Management Accounting and Balance Scorecard Approach

The assignment discusses the importance of management accounting and budgeting in responding to financial problems and increasing production and profitability effectively. It also explores the balance scorecard method as a solution to financial issues and its application in reducing wastage and expenses.

UNIT-5 MNG ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 ...........................................................................................................................................1
P2 ...........................................................................................................................................3
TASK 2 ..........................................................................................................................................5
P3 ...........................................................................................................................................5
TASK 3............................................................................................................................................7
P4 ...........................................................................................................................................7
TASK 4 .........................................................................................................................................10
P5 .........................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting and reports will help organisation and managers to cope up with
business activities and solve financial problems in the firm. The report focuses on essential
requirement of different management accounting system and methods of accounting reports.
Income statement is also made by using marginal and absorption costing method in order to
generate the net profit amount. Advantages and disadvantages of planning tools used for
controlling the budget will be discussed in this report. Finally, the performance appraisal
approaches such as balance scorecard and Just-In-Time method to address financial obstacles for
the firm is discussed.
TASK 1
P1
MANAGEMENT ACCOUNTING
It is a crucial process for any organisation which is also known as managerial and cost
accounting effectively. The report will help management to prepare internal financial reports,
analysing the cost of business operational activities and help towards decision making
efficiently. Management accounting also helps to make financial and costing data and also useful
to translate it into information (Adjei, 2016). This will help management to manage and control
business activities from which they are able to achieve better planning over firm. Management
accounting also increase the value of shareholders and customers which helps to manage the
resources accordingly and effectively.
Decision-making tool
It has been ascertained here that managers has important role in the organisation in terms
of making decisions relevant with financial and non-financial duties that management accounting
will help them to improve the decision making. This will be managed by the managers for the
long-time of period and with data driven inputs. For an example, cost analysis, cost techniques
and utilisation of information and data.
 Management accounting helps to identify the performance metrics which is crucial for
managers.
 Reports collect information relevant with financial and non-financial duties for managers.
 Determine the deviation and provide valuable suggestions to measure them effectively.
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Management accounting and financial accounting
BASIS MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
DEFINITION It helps managers by providing
crucial and important information to
make decisions, plans, policies and
strategies for the organisation
(Becker, 2014).
It supports in preparing financial
statements which will support
managers by providing them
financial information and data.
INFORMATION Monetary and Non-monetary
information is considered by
management accounting.
Financial accounting only considers
monetary information.
TIME FRAME This set of reports are made
according to the demand and needs.
Financial statements are made at the
end of the year which will be in
accounting period of time.
REPORT Detailed and complete information
for the reports.
Prepare summary report including
financial information.
Cost accounting system: Cost accounting system such as normal, actual and standard costing
will help managers in the firm to determine the cost of products and services offered towards
customers effectively and efficiently. Cost data generated from management reports will help
managers to manage and control the resources which will be done by managing techniques and
plans accordingly. This is useful in addressing the future requirements of organisation. Actual
costs, normal costs, direct labour cost production overhead cost are normally related to the cost
of materials which is used in cost of goods sold (Boyabatlı, Leng and Toktay, 2015).
 Cost accounting system will help managers to determine the real selling cost of
commodities.
 Managing professionals responsible to determine the profitability and production in order
to cope up with competition.
 Managers can manage the business resources and decision-making on the basis of
products and services costs.
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Inventory management system: Inventory management is all about managing and controlling
the resources which will be the stock of products and services, finished goods and raw materials.
Work in progress will be also aid in inventory management. This will help managers to manage
the resources which will help them to determine the availability, quality and quantity of stock
effectively. The inventory cost will include cost of storage, capital cost, insurance and tax and
facility cost efficiently (Busco and Quattrone, 2015).
Inventory management ascertains the economy scale of the organisation which in turn reflects in
presenting appropriate strategies, plans and policies for better management.
Job casting system: Job casting system can be defined as a process which will be fruitful
to the managers to identify the present cost of operations at work place to manage and control it
effectively. The process is also use to cost recording and accumulation. The job casting system is
used by those firms where the product production is 'One Off' and also various for a consumers
efficiently. The method is also used by the firms in case a customer put a specific demand
towards product or service which should be completed in a short period of time effectively.
 Job casting system helps to determine the cost of decision-making, controlling and
planning of managers effectively.
 The method also helps managers to measure the selling cost of an article and also
evaluate the profitability and deficits.
