Management Accounting and Planning Tools at Aviva Plc

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MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Part 1................................................................................................................................................4
Part 2..............................................................................................................................................12
Conclusion.....................................................................................................................................14
Reference.......................................................................................................................................15
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Introduction
In this report, it helps in understating the role and importance of management accounting within
the organization and how it will aid to overcome the financial issues which increase company
profitability along with its goodwill in the industry sector. Through this report, find various
planning tools in the business that helps in deciding within less time as per the need and
requirement occurred within the organization. All these points are to be studied about the Aviva
Plc Company located in the UK. By this report also aid in determining management accounting
statement and its reporting integration within the company and how it will run simultaneously
within the company of Aviva Plc organization.
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Task 1
Part 1
A
Management accounting
It is a very important accounting for the internal part of the organization as it is the process of
providing the financial and the management information’s to the organization’s administrative as
it helps the manager to take vital decisions in the organization regarding operations of the
business activities such as the management of inventories, determining the price and the costs of
product, analyzing about the demand of the product in market etc. whereas financial accounting
involves providing the information of the financial statement or position of the business to the
outsiders through which they can attract the public to invest or provide credits to the company
(Soin, K. and Collier, P., 2013).
Management accounting system
For performing the function of the management accounting a system is used in different
categories of the business departments these categories of the department works under the
system referred to as management accounting system (Otley, D., 2016).
There are various types of management accounting system which are used by the Aviva Plc
organization some of this system are as follows:
Job costing system
This system is used for the products which are not similar and which have different costs. It is
the system of accumulating and assigning the costs of manufacturing products.
Since in the meantime, various changes occur in the products which are produced, at that time
job costing system needs a record of the costs of each product. This system makes a report on the
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expenses of the item such as the material and labor which were used for assigning the overhead
of the products (Accounting coach, 2019).
Examples
· A company produces and makes the machine tooling.
· An organization that constructs the building of custom design
· A firm that converts or modifies the trucks to fulfill the customer's desires.
Inventory management system
This system is used in the wide range of industries such as the manufacturing, utilities,
education, government, healthcare, etc. this system helps in centralizing process for effective
control on the flow and the maintenance of the stocks which helps in making the availability of
the stocks at the right time.
It is a technological system such as the hardware or software which helps in observing and
maintaining the stocked products. The products may involve the raw materials, assets of the
company, supplies or the finished products which are to be sent to the customers (Camcode,
2019).
Cost accounting system
This system performs the function of recording the production activities by using various
inventory systems, in other words, this system records the flow of stocks through various
channels of production (My accounting course, 2019).
By understanding the simple language this system tracks the process of raw material when it
goes through the channels of production and turns into the finished products. When the raw
material is in the process to be converted into the finished products this system records the
material by making the two accounts by crediting the raw material account and debiting the
goods in process account. There are many products other than the raw material which goes
through this process to finished goods so; there are various accounts which are prepared under
this system
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Price optimization system
This system performs the function of forecasting the behavior of the buyers at the different prices
of the different products. It is the quantitative way of observing the response of the customers
whenever any changes in the price of the product are made. It helps the company in deciding
about the price structures such as the promotional pricing, discount pricing and the initial pricing
(Otley, D., 2016).
B
Management of accounting reporting
Aviva Plc organization uses various reports which are very effective for making the important
decisions of the organization; it also helps in planning, regulating and measuring the
performances of the firm. These reports carefully made by the experts of the firm as this helps in
making the critical decisions of the organization.
Budget reports
These reports are used for estimating the future spending of the firm by analyzing the current
situation of the company. It helps in solving the unforeseen circumstances of the company, as the
budget shows all the expenses and the earning of the firm.
This report helps the managers to offer them better incentives to employees, negotiation with the
vendors and helps in cutting the costs. So, sometimes these budget reports become critical to any
business (Complete controller, 2019).
Account receivables aging reports
This report can be very useful for the company which is providing the credits to customers as
there may be various problems related to finance when these credits are not returned to the
company at this case this system helps in identifying the defaulters by breaking their balance and
solves the issue of collection process of the company. So, this report helps the company to decide
whether the credit should be given loosely or should make it tight and fix it to a certain limit
(Complete controller, 2019).
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Cost managerial accounting reports
It offers an informative summary of all the costs of manufacturing in the organization. It involves
all the raw materials, labor, and overheads. It helps the managers to analyze the cost price and
the selling price of the products. It helps in providing the estimation of the profit margins and
shows a clear picture of the organization’s costs.
This managerial costing report involves other costs such as the inventory waste, overhead costs
and hourly labor costs as these provide a better understanding of the expenses.
Performance report
This report helps in reviewing the performance of the company, at analysis about each
operational activity of the business which is performed by the employees as this helps the
managers to identify their potential employees in the organization and encourages them by
rewarding them. This also helps the manager to decide about the future of the company. This
report shows a deep view of the working of the organizations of the company. It plays a vital role
in the firms to keep their strategies accurate towards achieving the objective (Complete
controller, 2019).
C
Advantages of a management accounting system
Job costing
· It helps in controlling the costs by taking various steps as these costs can be ascertained at
any stage.
· Separate job costing shows the profits earned from each job separately.
· There can be made a comparison between the previous job and the actual job executed.
· With the help of the budgets overhead recovery can be predetermined (Accounting coach,
2019).
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Inventory management system
· It helps in improving productivity and efficiency in the operational activities of the firm.
