Comprehensive Analysis of Agmet's Management Accounting System Report

This report provides an in-depth analysis of the management accounting system employed by Agmet, a chemical manufacturing company. It begins with an executive summary highlighting the company's challenges and the importance of strategic financial management. The report details various management accounting systems, including throughput accounting, lean accounting, traditional accounting, and transfer pricing, along with their relevance to Agmet. It explores different methods for managing accounting reports such as standard costing, budgetary control, and cash flow statements, emphasizing their role in decision-making and performance evaluation. The report also covers cost calculation techniques, including marginal costing and absorption costing, and compares their application in determining profitability. Furthermore, it discusses the merits and demerits of different planning tools and provides a comprehensive comparison of various accounting methods. The report concludes with a summary of findings and a reference list.

MANAGEMENT
ACCOUNTING
1

Executive Summary
The report focuses on the management accounting system of the Agmet which is chemical
manufacturing company. Account management officer present a report about the negative issues
of the organisation to general manager. Higher authority performs the market research by
following the newspaper, text books, magazine and so on. This helps the management team to
perform perfect strategy in order to raise the recognition of the enterprise in global market.
Systematic strategy prevents the chaotic behaviour from the enterprise. Good quality products
with the reasonable price help the enterprise to enhance the customer satisfaction and creditors
funds in company.
2

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................4
TASK 1 ..........................................................................................................................................4
P1 Elaboration of system of accounting management and various types of system of
accounting with relevant example...............................................................................................5
P2 Different types of methods for managing accounting report ................................................7
M1...............................................................................................................................................9
D1................................................................................................................................................9
TASK 2..........................................................................................................................................10
P3 Calculation of costs and analysis by using techniques........................................................10
M2 various techniques for accounting management.................................................................12
D2 Financial reports..................................................................................................................13
TASK 3..........................................................................................................................................13
P4 Demerits along with merits of different types of tools of planning.....................................13
M3.............................................................................................................................................16
D3..............................................................................................................................................16
TASK 4..........................................................................................................................................16
P5 Comparison..........................................................................................................................17
M4.............................................................................................................................................18
D4..............................................................................................................................................18
CONCLUSION .............................................................................................................................19
Reference list.................................................................................................................................20
3

From: Accounting management officer
To: Authority of enterprise
Subject: The procedures of accounting management in Agmet
INTRODUCTION
Development of business organisation helps to enhance the financial status of the country. In
order to run the business in the appropriate way, the authority needs to manage their accounting
system. The accounting system of the enterprise includes the concept of cash flow, budget, net
profit and many others. The net profit indicates the annual profit of entity. The managing
department of organisation takes their decision depending on their economic condition in the
market. In order to complete the study, the company, Agmet has been chosen. Agmet is a
chemical manufacturing venture in UK, which provides eco-friendly products for ensuring
sustainability (agmetmetals.com, 2017). Henceforth, the entire study will focus on the various
types of management accounting system like transfer pricing system, throughput accounting and
its importance for managing the account of small-size business organisation. In order to analyse
the study, accounting will be discussed in the effective way. The study helps to get clear
perception related to system of accounting management.
Figure 1: Logo of Agmet
(Source: agmetmetals.com, 2017)
TASK 1
4

P1 Elaboration of system of accounting management and various types of system of accounting
with relevant example
Description of management accounting
As commented by Bromwich and Scapens (2016, p.2), the system of management
accounting system is a tool, based on which, higher authority of business venture is able to earn
their profit in the contemporary market. It has been demonstrated that methods like lean
accounting of accounting management enhances business condition of the enterprise. As an
officer of management accounting, the authority of Agmet should update their conception related
to management accounting for getting effective outcome.
Various types of system of management accounting
Throughput accounting
The accounting of throughput is the method of simplifying the management system.
According to Alawattage et al. (2017, p.98), throughput accounting is able to provide minute
information related to financial management of the venture. It assists the business authority to
take appropriate decision. In case of Agmet, as it is a small-size venture, the accounting officer
can use accounting system of throughput for gathering appropriate information relate to the
financial department. Throughput accounting helps to reduce excessive expenses of entity by
identifying the disorder related to cost.
Figure 2: Throughput accounting
(Source: Chenhall and Moers, 2015, p.8)
System of lean accounting
5