P2
Job cost reports: The job cost reports are useful for managers to evaluate and analyse
the cost of operations or a project accurately and efficiently. This will be helpful to managers in
determining generated profitability from the work of workers in the entity and the reports are
combined with revenue forecasts (Butler and Ghosh, 2015). Job cost reports will also help to
evaluate the cost of product and service when the work is in progress.
Inventory management reports: Inventory management system is important for the
firm in order to control and manage the various levels of inventory effectively and efficiently.
There are so many inventory levels managed and controlled by the managers such as quantity,
quality and availability of stock in terms of products and services offered by business to
customers in the market. Inventory management system should be physical which will help
managers to evaluate the stock activities.
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Operating budget reports: This report will be fruitful to the managers working in entity
to evaluate and determine the performance level of different units to execute and control the cost
of industrial activities under the budget. Operating budget analysis is also helpful to provide
rewards and incentives to employees according to their best performances in the firm effectively.
Accounts receivable ageing reports: This report will help managers in the firm to
ascertain and control the cash flow effectively and efficiently. This can be described as a critical
tool which breaks down the balance of customers at the time they owned the firm. Such reports
will also address the overlook at the past debts of the firm (D'Onza, Greco and Allegrini, 2016).
Performance reports: Performance report or analysis will help managers to evaluate the
performance of various departments which will include top level, middle level and bottom level
employees and their performances towards the work. The performance report will also help to
measure the profitability and production according to the work done by different departments.
This will help managers to measure the performance of employees at individual level which also
fill the requirement of increasing skills and knowledge in employees regarding the work
effectively.
IMPORTANCE
Management accounting reports are crucial and essential for the organisation in order to
manage the business activities and operations in the market towards customers effectively. This
will also help managers to increase their efficiency towards making effective decision regarding
operational and business activities. The inventory management, job casting, performance, cost
and accounts receivable reports will help managers to evaluate the actual position of the firm in
the market which will help them to manage the profitability and production accordingly and
effectively (Follmer and Johnson, 2017). This will also help to enhance the decision-making to
ascertain the cost of products and services offered by the firm under the budget. Strategies, plans
and policies are made by the managers with these reports which help to ensure the firm is
working in a proper and appropriate manner.
Thus, it can be addressed here, that this accounting reports are useful as well as important
for both managers and the firm in order to cope up with market and business activities. This will
help to increase the profitability and production which leads towards accomplishing the business
objectives and goals effectively and efficiently.
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TASK 2
P3
5

On the basis of above calculation, it is evident that £9300 is a net profit that been derived
from absorption costing method and in case of marginal costing, the same amount is increased to
£9600. This signifies that both the techniques leads to different amount that signifies variation in
profitability of Nisa. This is due to variation in the method of two techniques. In case of marginal
costing, only variable cost are taken into consideration for accounting and to compute whole cost
of the products. Contrary, for determining production cost under absorption costing, both fixed
cost and variable cost are taken into account. Due to this differences in technique, huge variation
in the result of both methods are determined. It is evident that absorption costing shows less
profitability as compared to marginal costing as later doesn’t includes the fixed expenses and
revenue while calculating the costing. In this context, it is required to assess the meaning of fixed
expense, variable expense and semi-variable expense. Fixed expenses can be termed as expenses
that remain unchanged whether the business operation is functioning or not. Contrary, variable
expenses are the one that keeps on changing on the basis of production and business operation.
Lastly, semi-variable expenses are sometimes remains same and sometimes it get changed on the
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basis of business activities. Considering this, it is highly required that manager must adopt the
best suitable approach for costing in order to determine the business profitability. However,
contradiction usually arises while choosing marginal or absorption costing method. It is evident
that fixed expenses are included in absorption costing, hence, it considers expenses like purchase
of fixed assess and aids in attaining actual effect of it on overall costing of business.
Considering this, it can be state that marginal and absorption method aids in assessing the
net income in different scenario and supports in managing the business activities in appropriate
manner.
TASK 3
P4
Financial budget
Financial budget can be described as the firm's expectations which refer to improve and
develop the cash revenues. This will be done for future time period and also assist in making
strategies as well as action plans to spend on such activities as an advantage to the firm.
Cash budget: Managers can control and manage the cash from cash budget which will in terms
of outgoing and incoming, monthly or yearly effectively. Cash budget is so important for the
managers in order to determine the availability of cash in the firm which is used for managing
the resources and production. Cash transactions, production cost and salary can be also managed
by preparing cash budget for the firm (Friis and Hansen, 2015).
Capital expenditure budget: Managers are able to focus on some major assets of the firm such
as land, machineries and plant which is useful as well as important. This can be done by
managing the capital expenditure budget. The budget can be attained from both long term bonds
as well as securities efficiently.
