Comprehensive Management Accounting Report: Imda Ltd Analysis

This report provides a comprehensive analysis of management accounting principles as applied to Imda Ltd, a producer of special chargers for mobile phones. The report explores the functions of management accounting, differentiating it from financial accounting and examining various management accounting systems, including financial, cost, inventory, and performance management systems. It then delves into the preparation of an income statement using both marginal and absorption costing methods to evaluate Imda Ltd's financial performance and aid in decision-making regarding product innovation. The report also covers different types of budgets, their advantages and drawbacks, and the budget preparation process. Furthermore, it addresses performance management strategies suitable for Imda Ltd. The analysis offers insights into Imda Ltd's financial position and provides recommendations for improving its monetary performance and business operations.

Management
Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1) Functions of management accounting...................................................................................3
P2) Management accounting systems..........................................................................................5
TASK 2............................................................................................................................................6
P3) Income statement for Imda ltd...............................................................................................6
TASK 3 (p4)....................................................................................................................................9
a) Different types of budgets and their advantages and drawbacks.............................................9
b) Budget preparation process...................................................................................................11
c) Pricing strategies....................................................................................................................12
TASK 4 (p5)..................................................................................................................................13
Performance management for Imda ltd......................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCE.................................................................................................................................16
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INTRODUCTION
Management accounting is a multidisciplinary approach that is useful for making
decisions and preparing planning for effective business operations. It decision making tool for
operating business activities and improving its efficiencies. The present report is based on
understanding different aspects of management accounting for Imda ltd. It is producer of special
charger for mobile telephone and its gadgets. In this regard, different functions of management
accounting and their systems can be described. However, income statement preparation through
marginal and absorption costing is to be presented for decision making to produce and
supplement goods through this assignment. Including this, several kinds of budgets including
critical evaluation on them is to be expressed through that leads to analyzing actual performance
of organization and improving efficiencies for further business operations. Moreover, different
ideas for maintaining performance and non-performance of Imda ltd can be understood. Thus,
learners are able to understand various management accounting aspects through this report for
effectiveness of mobile gadgets for proper management effectively.
TASK 1
P1) Functions of management accounting
Management accounting is essential for making decisions related to quality services of
organization. It includes analysis of actual organization's performance and generating different
ideas for management of overall business operations. In this regard, various tools and techniques
are used including costing, budgeting, preparing income statement, ratio analysis and so on.
However, on the basis of this analyzing company's performance, further decisions are made to
improving efficiencies of company efficiently (Bogt, Helden and Kolk, 2015). It is quite
different from financial accounting that is interrelated with economic performance and non -
monetary operations. Therefore, financial accounting is quite different from management
accounting that can be expressed as below:-
Financial accounting:- Under this accounting system, all transactions are recorded
related for exchanging goods and services. In accordance to this, incurred costs on expenditures
and gained revenue are recorded for implementing further business operations. However,
effective financial information are gained through this accounting system for creating balance
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between income and expenses effectively (Chan, Wang and Raffoni, 2014). Therefore, financial
accounting is essential for company's cash account increment and for transactions, creating debit
amount similar to credit amount.
Differences between financial and management accounting:- It is analyzed that
financial and management accounting systems are different from each other. Under which,
financial accounting is related to presenting economic performance of entity and on the basis of
this analysis strategies are prepared for financial development, relevance and reliability
(Chenhall and Moers, 2015). In addition to this, different financial statements are analyzed
including profit and loss account, balance sheet, cash flow-fund flow and so on.
While, on the other hand, management accounting involves all activities of business
organization including production and distribution of goods, performance management, income
statement as well preparing financial statements etc. However, it is wide in concept as well
remains useful for management of entire business activities. In addition to this, effectiveness of
business organization is gained through analyzing all tools and further making decisions to
implement action plans effectively (Costa and et.al., 2016). Thus, financial accounting is
different from management accounting for operating business operations and making decisions
regarding financial and non-monetary tools analysis. In this regard, comparison between
financial and management accounting can be expressed as below:-
Bases Financial accounting Management accounting
Purposes  To disclose Imda ltd
financial performance
on a specific time.
