gap of their actual cost or
standard cost. With the uses of theses technique, they can formulate effective financial report
(Muller, 2019).
D2 Interpretation of financial activities through report
Financial report use for providing necessary information to relative stockholders of the Cream
Limited. Manager of this enterprises prepares fiancé repost in each year to determine their cash
flow activities and analysis liquidity position of the business organization. They use it to
effectively maintain their cash position within the organizations day to day transaction can easily
run without any. Here as shown above net profits absorption costing approach for month of Jan
and Feb are 50000 and -25000 respectively while such figure in applying marginal costing
approach are 50000 and -5000 respectively. Here difference in net profit figures are due to under
or over absorption of fixed overhead costs (Nartey, 2018).
Task 3
P4 Description of various planning control tools.
Planning tools are implemented by business organizations for planning and controlling purpose.
Following are the tools of planning uses for budgetary control:
Budgetary Control: It is a process of controlling budgetary activites of business organization
for implementing budget activites at predetermine time period.
Zero Based Budgeting: This method of budgeting is useful properly for newly establish
organizations or ventures. In this process budgets are prepared on the basis of collection of initial
level information. All the data collected from primary sources of information thus it is known as
This budget has been provided accurate information regarding future It is use for decentralization
process. Preparation of budget from this method is very complex. It requires high amount of
capital investment for researching and formulating of budget (Otley, 2016).
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Activity-Based Budgeting: In this method budgets are prepared from allocation of resources.
Manager implement budget after consider cost of allocation of resource. It is systematic process
of formulation of budget.
Advantage
 This method is helpful in utilization in a better way of scarce resource.
 This method uses for eliminating wastage activities.
Disadvantage
 It is time taken process of preparation of budget.
 It requires skilled employers for using this method and adopting it within the work place.
Rolling Budgeting: - This budget is prepared on continuously basis. Rolling budgets are
prepared for short term period basically within 1 year. These are formulated for quarterly basis
(Quilty, Cosentino and Bagby, 2018).
Advantage
 Rolling budget help in planning and controlling process.
 Chances of errors and mistake are decrease by using this method of budgeting.
Disadvantage
 It requires time for formulating budget by this method in 3 times in a year,
 Work force gets dissatisfied and de motivating they get frustrate by change of polices and
adopting new polices within short period of time
Price strategy: Theses strategies are uses by business organizations according to their capacity
and condition of the business organization. Various pricing strategies are uses by mangers for
example penetration, discounting, comparative, cost price etc. These are help in determining
price of product and also profitability rate of the company.
Advantage
 Prices strategies use for decision making process regarding determination of price.
 Profitability rte of the company depends on theses pricing strategies.
Disadvantage
 It ignores demands or influences from many factors
 It does not provide incentives to improve efficiency
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Cost system: This is used for controlling budgets with the use of implementation of various
kinds of costing techniques all these techniques are help in determine cost and also controlling
tools for cost (Robalo and Gago, 2017).
Advantage
 Help in identifying cost of business transactions and activites
 It uses in controlling uncertainly for business organization
Disadvantage
 It is complex procedure of using cost systems
 It requires expert to formulate threes systems.
Strategic planning tools: Business organizations use strategic planning tools for determining
their strength weakness, and indentify effect of internal and external environment factors. With
the use of strategies planning tools they can grapes opportunities and use opt for controlling
uncertainty and provides incentive for their employers by performance evolution. SWOT, PEST,
Balance scorecard etc are use as strategic planning tools.
Advantage
 These are use for analysis threats, opportunity for business organization.
 It is use as base of performance evaluation technique
Disadvantage
 It is time consuming process.
 It is not necessary that all the information is reliable as it depends on skills of manager to
scan in effective way overall environment.
M3 Uses of budgetary planning tools for forecasting business activities
Various planning tools are use for forecasting and implementation of budgets. Manager of cream
limited uses activity based budgeting method in order to formulate their budget. It will help in
providing effectively utilization of their financial resource as well as better uses of production
factors. They use price penetration strategy at the initial level they provide low cost product ad
when their brand gets famous they increase prices in Creams Ltd. They use SWOT amylases
technique which helps in determine their threats opportunities of future through which they
forecast and build polices to control risk. They use all these tools and techniques in order to
control business activities. Planning tools provide a foundation framework for budget creation
and the related projections. Such all addressed methods for forecasting help administrators make
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correct decisions when preparing budgets. In organizations Cream Ltd. executives use the
budgets mentioned to evaluate the performance of company with pre-budgeted figures and make
forecasts more pertinent. Managers using planning tools may render more accurate forecasts and
predictions of the different facets of organization (Schmidt, 2017).