· It helps in the automation of the tasks and integrating the whole business.
· It helps in reducing the costs and increasing the sale & profits (Camcode, 2019).
Cost accounting system
· It helps the management in making the plan about the business.
· It helps in finding and evaluating the reasons for the losses in the firm.
· It helps in controlling the material and restocking them (My accounting course, 2019).
Price optimization system
· It helps in identifying the products which are profitable and which are not.
· It helps in estimating the demand of the products which based on the response of the customer by
changing prices at different levels.
· It also helps in determining the prices of the products which are to be sold in market.
D
Integration of management accounting and reporting system
Aviva Plc organization Plc uses both these system in the organization as it involves various
activities such as manufacturing and sales of the product, fixing the prices and reducing the
costs, increasing the revenue of the firm etc. these all functions are performed with the methods
of the management accounting system and the for the further development and growth of the
organization management reporting system are used as it involves analyzing about the future of
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the organization, by identifying the problems in the organization with the help of these reports
and tackling them to promote growth.
Part 2
Discounted Cash-Flow method
This is the method of evaluating company investment project used by the Aviva Plc organization
to find the cash profitability from the investment over the year. This will aid to determine
whether the investment of the capital fund in the project is beneficial for the company in terms of
generating cash inflow or not. The company used this planning tool through the fix of cost of
capital for the investment and then find apply this method of a planning tool for making future
business plans. The Aviva Plc organization accepted or reject its investment project over the
basis of its cash income is more than the cash outcome which means the project should be
profitable over the life of the investment, only in this case company accept such investment
project otherwise it is no more for company. The discounted cash-flow of planning tool included
various methods such as discounted payback period, net present value and other which are
termed as crucial to determinable profitability and benefit for the company to increase its worth
in the market by introducing various other projects which is useful and create opportunities to
general (Soin, and Collier, 2013).
Benchmarking: This method is considered both as a tool or technique in the same reference of
planning tools because of it provides advantages regarding the checking and calculate Aviva Plc
organization plc company performance over the year by establishing set of standards through
management of the c0ompany can compare company financial and other performance from the
last year and also with the standards as set up earlier. Benchmarks are defined as a set of
standards or some standards which are set by such company who have strong power in the
industry and ability to influence other company business. This is set by this because it covers
more area or market and also has the potential to change the market situation at any time by
introducing new policies and market standards which affect organization performance of the
Aviva Plc organization plc in future.
Break-even analysis:
This is another tool of planning which is also useable for the business of the Aviva Plc
organization activity. The need and importance of this tool are because it helps company
management to determine a point where the company and also its customer do not get any profit
or loss by each party (Soin, and Collier, 2013). This is found in a condition when the company
want to sale its available stock in the market due to various reason such as the validity of product
is expiring soon in future, want to create and cover a major market area at the staring level, want
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to gain confidence at the beginning of the business, sale the product to know about the feature of
the product soon so that customers can buy and other. So break-even points to aid in analyzing
the company profitability while conducting its business at no profit no loss. Hence break-even
point said as a situation where no one party in the contract of sale and purchases is taking any
benefit from the purchase and sale of product or service (Otley, D., 2016).
As per the discuss various planning tools in above such as benchmarking, discounted cash-flow
and also break-even analysis, it is found that break-even analysis is considered as a most
appropriate method among all the planning tools because of the following reasons.
 It enables the management of the Aviva Plc organization to find the profit and loss at various
levels of company production and sales.
 Aid in forecasting the change in the price level in the future.
 Aid in analyzing the relationship between the variable and fixed cost of the product.
 It is a simple and quick method of calculating a break-even point at the different market
situation.
Hence from the above various advantages over the other planning tolls, break-even analysis
considered as a most appropriate method and used by the Aviva Plc organization Plc company
in future also for its business products.
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Conclusion
From this report, it had been helped in determining the requirement of management accounting
systems and the planning tools in the business for the Aviva Company to achieve goals and other
secondary objectives of the business. The company uses various planning tools such as
benchmarking, break-even analysis and discounted cash flow which is treated an important.
From this, it helps management to find the best suitable method for solving financial problems
and aid in achieving good growth in business at a financial level.
This report disclosed the use of the management accounting system by the Aviva Plc
organization and its methods such as the job costing system, inventory management system, cost
accounting system and the price optimization system are used in the organization. The report
also illustrated the use of a management reporting system such as the budget reports, aging
reports, performance reports, etc. which helps in deciding about the future of the organization
through planning and controlling.
This report also tells about the various advantages of different types of the management
accounting system and how they are integrated within the Aviva Plc organization.
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Reference
 Accounting coach, 2019. What is job order costing. [Online] Accounting coach. Available at:
https://www.accountingcoach.com/blog/what-is-job-order-costing [Accessed: 19 July 2019]
 Camcode, 2019. Inventory management system and its advantages. [Online] Camcode. Available
at: https://www.camcode.com/asset-tags/what-is-an-inventory-management-system/ [Accessed:
19 July 2019]
 Complete controller, 2019. Managerial accounting report. [Online] Complete controller.
Available at: https://www.completecontroller.com/types-of-managerial-accounting-reports/
[Accessed: 19 July 2019]
 My accounting course, 2019. What is a cost accounting system. [Online] My accounting course.
Available at: https://www.myaccountingcourse.com/accounting-dictionary/cost-accounting-
system [Accessed: 19 July 2019]
 Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
 Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and
control.
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