Analysis of Agmet's Chemical Company: Management Accounting System

This report presents an analysis of the management accounting system used by Agmet, a UK-based chemical manufacturing company. The report, prepared by the accounting management officer for the general manager, identifies negative issues within the organization. It covers various management accounting systems such as throughput accounting, lean accounting, and traditional accounting, highlighting their importance for managing the accounts of a small-sized business. The report includes cost calculations using marginal and absorption costing techniques, along with a discussion of planning tools like relations and matrix diagrams. The analysis aims to provide insights into Agmet's financial management practices and offer recommendations for improvement. Desklib provides access to similar solved assignments and past papers for students.

MANAGEMENT ACCOUNTING
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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.
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
LO1..................................................................................................................................................4
P1 Elaboration of system of accounting management and various types of system of accounting
with relevant example......................................................................................................................4
P2 Different types of methods for managing accounting report......................................................6
Task 2...............................................................................................................................................8
LO2..................................................................................................................................................8
P3 Calculation of costs and analysis by using techniques...............................................................8
Task 3.............................................................................................................................................11
LO3................................................................................................................................................11
P4 Demerits along with merits of different types of tools of planning.........................................11
Task 4.............................................................................................................................................14
LO4................................................................................................................................................14
P5 Comparison...............................................................................................................................14
Conclusion.....................................................................................................................................16
Reference list.................................................................................................................................17
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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
3

LO1
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)
4

System of lean accounting
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.
5

Figure 3: Various types of system of management accounting
(Source: learner)
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
6
VarioustypesofsystemofmanagementaccountingSystemoftransferpricingSystemoftraditionalaccountingSystemofleanaccountingThroughputaccounting

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 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.
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Figure 5: Different types of methods for managing accounting report
(Source: learner)
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
LO2
P3 Calculation of costs and analysis by using techniques
Calculation of profit according to marginal cost
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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 ($) ($)
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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
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
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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
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
LO3
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
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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 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.
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Figure 6: Tools of Planning
(Source: Mahoney and Pandian, 2013, p.380)
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
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(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
LO4
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:
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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.
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.
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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 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.
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