 To present end result as
profit and loss gained
by organization.
 To help management
through financial
statement analysis.
 To prepare strategies
and making decisions
for further
implementation and
effectiveness of firm.
Appropriate for users External users Mainly for internal users
Legal requirements It is needed according to law It is choice
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and tax
Time periodicity Generally year to year Prepared frequently in
accordance to choice
Accounting method Double entry systems Not based on double entry
system
P2) Management accounting systems
There are different kinds of management accounting systems are used for decision
making process regarding business operations. Under this system, management accountant of
Imda Ltd analyzes financial statements by which monetary position of organization is analyzed.
On the basis of analyzing these tools, further ideas are created for entity's effectiveness and
improving its efficiencies (De Waal, 2013). However, different management accounting systems
can be understood as below:- Financial accounting system:- This system involves several kinds of tools to present
economic performance of organization. In accordance to this, different statements are
analyzed including income statement, balance sheet, cash flow/ fund flow and so on.
Therefore, accounting for financial performance and its effectiveness is created for
improving monetary position effectively (Fullerton, Kennedy and Widener, 2014). Thus,
on the basis of analyzing these statements, further implementation and organization's
financial development can be achieved effectively. Cost accounting systems:- Through costing method, proper price determination that is a
process to set cost of products produced by organization. It is beneficial for cost
effectiveness and making appropriate decisions related to production and distribution of
goods provided by Imda Ltd. In this process, price is set for product according to incurred
cost on expenditures including material, labor and additional overhead. Thus, cost
accounting system, adequate cost of goods is decided that affects further production and
supplement of goods efficiently (Guffey, 2014). Inventory management system:- In this process, management of inventories is obtained
by which decision on putting goods safe and resource allocation is gained. However, for
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managing inventories, planning is implemented that affects resource management and
also helpful for reducing excess of production and materials. Thus, inventory
management system is related to putting goods safe and making decision regarding place
for providing goods and services of firm (Jiwani and et.al., 2014). In addition to this, it is
considered as management accounting segment for proper planning and decision to
operate further business activities.
 Performance management system:- As management accounting is multi-disciplinary
approach that focuses on overall business operations. Therefore, management accountant
of Imda Ltd analyzes performance of employees and organization that proceed to make
decisions for enhancing working efficiencies (Kull and et.al., 2014). Including this,
performance management system is interrelated with entire planning procedure and
decision making process for better quality services and improving effectiveness at high
level.
TASK 2
P3) Income statement for Imda ltd
Income statement is a tool that presents financial performance of Imda tech. Through this
analysis, earned income and incurred expenditures. In this regard, cost of products is evaluated
that on the basis of which income prepared for improving efficiencies and financial development
of firm. It is done through different methods such as marginal, absorption, market demand and
competitive basis. Therefore, by using costing methods, price of goods and services is
determined for further production and distribution of goods (Lapsley and Rekers, 2016).
Including this, financial position of organization is gained through this process thereby effective
fund allocation and profitability can be enhanced properly. However, for preparing income
statement, at first gross and net profit is evaluated.
As per the given case scenario, it is analyze that Imda limited is planning for producing
special charger for mobile telephone and other equipment. Therefore, decisions are made for
further investment by using costing methods. Under this process system, cost incurred on
expenses are analyzed through last years' transactions. By which, cost is calculated for further
production and supplement of mobile charger (Najjar, Strickland and Kaplan, 2016). Costing
method including marginal and absorption can be understood as below:-
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Marginal costing:- It is suitable for decision making for short term period. However, for
calculating net profit or loss, gross profit is deducted with cost incurred on variable production.
