Management Accounting and Planning Tools

This document provides a brief description of management accounting and the requirement of different types of management accounting. It also discusses the methods of management account reporting and provides statements of income through marginal costing and absorption costing. Additionally, it explains the advantages and disadvantages of various planning tools.

MANAGEMENT ACCOUNTING
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................3
P1 Brief description of management accounting and requirement of different types of
management accounting..............................................................................................................3
P2 Methods of management account reporting...........................................................................5
TASK 2............................................................................................................................................6
P3 Statement of income through marginal costing......................................................................6
Statement of income through absorption costing........................................................................7
TASK 3............................................................................................................................................7
P4 Explanation of advantage and disadvantage of planning tools..............................................7
TASK 4..........................................................................................................................................10
Uses of management accounting technique in order to resolve financial problems..................10
CONCLUSION..............................................................................................................................12
REFRENCES.................................................................................................................................12
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INTRODUCTION
Business organizations in order to run their business activities in effective way use
management accounting procedure. It is the par of accounting in which mangers represent
information for decision making process. They present data in a way which help the internal
department to easily take decision through which organization able to attain goals. In this repost
Western Foods Limited has been taken, it is middle level organization. This report include the
importance of management accounting and its system. It considers various types of management
accounting and planning tools which help in formulating policy and take decision. These reports
also give information regarding how management accosting tools apply to overcome financial
problem of the organization.
TASK 1
P1 Brief description of management accounting and requirement of different types of
management accounting
Management accounting: It is define as broader term of accounting which is help in
managing all the accounting records in systematic way. Management accounting is a way of
collecting, recording, analysing formatting and presenting all the transactions in a way through
which internal department easily understand the transaction activity record of the organization.
Manager follow some principles to use the procedure of management accounting for running
business organization, theses are following
Management accounting principle: Effective management accounting implementation
can develop decision making in companies by using principles (Ionescu,
2016).
Influence: Theses principles based on the fact that mangers need to done their work in effective
way they which help in motivating employee by providing incentive and monetary benefits to
them.
Relevance: Accountant should be provide relevant information regarding the transactions of
business activities it is responsibility of them to systemic formulate every report.
Value: Only those activities are run in the business which is valuable and help in enhancing
business profitability rate.
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Trust: There should be trust build between mangers and employers and it would be not break the
information and data, report provides by the employers should be worth full to mangers.
Role of management accounting: It is pay important part in Western Foods Limited. Following
are the works done through managing accounting techniques
Budget: Budgeting reports provides base for formulating budget.
Handling taxes: With the use of cost, process, and accounting and financial statements mangers
able to control the tax.
Managing assets: With proper and systematic formulation of strategies and running business
activities manager of Western Foods Limited can allocate resource and manger working and long
term assets of the entity.
Help in strategic planning: The main role of managing accounting is that it will useful for
planning strategies and policies in order to achieve goals
Different types of management accounting system:
Inventory management system-Under this system various techniques of inventory management
have been used in order to manage the stock. They use EOQ, JIT techniques through which they
identify maximum, minimum level of stock and identify the requirement of materials supply for
their consumers.
Job order costing system: This system of management accounting is introduced in order to
determine the cost of every element of manufacturing procedures is used to take information of
every element of the procedure. It i also help in identifying the requirement of customers on the
basis of that mangers formulate furniture of the Western Foods Limited.
Price optimisation system: main object of apply this system in organization management process
to determine the prices of each product and serves offer by the organization. With the use of
price skimming, price penetration, discount pricing and premium pricing there are various types
of strategies are available Western Foods Limited able to earn profits if they adopt suitable
pricing strategy which satisfy customers as well as help in concerning the cost of manufacturing.
Cost accounting system-: This system is utilized for recognize value of cost incurred during
completion of operating cycle. Managers able e to use standard costing, job costing, marginal
costing and absorption costing methods through which they can calculate cost (Galos and Sîrbu,
2015).
Benefits of management accounting system:
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Inventory management system It is useful for Western Foods Limited for
providing information regarding accurate data
of stock level. And improve data of visibility ,
use techniques on inventory of prevent issues
related with stocks. amger h
Job order system It is useful for tracking cost f order. Provides
Western Foods Limited data of each record in
systemic way and eliminate the risk .