Balance sheet budget: Balance sheet budget can be managed by accomplishing all the demands
and requirements of firm which will increase the balance sheet. A suitable and appropriate
organisation of balance sheet budget will help managers to achieve and control the budget
network effectively.
OPERATING BUDGET
Revenue and sales budget: This budget is mainly focused on the revenue which is acquired by
the firm from managing and controlling the operational actions in the market towards customers
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effectively. Managers have responsibility to understand the position of firm in terms of financial
activities.
Expense budget: This will assist managers in the firm to emphasise the on expected expense in
a particular time period. This will together assist in determining the estimate of future budget
expenses from which managers are able to make plans and strategies which will help to reduce
the expenses and will increase the profitability and operational activities.
Project budget: Project budget can be described as a difference which is based on sales profit
and expenses effectively (García-Unanue, Felipe and Gallardo, 2015). For an example, if the
anticipated profits are low than there should be some plan and strategies managed and
formulated by the managers in in order to increase the production and sales to control the
expenses. This will also increase the profitability which leads towards accomplishing objectives
and goals.
FIXED AND VARIABLE BUDGET
Fixed cost: These are those expenses that are necessary and important for the firm to achieve
relationship with suppliers, customers and employees effectively. This will help to accomplish
and control the activities of business. For example, wages paid to the workers and managers are
fixed cost for the firm.
Variable cost: It can be defined as variable expenses which are depended on scope and
operational activities of the firm. Production process of raw materials is the best example for
variable expenses effectively.
ADVANTAGES DISADVANTAGES
Budget is process which will help managers to
convert strategies and plans into action.
The main disadvantage is the lack of
employee’s participation in business activities
which produce demotivation.
Preparing budget will help managers to
maintain the record of business operational
activities.
Budget can produce perceptions of unfairness
effectively.
Budget helps to develop communication level Budget can create politics and competition.
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in employees within the firm (Kunz, 2017).
Budget preparation helps to justify the
resources which are developed and also
allocate them in the firm.
Budget sometimes, reduce the initiative and
innovation at lower level and will be a
disadvantage if used rigidly or mechanically.
Budget helps managers to formulate strategies
and plans in order to manage the cost under the
budget.
Budget preparation is time consuming and also
reduces flexibility between plans and strategies.
BUDGET PREPARATION
Obtaining estimates: Estimates are significant for the managers to create budget such as cost of
departments, availability of resources, production cost and estimate of sales. This will help
managers to make an effective budget plan for the firm. They have also a responsibility to
provide estimates for suture situations which has an impact on business in both positive and
negative terms effectively. Participation and discussion will be formal and informal and
strategies will be reported to department of budget for an approval.
Coordinating estimates: The budget department of the firm will formulate strategies provided
by different firms in order to find the appropriate and best between them effectively and
efficiently (Newberry, 2015). This will also help managers to get an idea about availability of
resources in the firm.
Budget communication: Budget communication is important for the managers in order to create
an effective vision towards employees and other members in the firm. This will help to assess
resources which will be used in budget plan and also provide an approval. Changes and
modifications are also determined by the managers in this stage.
Implementation of budget plan: Finally, the budget is ready to report to the managers which
will be used as a strategy or plan in order to manage and control the firm operational activities in
the market. Managers should carry the budget with essential resources, materials, facilities and
labour effectively and efficiently.
The process of making a budget is difficult as well as crucial for the firm in order to
manage the available resources in the firm. This will help top increase profitability and
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production which leads towards profitability and production (Song and Joo, 2015). Organisation
is also able to achieve the desired goals and objectives such as financial goals effectively.
IMPORTANCE OF BUDGET
Budget is important for the firm and managers in order to control the numerical form for
future time period and this will be done by making strategies and plans accordingly and
effectively. In addition, the budget will also help managers to manage and control their financial
and resources activities. The process for controlling the budget is discussed below:
Managers in the firm able to control and manage the business operational and financial activities.
Managers are able to evaluate and determine the standard of control system effectively.
It also helps to create guidelines about the firm resources and expectations.
It will also help managers to determine all the performance level of departments and employees.
Cost-based pricing: The cost-based pricing will help managers to determine the actual selling
cost of products and services offered by firm in the market towards customers effectively. Direct
cost pricing and full cost pricing are the two forms of cost-based pricing which will help
managers to control the cost of products in order to increase the profitability and production.
Cost plus pricing: Cost plus pricing is a stage where management and firm determine the cost of
direct labour, material and manufacturing overheads which will be aid in the price of products
later. This will help them to produce an effective price for products and services in the market
towards consumers (Verbeeten and Speklé, 2015).