In this regard, through marginal costing, income statement is presented to achieve organization's
profit earning capacity. In addition to this, marginal costing is related to price determination
process for making decision regarding further production and distribution of goods and services
in future time (Nuhu, Baird and Bala, 2016). In accordance to this, net profit for organization can
be evaluated through following costing method:-
Interpretation:- By calculating marginal costing, it is evaluated that Imda ltd has gained
effective profit but so that company invest for innovations related to mobile gadgets. In this
regard, cost incurred on fixed assets is not included to calculate net profit. Therefore, gross profit
is evaluated as 22500 for which selling price of goods is 52500 which is deducted with
production for services is 30000. Further, gross profit is deducted with non-operating expenses
for administration and selling expenditures. However, net profit is measured as 4625. It can be
decided for organization to not invest for mobile gadgets.
Absorption costing:- Through this costing method, net profit is determined by deducting
gross profit with overall cost incurred on variable and fixed production. It is appropriate for long
term planning procedure and making decisions for high level of investment (Schaltegger,
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Gibassier and Zvezdov, 2013). For this costing method, cost incurred on fixed assets is added to
variable costs therefore decisions are made regarding large scale of investment and operating
business activities for longs time periodicity. Thus, absorption costing method is useful for long
term decision making process and sustaining organization's value. In this process, Imda ltd
company's performance can be analyzed through following net profit or loss interpretation as:-
Interpretation:- It is interpreted that in September, Imda ltd has sold out 1500 units in
which per unit cost is 35. Therefore, amount evaluated as 52500. However, it is deducted with
cost of goods sold including price incurred on direct material, labor and overhead. Units
produced on all of three components was 2000 and per unit cost was 8, 5, 2 for variable
production and 5 for fixed production. However, expenses for material, labor and overhead is
analyzed as 16000, 10000, 4000 (variable production) and 10,000 for fixed production overhead.
Thus, gross profit is gained as 12500 which is moderate to present financial performance of Imda
ltd. For calculating net profit, gross profit is deducted with expenses incurred on admin and
selling of goods produced by organization. In this regard, company has got net loss as (-) 5375. It
is due to imbalanced production and distribution of mobile gadgets. Thus, according to this
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interpretation, it is analyzed that company's financial position is not so efficient for further
investment to produce special kind of charger. Hence, there should not be investment for this
innovation.
Thus, it is recognized that financial position of Imda ltd is not so effective for investing
for mobile gadgets. In this regard, different strategies are required to be implemented for
economic stability and improving monetary performance effectively.
TASK 3 (P4)
a) Different types of budgets and their advantages and drawbacks
Budget is a management accounting technique by which current position of organization
is gained and also further different strategies are implemented. However, it is useful for best
allocation of resources and fund that affects productivity and profitability of organization
(Shields and et.al., 2015). There are five types of budget in management accounting, some of
them can be understood as follows:-
 Master Budget
 Operational Budget
 Cash flow Budget
 Financial Budget
 Static Budget
Master Budget: A budget is a detailed projection of the manner in which management
needs to manage different aspects of its business during a particular year (Venkatnarayan and
et.al., 2014). Master budget is summarized form of estimated of cash budget, budgeted income
statement and budgeted balance sheet.
The advantages are:
 It gives an overview of the whole budget that has been allotted to the different
departments.
 It helps in determining the problems before hand and planning ahead.
The disadvantages are:
 One cannot be specific since; the master budget is an overview of all the department’s
expenses and earnings.
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 Master budget can prove to be baseless at the time of uncertainty in any of the
department.
Operational Budget: It includes budgeted revenue and expenses of the company on day
to day basis. It helps to identify the fields where a company spends its money and in what areas
company is required to spend more (Bogt, Helden and Kolk, 2015).
The advantages are:
 A small business can allocate budget for current quarters and upcoming quarters.
 It keeps a check on the spending of the company and restricts unproductive expenses.