TASK 4
P5 Needs of managerial accounting tools for financial problem
It has been identified that there is significant rise in competition in market circumstances that
lead towards different type of financial issues as well as problems that are being facing by
organization. These problems can arise from enforcement and insufficient form of government
planning. This has been determined that budgetary difficulties mainly take place because of
scarcity of capital funds or in effective task management by companies. Mentioned below there
are some certain financial difficulties that are being facing by Creams Ltd:
Errors in accounting records- This has been evaluated that company faces financial
problems such unintentional or deliberate distortion of figures all errors in accounting record.
This lead towards improper financial statement planning along with this company also face issue
related to investments and undertaking clear sales and more. These financial issues affect Creams
Ltd that further affects their financial reports.
Inadequate protection of financial assets- This financial issue is mainly related with risk of
money losing. This mainly take place when entity non monitor unknown or specified properties.
This financial downturn lad organization to face number of financial issues like lack of capital
and more (Singh and Verma, 2018).
MA methods to respond financial problems:
Benchmarking-
Benchmarking is defined as a practice of comparing business performance metrics and
process to industry best practices from other companies. With the help of this technique
organization can effectively able to evaluate internal opportunity and can make further
improvement in them. With the help of this entity can also evaluate internal issues and can
specify their monetary problem. With the assistance of benchmarking technique manager can
overcome the issue related to inadequate protection of financial assets that can minimize
organization overall productivity.
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Key performance indicator-
It is a methodology which is mainly related to successful assessment of non-financial and
financial facets. Key performance indicator assists of this, method manager can effectively able
to measure performance of employees, productivity rate, expenses and financial perceptive of
entity. In addition to this key performance indicator also aid Creams Ltd to evaluates errors that
arise in accounting records because of conflicts at are increasing among internal stakeholders
within entity.
Financial governance-
It is method that aid organisation to evaluate and determine their overall financial transaction
in a particular period of time. In these real monetary issues get identify and approaches in order
to overcome the problem. It has been being evaluated with the assistance of this tool manager of
respective entity can develop plan and can overcome financial issues at starting level that act as a
main reason to decrease profit margin of entity. Along with this financial governance tool
manager can analyse every record and overcome problem in order to make sure that it will not
affect company in future.
Statement of comparison
Particular Creams Ltd Sunshine Limited
Monetary issue Financial difficulty is mainly linked
with accounting errors; this restrict
them to lean organisation actual
financial details.
This has been evaluated that
organisation issue is related to the
factor that finances are not properly
secured. This affect proper track and
assess of property value (Suljović and
Meta, 2017).
Techniques to
solve issues
Respective entity undertakes use of
benchmarking in order to overcome
financial issues, by taking use of this
compare financial reports with other
entity and implement measures to solve
them in initial stage.
It has been evaluated that entity
manager undertake use of main
success metrics, by taking assistance
of this method company can evaluate
financial consequences and further
resolve them in then define manner. If
possible, in this assets real worth get
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calculated and compare with normal
interest.
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success:
Management accounting is part of managerial process it is duty of a manger to solve every
problem of their business enterprises. With the use of various accounting technique manger of
Cream Limited identify problems and main reason of their business failure or financial problems
arises. They use KPI and benchmarking methods to reduce their financial problem for this they
set standards and compare each activity and business transactions with standard benchmarking
target. By applying theses tools they can enhance their performance and theses will help in
overcome not only financial but all problems business suffers from during running their business
activites (Silvius, Kampinga, Paniagua, and Mooi, 2017). Financial problems are vital elements
of enterprise that serve as a crucial factor in deciding the success of companies in the coming
years. Evaluating and reacting to the impact of financial difficulties is key to ensuring longevity
and progress within Creams Limited. Financial challenge may be a serious barrier for the
organization over the longer term, even though it will impact the corporation's existence.
Accordingly, identification of root cause by ma approaches and systems are needed for
expanding organization.
D3 Evaluating manner in planning tools for accounting respond to solve financial
problems/issues to lead entity to sustainable successes:
Planning tools are considered as those tools and technique which use in managerial
controlling process for evaluation performance and then implement solution for problems and
difference between actual and standard target. With this of planning tools business organization
can maintain their position within the market place. With the use KPI and benchmarking they
find difference and by using financial governance policy for business activites they can maintain
their position as well as it will reduce chance of other problems and organization work according
to the standard and in an ethical way. Planning tools use for cover up all the monetary problem
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and uses tools and formulated polices which help in increasing cash inflow activities within
Cream Limited.
CONCLUSION
Management accounting is a procedure of collecting and using accounting data in a
systematic way which help in taken decision and formulating effective policies. Business
organization implement cost accounting system, job accounting system, price and inventory
system for identification their cost and inventory value with the collection of these data they
formulate various managerial accounting reports through which they make pricing policy cost
strategy and inventory management strategies. Management accounting play vital role during
management process its various tools use for performance valuation and controlling process and
also useful for taking essential step to overcome financial problem of the business enterprises.
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REFRENCES
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