Price optimization system With the use of price optimization system
manger of the Western Foods Limited will be
able to choose the best price for their
organization through which they can generate
profits.
Cost accounting system With the use of different methods of costing
manger of Western Foods Limited able to
identify cost of each outcome and business
activities and control the risk by cut throat
additional business activities.
P2 Methods of management account reporting
Management accounting reports are prepared for collecting records in systematic format.
Following are the reports prepared by Western Foods Limited
Account receivable report: It is related with formulation of those customers’ records, which not
pay their debt liability regarding with the organization. This type of reports is prepared by
finance department it will help them to analysis those customers which may become in
performing assets or the organization. In context with Western Foods Limited it is prepare
account receivable report in order to make list of those debtors which are paid their liability and
formulate strategies to recover them money within short time period (Vu, and et.al.2018).
Inventory management report: This report is formulated to make documentation of all the
records of the organization. Inventory management report is prepared with the help of system of
inventory management. With the collection of data, manger of Western Foods Limited plan
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report which considered all the level of raw material. This report consist al the information
regarding high quality , low quality of stock, measurement of the level of stock requirement of
investor and which raw material is essential for gaining profit to the organization. This report is
help in cost reduction by cutting extra cost of business activities.
Performance report: This report is formulated to compute all the relevant aspect of the
organization. These types of reports are useful in organization where the ratio of employee
turnover is comparative high. Performance report is the summery of measurement of skills and
capabilities of the employers. Western Foods Limited uses this performance report to provide
required and incentive to their employers on the basis of measuring their working skills.
Budget report-Budget is a format which includes essential data regarding future forecasting of
income and expenditure earn or gain by the business. It is useful in allocation of resources and
complained with the requirement of the organization necessary to run business cycle. Western
Foods Limited use this framework in order to recognize that their business activities and
operations are run in systematic format and deviations rate is not high as compare to budget
report with the actual outcomes of the organization. It also provides base for performance
measurement .and help in budgeting planning.
TASK 2
P3 Statement of income through marginal costing
Costing techniques: In the process of management accounting costing technique play
major role as with the use of various costing technique manger will be able to calculate cost and
analysis their profit percentage. It will also useful to determine the activities which are the reason
of incurring entire profits and control the wastages business activities. Following are the
techniques of coating (Floştoiu, 2019, June).
Marginal costing: This is also known as variable costing method because in this process
mangers need nit t calculate fixed cost . They only considered variable element of the
organization. This will be useful in preparation f break even analysis and able to recognize the
effect of different elements of manufacturing process in profitability rate.
Statement of marginal costing
Particular Cost per Amount
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unit
Sales 35 70000
Variable cost
Direct material 8 16000
Direct labour 5 10000
Variable production overhead 2 4000
Variable selling and distribution
overhead 5.6 10500
Contribution 29500
Fixed cost (15000+10000) 25000
Profit 4500
Interpretation: If the manger of the Western Foods Limited uses marginal costing then their
contribution amount would be 26500 and they able to generate profit of 4500.
Statement of income through absorption costing
Absorption costing: This technique of management accoutring s useful as it take every element
in calculation of the profit. They have different format of calculating profit .It is help in
identifying profit and cost per unit. This type of costing technique is useful in manufacturing
organization as they give information of every element use in manufacturing process.
Statement of absorption costing
Particular
Cost per
unit Amount
Direct Material 8 16000
Direct labour 5 10000
Direct variable overhead 2 4000
Direct fixed overhead 3 15000
Total cost of production 45000
Selling and distribution overhead
variable 10500
Fixed selling and distribution overhead 10000
Total cost of finished goods 65500
sales 70000
Profit 4500
Interpretation: Organization able to generate 4500 profit by using absorption costing method.
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Standard costing: It is a part of management accounting technique in which the deviation are
considered to define the value of standard output and budget output. Standard costing considered
variance the mange calculate labour, material and overhead variances through which Western
Foods Limited able to define the reason of different been student and actual costing (Guenther
and Saling,2015).