The disadvantages are:
 Inaccuracy can lead to heavy losses.
 Financial information keeps changing month to month. Therefore, it demands to make
assumptions in the budget accordingly.
Cash Flow Budget: It is an estimate of cash receipts and expenditure in a certain time
period. It predicts the company’s liquidity, whether the company have enough cash inflow to
meet out its expenses or is it falling short of cash.
The advantages are:
 It predicts if there is enough cash inflow that can be utilized in various other productive
activities.
 It identifies the cash that can be used to fulfill immediate short term obligations without
utilizing overdraft protection or line of credit.
The disadvantages are:
 Relying on the estimates which has been prepared based in previous year’s cash flow
may not work every year.
 At times, liquidity of a company doesn’t define the performance of the company.
Financial Budget: Financial budget those budgets in which the organization prepare all
the transaction of the year and plan how much money to be spent in which sector and shown in
company s balance sheet at the year end (Shields and et.al., 2015). It shows the effect of planned
operations and capital investments on assets and liabilities.
The advantages are:
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 Having financial budget, a company can recognize and utilize the opportunities which
can help a company to expand
 There can be a good control on credits of the company if it is aware about its financials
beforehand.
The disadvantages are:
 Inaccuracy in the budget can lead to wrong financial decision making.
 Due to the dynamic environment, department may not achieve the budgeted results.
Static Budget: It is a budget which remains same even when the volume changes. It is
fixed for the entire period. This kind of budget is used when the sales of a company is highly
predictable.
The advantages are:
 It is east to implement and follow.
 It allows a company to see its estimation of expenses and accordingly change the
strategy.
The disadvantages are:
 Lack of flexibility.
It company find out that it is underperforming than it cannot allocate additional resources.
b) Budget preparation process
A budget procedure refers to process by which governance make and approve a budget
for a final presentation of budget at the end of financial year at 31st march (Stiepen, Gérard
and Soret, 2016).
 The finance department prepare written record or legal document of all the transactions
of the year from 1'st April to 31'st march.
 The top management calls a board meeting or managers meeting and they are present
and talk about plans for the next years as compare to previous year projected levels.
 The managers or head of the division work with the fiscal services or work on self be
half for prepare an estimation for the next year budgets or projects.
 The budgets is complete than the managers present the budget to there head of
department for assessment and approving the budget.
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 Consideration of the budget request for approval required in written document and with
the justification of the top management and finance adviser. In most of the time
managers talks with there top management or administrative body officer about the
budget programs requirements.
Budgeting is a process of expenditure or time consuming process of every organization or
organizations function (Van Dooren, Bouckaert and Halligan, 2015). It is estimation and portion
of capital used by company to achieve the budgeting designated targets of organization.
Steps for Budget preparation:-
 Obtaining Estimates:- Obtaining estimates of the company in various fields like, sales,
production levels, electable costs and accessibility of resources from each department.
 Coordinating estimation:- The organization and to estimation what resources are
available and can be reasonably assign among the diverse units of the organization.
 Communicating Budget:- Communicating about the budget program to responsible
managers and the obsessed administrative division.
 Implementing the budget plan:- the final budget is given to the manager concerned and
adopts as the design of procedure for the coming year budget period.
 Reporting interim progress to words budgeted objectives:- As a feedback of the
budgeting report after the completion of budget report mangers present to top
management for feedback and correction.
c) Pricing strategies
A business or organization can usage a verify of price or pricing strategic than selling a
product or service. The price set by the company for maximizing profit for every unit of product
or service sale into market (Venkatnarayan and et.al., 2014). It can compete with existing market
player from new entrants for increasing customers' visibility and gaining market potential within
a market or to come in a new market.
Models of pricing:-
 Absorption Pricing:- In this method of pricing owner recovered all costs of invest in
product manufacturing. Price Skimming:- Price skimming means charge high price from target market or target
customers and achieve high profit margin from customers.
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