Profit pricing: Profit pricing can be described as a strategy which is used to make money from
the products and services selling on each scale in the market effectively. In respect to this,
manufacturing cost will be evaluated and aid in the price of products.
Transfer price: In transfer price, the price division of an organisation transact with each other
for an example, labour between trade of suppliers and departments effectively. This will help
managers to manage and control the cost of products under the budget which leads towards
increasing profitability.
TASK 4
P5
Financial activities are the most important part for any organisation in order to manage
the different resources under the budget which helps to increase the profitability and
manufacturing. This will also help to reduce extra expenses which increase the cash in the firm
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effectively and efficiently. It can be said that better financial controlling, planning and
management will help entity to increase the profitability and cash revenues and will reduce the
waste cost.
The business has a financial loss of £1.5 million for the last few problem which is a
major issues for the firm in order to maintain the profitability and production effectively. There
are some helpful suggestions which will aid to respond financial problems. Customer
relationship management is one of them which help to increase number of loyal customers and
revenues which can be done by purchasing the products and services offered by firm in the
market. This will also reduce the return of goods which helps to save the money and
transportation charges. Reducing staff turnover, wastage, slacks and consumer anger will also
being addressed to manage the financial performance for the firm (Weygandt, Kimmel and
Kieso, 2015). In addition to this, learning and development programs will increase the skills and
knowledge of employees which helps to improve the quality of products and services and will
increase the sales. Creativity and new innovations takes places in the firm which leads towards
profitability and reduce the financial expenses. This will help organisation to respond its
financial problems and issues effectively. Management should also design BSC and monitor in
order to achieve better results and to turn losses into profits efficiently.
BALANCE SCORECARD APPROACH
The balance scorecard approach is used by management in order to respond financial
problems and issues in the firm effectively. The approach also help to evaluate the and develop
internal function with the help of strategic management. The traditional method of balance
scorecard approach will help to evaluate the initiative by taking various perspectives such as
process of firm, growth and financial and learning activities. These activities are normally
connected with collection of data, objectives and targets in order to achieve them.
The financial loss of £1.5 million is a big loss for the firm which should be managed by
controlling financial activities and budgeting plan. In respect to this management accounting will
help to solve the financial problems and issues where the balance scorecard method will help to
respond them effectively. It can be said that increasing profitability and margins will help firm to
cope up with financial issues and problems. The firm should focus on increasing their profits by
increasing selling which will also help to achieve the financial goals and objectives. Improving
performances of employees will also lead towards increasing profitability.
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Determination of vision: The firm's vision should be cleared and placed in the centre of balance
scorecard. The vision is mainly focused on improving profitability and production in order to
increase revenues to respond financial problems. The vision should be well defines towards
employees in order to enhance efforts and contribution.
Add measurements, perspectives and objectives: The perspectives such as financial and
growth, learning and business process should be in a circle of vision. There should be initiatives,
objectives and targets for perspectives in order to create a solution towards financial issues in the
firm.
Share and communicate: The method of balance scorecard will help managers to demonstrate
the actions and short term plans. There are initiatives and their contribution, strategies which
helps to towards setting long term objectives. Communication and sharing will help managers to
measure the short and long term conditions of the firm (Zhou, 2016).
Just-In-Time (JIT): Just in time can be defined as a strategy which helps to increase the skills
and knowledge of employees and reduce the wastage by using useful goods and services for the
firm in the process of production (PEAVLER 2017). This will also help managers to reduce the
charges of inventory management which forecast the demands accurately.
Apart from this, Balance scorecard approach is helpful to respond financial problems in
the firm with strategic management which improve and develop internal function. The financial
loss of £1.5 million is a big loss for the firm which should be managed by controlling financial
activities and budgeting plan. In respect to this management accounting will help to solve the
financial problems and issues where the balance scorecard method will help to respond them
effectively.
CONCLUSION
It can be said from the above report that management accounting and budgeting is crucial
for the firm in order to respond financial problems and increase production and profitability
effectively. Management accounting reports will also useful for managers in the firm to manage
the cost of different resources under the budget effectively. Income statement is also prepared
using marginal and absorption costing method which generates the net profit amount for the
firm. Moreover, balance scorecard method will help to respond financial issues and will increase
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the profits. In addition to this, it has been assessed that budget planning and controlling will help
to manage the resources. JIT and balance scorecard approach both are crucial to reduce the £1.5
million financial loss and will decrease wastage and expenses.
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REFERENCES
Books and Journals:
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