In the opinion of Chiarini and Vagnoni (2015, p.598), lean accounting system is used for
measuring, controlling and managing the accounting system of venture. Using lean accounting
system, the business organisations are able to identify the necessity for changing their accounting
system if required. In case of Agmet, as an officer of management accounting, the authority tries
to measure performance of employees for developing the financial condition of venture. Lean
accounting is used to manage the accounting and manufacturing procedure in the enterprises.
System of traditional accounting
System of traditional accounting is known to all from the ancient period. In previous
days, the business authorities had used traditional accounting system for managing their account
departments. As asserted by Chiwamit et al. (2014, p.145), traditional accounting reflects on the
procedure of cause and effects in time of managing accounting department of venture. In case of
Agmet, they use above-mentioned systems in order to predict their sales in the contemporary
market. Traditional accounting helps to increase profit venture in the lucrative way.
System of transfer pricing
As mentioned by Christ and Burritt (2013, p.165), using transfer pricing system, the
business organisations are able to compare their accounting system with other ventures. In this
accounting system, the organisations sell their goods to subsidiary enterprise of the parent
venture. Henceforth, the payment will be given by the parent organisation. In this accounting
system, Agmet tries to develop their financial condition as they can expand their business.
Figure 3: Various types of system of management accounting
(Source: learner)
Cost Accounting system:
This is the technique which ascertains the costs associated with each operational activities
in the business. Therefore, the implications of these techniques will have positive impacts over
the financial health of Agmet. The managerial professionals will have accurate information
regarding the funds as well as make relevant changes into operational activities in accordance
with outcomes.
Job Costing system:
6

To ascertaining the costs incurred in each job and batch such as direct labour, material,
costs etc. Moreover, the costs will help in making the decisions which will used in deciding the
prices of products and services.
Inventory Management system:
This is the helpful tool which ascertains the records of all the inflows and outflows of
inventories in the business. Therefore, such analysis will be helpful in determining the demand
and production capacity of Agmet. Thus, these will be beneficial in determining the costs of the
operations which will have increment in industrial efficiency.
Price optimisation:
This is a mathematical or technical analysis which is based on considering the consumer
reaction over various prices associates with several products. Thus, such analysis will be based
on considering different locations and channels.
P2 Different types of methods for managing accounting report
The accounting report helps to take proper decision related to the accounting department
for the venture. As suggested by Christ (2014, p.380), report of accounting assists to set the cost
and budget of venture in the appropriate way. The various types of methods are followed by-
Standard costing and budgetary control
Standard costing assists to differentiate the actual cost and expected cost in the
appropriate way. As per the opinion of Cooper et al. (2017, p.95), in order to keep record of
financial documents, standard costing is the lucrative way. Standard costing method assists to
compare their profit between previous days and present days.
On the other hand, budgetary control enhances the capacity of managing budget of
venture. In this case, the employees of financial departments follow budget reports of previous
years for earning positive outcome. As an officer of accounting management of Agmet, they
have focused on the budgetary control reports and standard costing for maintaining the activities
of venture appropriately.
Statement of cash flow
As opined by Cullen et al. (2013, p.123), cash flow statement shows the changes of
balance sheet and its effect on the income of the venture. It aids to manage the operating system
7

and financial activities of the venture. As Agmet wants to expand their business, cash flow
statement can bring positive outcome.
Marginal costing
As opined by Fullerton et al. (2014, p.425), in the marginal cost, variable costs are
depended on the unit of cost. In this method, the authority is able to know the cost of per unit of
products. In order to get appropriate calculation of the expenditure of venture, the method of
marginal costing has been followed. In case of Agmet, the authority uses marginal costing for
getting appropriate result.
Figure 4: Marginal costing
(Source: Fullerton et al. 2013, p.63)
Decision making
In time of preparing accounting report, decision-making is an effective method.
Depending on the decision of the higher authority, the business organisations set their report of
accounting. In case of Agmet, in order to bring development in their account department, the
authority tries to follow the decision-making method for earning positive feedback from the
merchandise market.
Figure 5: Different types of methods for managing accounting report
(Source: learner)
Performance reports:
8