TASK 3
P4 Explanation of advantage and disadvantage of planning tools
Planning tools: In every business organization mangers use some specific tools for
formulating their plan and strategies these tools are known as planning tools, which are the part
of management accounting. Following are the tools can be utilized by manager of Western Foods
Limited of plan policies for futures
Budgeting: The systematic process of preparation of budget is known as budgeting. In there will
be many types of budget which an organization able to formulate for planning.
Zero base budgets: it is effective method of preparation of budget. In this method budgets are
formulated with taking initial base. Manager prepared budget in this technique on their deep
research of each and every element from the starting point of the organization
Advantage
It is helpful in providing accurate information.
This method is useful for small business organization and newly established business
corporations.
Disadvantage
It requires Hugh cost to make this budget.
It is not useful for those organizations which have large marketing area.
Rolling budget: In this type of budgeting method, small and short budget are prepared on
continues base. The next budget is prepared on the basis of taken data of previous budget.
Advantage
Rolling budget is useful in cost cutting by eliminating errors.
It is helping in provide reliable information regarding future (Menne, 2017).
Disadvantage
Motivation level of employers get down due to changes in policies.
It is time consuming method of budgeting.
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Activity based costing: In this method budget are prepared on the basis of allocation of business
resource.
Advantage
By using this method manger easily allocate their resource and untimed them in effect manner.
Activity based costing method useful in strategic planning and provides accurate data of future.
Disadvantage
This method requires skilled mangers which has knowledge and skills regarding formulating of
budget by using accounting standards.
It requires cost.
Cost system: In planning tools cost system are used because with the use of costing technique
manger able to determine cost and on the basis of it they take decision regarding which alternate
require and way through which they reduce cost. They use standard costing, absorption costing
method.
Advantage:
It is useful for determining cost of business activities.
Reduce risk of uncertainty by identifying cutting cost of additional business activities.
Disadvantage:
It require skilled accountant who can able to determining cost.
It is a typical method which requires great understating to calculate cost of organizations
activities.
Pricing policies: This is the most useful planning tool . Various pricing strategies can be used by
manger. Western Foods Limited use price skimming policy to take decision regarding their
prices
Advantage
Help in gaining profit by selling higher product and serves at higher rate.
Able to gain competitive business advantage.
Disadvantage
This system is based on assumption and reliable for future as price rate are change with the
changes of requirement of customers.
There will be always threat of price reduction by rival industries this [polices are changes these
cannot be constant (Zuhroh, 2019).
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Strategic planning tool: Theses tools include some techniques which are help in identifying
future aspects related it the business. It includes PESTLE, SWOT analysis and benchmarking.
Theses help in environment scanning and able to proved information regarding opportunities,
threat, of internal an effect of external department on the organization.
Advantage
Help in formulate policies through which organization able to achieve their mission and
objective.
Useful in identify stream, weakness, threat and opportunities of the business organization.
Variances: Theses planning tools are use for identifying the variation increased between budgets
and achieve target. These show relation of two elements.
Advantage
It will useful to reduce errors
Help in effective formulation of policies
Disadvantage
Not useful in small organizations
It takes time to calculate variance of business elements.
Western Foods Limited use activity budgeting method to formulate their budget n a way through
which they can easily allocate resources and plan organize and able to give direction to run
business operations .
TASK 4
Uses of management accounting technique in order to resolve financial problems
Financial problems: Organization is a part of different types of resource. Financial
resource are essential part of the organization. Finance act as blood for every organization. A
company suffers from financial problem when the are not able to pay their business liabilities.
This type of situation arises when mangers not use their resource in proper way and theses not
apply effective strategies to collect finance from various resources. Western Foods Limited is run
their business at large level but the organization suffers from financial c[problem because they
are not able to collect money from their debtors at the time when their required and their sales
rate is decline due to low quality of products. In order to remove all these problems they can be
used management accounting tools. They can used following tools to overcome their problems
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Key performance indicator: It is effective tool of management accounting. KPI is a part of
controlling technique in which several performance indicators are selected and on the basis of
these indicator mangers measure the performance of the different department of the business
organization. With the use of KPI mange of Western Foods Limited can use this tool to solve
their problem of debtor collection. They set target and on the basis of the target department s
need to collect money from debtors to fulfil the target of performance indicator. (Sainaghi,
Phillips, Baggio and Mauri, 2019). Benchmarking: It is similar as key performance indicator. In
this method benchmark are sets on the basis of past performance of the organization or rival
industries performance. Department of organization need to fulfil the target of benchmark if they
are able to cross the target then they get rewards. The Western Foods Limited use those tool of
management accounting through which they set target of sales. On the basis of this benchmark
their employers get motivated to increase the sales by cover the target sales. It will help in
enhancing the performance of employers and also increase their capabilities and organization
able to generate more cash inflow when the revenue has been increases.