This a beneficial tool that will be helpful in making changes in the operational gains and
performance made by a unit. Therefore, these are the reports which were being prepared by
managers of particular unit which in turn record all the transactions such as implication of costs,
labour involved in such operations. It will be motivating and encouraging to the employees as to
have improvements in their performance.
Product profitability reports:
This analyses the profitability and fruitfulness of products in meeting the requirements as
well as making appropriate reports for the gains. Thus, these are the reports which in turn has
huge analysis over revenues and expenditures.
inventory management report:
This reports are relevant with the stock inflows and outflows which in turn will be helpful
in improving the business productivity. Thus, the products will be produced and designed by
managerial professionals which has demands and requirements of consumers. On the other side,
it will help in improving proper utilisation of all the resources
M1
Different methods of accounting system like transfer pricing, lean accounting, transport
accounting and many others help to manage the financial department of the venture. In case of
Agmet, they use traditional and transfer pricing system for earning effective outcome. Transfer
pricing assists to compare the budget of ventures with others.
D1
As commented by Hall (2016, p.72), management accounting system involves the
conception of proper management of account, which helps to run the enterprise in the smoothly
way. On the contrary, Hiebl (2014, p.236) stated that, accounting report provides present
condition of venture, based on which, higher authority takes their decision. Agmet tries to
maintain their accounting system efficiently for getting positive impact in the contemporary
market.
TASK 2
9

P3 Calculation of costs and analysis by using techniques
Calculation of profit according to marginal cost
Details ($) ($)
Revenue of sales ( 500
* 35)
Less: Sales variable cost
- Opening inventory
- Production cost
( Direct Materials ) ( 600 * 6)
( Direct Labour ) ( 600 * 5)
(overhead variable production) ( 600 * 2
)
- Closing inventory (100 * 6)
Less: Costs of variable selling (500 * 1)
Contribution
Less: Cost of fixed administration
Less: Overhead fixed production
Less: Cost of selling
Net profit
-
3600
3000
1200
(600)
800
1800
400
17500
7200
500
9800
3000
6800
Calculation of profit by taking help of costing of absorption
Details ($) ($)
10

Sales (500 * 35)
Less:
- Direct materials (600 * 6)
- Direct labour (600 * 5)
- Overhead variable production (500 * 2)
- Overhead fixed production
Goods cost which is available for sale
Less: Closing inventory {( 9400/600)
* 100}
Gross profit
Less:
- Cost of fixed administration
- Overhead variable selling (500 * 1)
- Cost of selling
Profit
3600
3000
1000
1800
9400
(1567)
800
500
400
17500
7833
9667
1700
7967
Differences between the marginal and absorption costing techniques:
11

M2 various techniques for accounting management
The main two techniques for managing the accounting department of venture are followed by-
 Marginal costing
 Absorption costing
The above-mentioned techniques help to manage the budget and costing of venture.
Absorption technique is used for keeping record and evaluating data. Macinati and Anessi-
Pessina (2014, p.104) stated that, marginal costing manages internal situation of venture. In case
of Agmet, the authority follows different financial techniques, which are followed by-
1. Performance measurement
2. Planning development and budgetary control
3. Decision-making
The capital budget of venture helps to set their planning of production in the effective
way. Decision of managers depends on the capital budget of enterprise. In case of Agmet, as an
12

accounting management officer, it is necessary to maintain the performance of employees for
holding their position in the contemporary merchandise market.
D2 Financial reports
In the opinion of Quattrone (2016, p.121), the financial report includes different
categories like costing budget, cash flow budget, budget report and many others. It provides
information related to activities of business of the venture. AS per the financial report of
enterprise, the higher authority take their decision related to the production of venture. The
financial report has been prepared on monthly, quarterly and yearly basis. Based on the financial
report, the authority of Agmet is able to take their decision for their business.
TASK 3
P4 Demerits along with merits of different types of tools of planning
Relations diagram:
It helps the Agmet to find out the relation between the issues and positive factors of the
enterprise. This relation diagram increases the interaction level between the different
departments of the enterprise. The merit is the higher hierarchy which can easily deal the
negative issues of the company between different departments. Flynn et al. (2015, p.659) stated
that frequent meetings among the higher hierarchy help the organizations to solve the external
issues easily. The demerit of this diagram is it doesn't focus on the interaction between the higher
and lower level of the enterprise. Thus, the higher hierarchy is unaware about the internal
conflicts in the internal environment of the enterprise. This minimises the cooperation among the
worker and diminishes their performance level and creativity.
Matrix diagram:
The higher hierarchy of Agmet divided all the negative issues according to their
importance. Thus, the management team of the company can easily solve the negative issues and
help the organisation to maintain their recognition in recent market. Mahoney and Pandian
(2013, p.380) commented that the matrix diagram help it to analyse the recent market and the
higher hierarchy create and modify the strategy by following the negative issues. The negative
issue of this diagram is the higher hierarchy could not create the strategy that will sustain for
long time. Thus, the organization has to modify the strategy within short interval. Short term
13

strategy increase the budget of the company and wastage of time diminish the recognition of the
enterprise in global market.
Affinity diagram:
This diagram focuses on the chaotic attitude of the enterprise. It includes both macro and
micro factors of the company. The management team perform adequate research in order to
create the perfect strategy that will help the enterprise to prevent the political party conflicts and
the governmental penalties. Simons (2013, p.143) commented that the disadvantage of this
diagram is it is quite complex in nature and the management team cannot divide the issues
according to their priority. Due to huge complexity, the higher hierarchy faces a lot of issues
after creating the strategy. Thus, many modification in required to create the perfect strategy and
they waste a lot of time while creating it. Wastage of time increases the chaotic attitude in
internal environment of the enterprise.
(PDPC) Process Decision Program Chart
PDPC break down the task of the strategy according to the worker experience and
activity level. The management team discuss the strategy with the lower officials in order to
decrease the negative issues of the strategy. This chart enhances the interaction and cooperation
with the higher and lower hierarchy. The clear idea about the task help the employee to perform
their task easily and the enterprise can reach their goal easily. Demerit of the PDPC is it lowers
the communication of the higher level with other department of enterprise. Thus, the chart help
to diminish the internal problems but it cannot handle the macro issues of the enterprise. Barney
(2016, p.665) demonstrated that due to lack of proper communication with other department the
enterprise faces the political parties conflict and the penalties from the government. This
increases the budget of Agmet and decrease the identification level of it in modern market.
14

Figure 6: Tools of Planning
(Source: Mahoney and Pandian, 2013, p.380)
Budgets/ Planning
tools
Meaning Advantages Disadvantages
Zero based budgeting The initiation of
budget with the zero
balance which
indicates the
flexibility.
It is the most flexible
budget as the costs
will be implicated over
the tasks as per their
requirements.
There will be chances
of having huge
manipulation of
monetary funds.
Activity based
budgeting
The budgets are fixed
in accordance with the
level of activity.
Similarly, production
unit will have
comparatively higher
costs than other
department.
Each unit will have
appropriate budgets as
per their level of
operations and
requirements.
It will be time
consuming and
complex as well as it
will require proper
attention.
NPV This is the present
value of future cash
flow which reflects the
probability of the
proposed project.
The profitability of the
projects will be made
as per analysing the
cash flows on its
discounting factors.
It is time consuming
and require the
influences of
accounting
professionals yo
15

analyse it.
IRR The rate of return over
planned project which
brings that the
business will have
returns in the coming
period.
It will be helpful in
analysing the
profitability of the
plan as per the rate
return incorporated
with it.
It require time and
accuracy of the
outcomes.
M3
The accounts department follow the activity chart in order to simplify the complex the
issues into simpler ones. The issues are subdivided in the chart according to their priority. The
management team along with account officer discuss the strategy in order to prevent the
governmental penalties or conflicts in Agmet. Oliver (2017, p.713) illustrated that the strategy is
created by following the budget of the enterprise and it help to enhance their identification in
present market. Communication with the higher and lower hierarchy enhance the performance of
the worker as the higher officials give constant support and guide to them .thus, the enterprise
can reach their target easily. Good quality products with the reasonable price help the enterprise
to enhance the customer satisfaction and creditors funds in company.
D3
The planning tools help the enterprise to identify the negative issues of the organisation.
Thus, the management team modify their strategy by performing the market research, enhance
the communication with lower officials and other department of the organisation, and take
feedback of the customers and governmental rules related to business law. This modification of
strategy prevents the future financial challenges and chaotic behaviour in Agmet. Roslender and
Hart (2013, p.255) opined that perfect interaction in enterprise increase the production level of
motivated employee, profit level along with their target customer’s satisfaction. The planning
tools help the higher hierarchy to divide the enterprise's issues according to their priority. Thus,
systematic plan with less amount of issues increase the recognition of the company in recent
market.
TASK 4
16