Financial governance: This policy is used in order to company with the law and regulation
ethical rules of the constitution and account standard of the organization. With the use of
financial governance mange run their business in era way in which they follow and worn in
ethical manner. t will help in maintain a positive work environment within the business premises
and reduces the chance of corruption or any illegal business activities or business political group
are made in the organization which directly affect the reputation and productivity level f the
organization (Sainaghi, Phillips, Baggio and Mauri, 2019).
Basis Western Foods Limited Harvey food CAFE
Issue face by
corporation
The organization suffers from
financial problem due to lack of
managerial policy apply during
collection of debtors
This organization is face
monetary problem because the
revenue of the organization is
decreases due to decline rate of
sales.
managing
accounting System
The organization use effect
accounting receivable report and
apply cost organization system .
Through which they can easily
Harvey food cafe apply price
optimization cost accounting
system with the use of this
system they can take decision
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identify the debtor which not pay
their debt liability.
regarding pricing strategy and
able to earn profit by selling
provides and serve with
satisfactory price level.
Technique They use KPI technique in order to
make effective policy through which
they can increases their cash sales
and take money from debtor within
short time period.
Manager of Harvey food cafe use
benchmarking they set target and
increase sales rate and able to
generate cash inflow
CONCLUSION
Middle level business organization is play essential role in generating employment and
improves GDP of the economy. But they face many problems. In order to maintain their
position in the competitive business environment they use management accounting tools and
applications. With the use of principles of management accounting their workforce able to
work in systematic manner. Inventory, job order and cost accounting system use in reducing
threat of rival industries and management accounting reports are help in planning and
formulate policies in effective way. Management accountant use benchmarking and KPI
tools in order to overcome their financial problem and easily attain business goals.
REFRENCES
Books and journals
Ionescu, L., 2016. BUREAUCRACY AND CHARACTERISTICS OF PUBLIC SECTOR
ACCOUNTING. CASE STUDY: ROMANIA. Analele Universităţii Spiru Haret. Seria
Jurnalism, 17(2), pp.43-48.
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Galos, M. and Sîrbu, J., 2015. CLOUD COMPUTING THE NEW PARADIGM OF IT
OUTSOURCING. Calitatea, 16(S2), p.180.
Vu, L.T., Tran, H.T., Nguyen, B.T., Bui, H.T., Nguyen, A.D. and Pham, N.B., 2018.Community-
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lessons learned from a pilot study in Vietnam. Journal of Public Health Management and
Practice, 24, pp.S3-S8.
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System. In International conference KNOWLEDGE-BASED ORGANIZATION (Vol. 25,
No. 2, pp. 46-51). Sciendo.
Guenther, E. and Saling, P., 2015. Supporting industrial decision-making by sustainability
performance measurement: Bridging the gaps between sustainability performance
research and sustainability performance management in industry. Environ. Sustain.
Manag. Account. Netw, 1, pp.38-39.
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MAKASSAR. Economics Bosowa, 3(6), pp.18-32.
Zuhroh, D., 2019. Contingent Fit-Misfit and Business Unit Performance (A Review Based on the
Perspective of the Congruency Hypothesis). AFRE (Accounting and Financial
Review), 2(1), pp.50-64.
Anghelache, C., Căpușneanu, S., Topor, D.I. and Marin-Pantelescu, A., 2019. Target Costing
and Its Impact on Business Strategy: Computer Program for Cost Accounting and
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Sainaghi, R., Phillips, P., Baggio, R. and Mauri, A., 2019. Hotel performance: Rigor and relevant
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