P5 Comparison
Factors which influence the company to adopt the technique related to management accounting
are:
Inventory management:
This management help the organisation to fix the cost of the product according to its
quality and demand among recent market. Bharadwaj et al. (2013, p.99) commented that (EOQ)
economic Order Quality help the inventory management to reduce their total cost in, order,
advertisement, employee, production input and so on.
Accounting strategy of financial management team:
The management team prepare this strategy by following the macro factors of the
organisation. The total budget of the Agmet depends on the product’s demand, competitor
analysis, governmental business law and political party’s regulation.
Reports related to finance:
The reports related to finance help the finance manager to modify their planning which
decrease the negative issues of the company. The modification occurs in different management
technique which includes overhead costing, variable costing and absorption costing. The reports
of this costing technique are included in budgetary report of the organisation. The financial
officer and project manager of Agmet uses different magazines and journals in order to get idea
about the finance and this help them to increase their management skills. Shrivastava (2015,
p.183) opined that cost of production are varied depend on the need of the company. Project
managers give training to the worker according to the strategy and it helps the company to
enhance their profit margin. Good product, perfect service and with reasonable price help the
organisation to maintain their recognition and it can compete easily with their competitor in
modern market.
Benchmarking:
It helps to measure the quality of the strategy in the organisation. Quality of strategy
includes policies, programs, products, financial measurements, performance of the employees,
technology advancement and so on. Schuler and MacMillan (2014, p.255) stated that
benchmarking help the management team to identify what and where the strategy need to be
modify. Thus, it reduces the time of research and modification of strategy can be performed
easily.
17

Life cycle costing:
This costing helps the organization to perform their economic analysis easily. It compares
the primary investment of it and helps to identify the cost alternatives that give cost benefit to
Agmet.
Figure 7: Management accounting technique
(Source: Shrivastava, 2015, p.183)
M4
Management team of Agmet perform the economic analysis in order to set the price of
their product according to its demand in recent market. Inventory management help the
organisation to manage their product cost related to competitor analysis. The managers increase
their management skill by the help of magazines; internet, competitor analysis and this
enhancement of skill help the enterprise to raise their profit level in recent market. Shank and
Govindarajan (2014, p.45) mentioned that life cycle costing gives cost benefit to the company.
D4
Planning tool helps the enterprise to identify the budget crisis of the enterprise. The
different chart is prepared by the higher hierarchy in order to mark out the negative issues of the
18

Agmet very easily. Therefore, the higher official can act accordingly in order to decrease the
issues and increase the identification of the enterprise in global community. Guilding et al.
(2016, p.113) illustrated that planning tools increase the interaction and communication with
different department of the enterprise. Good communication helps the organisation to increase
the disciplinary attitude and diminish the ego and grudges from it. Respect for each other help
the employees to read their psychological mind and the management team subdivide the task
according to the creativity of the workers.
CONCLUSION
Agmet which is a chemical manufacturing enterprise modify their strategy in order to
enhance their recognition and profit margin in recent market. The management team perform
adequate research related to macro and micro factors of the company. Systematic research and
strategy meet the current demand of the customer and help the company to main its recognition
in modern market. Reports in the finance, costing lifecycle and inventory management help the
enterprise to deal the negative issues of it related to budget. The strategy is prepared by higher
authority by following the budget. Thus, well planned strategies prevent the chaotic attitude from
the organization and enhance their profit level in global community. Online advertising also help
it to reduce the advertisement cost of the Agmet.
19

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