Analysis of Management Accounting Systems in BLC Ltd.

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MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
Task 1...........................................................................................................................................4
Part 1.........................................................................................................................................4
Part 2.......................................................................................................................................11
Task 2.........................................................................................................................................13
Part 1.......................................................................................................................................13
Part 2.......................................................................................................................................15
Conclusion.....................................................................................................................................19
References......................................................................................................................................20
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Introduction
This report explains the operation of the BLC ltd. Which is a UK based Manufacturing Company
which uses management accounting systems, various types of the management accounting
system are used in the organization and their benefits that organization gains with the use of
these systems. The report demonstrates the different types of management accounting reports
which are used in the organization. It shows how the management accounting and the reporting
are integrated within the BLC ltd.
The report states about the use of the different types of planning tools used in the organization
and their effectiveness towards the growth of the organization. This report reflected about the
profit and loss statement of the eyemen ltd through the principle of the eyemen ltd. The report
estimated the financial position of the BLC ltd. With the help of the balance sheet and the ratio
analysis which helps in defining the current situation of the company.
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Task 1
Part 1
A
Management Accounting
This is a kind of cost accounting which involves the analyzing, summarising, informing about
the situation of the organization to the managers. The key difference is between the financial and
the management is that management provides the information to the internal part of the
organization whereas financial provides the information to the outside parties of the
organization.
Management accounting involves the data about all fields of accounting, management accountant
provides the information related to the costs of the goods and services produced in the
organization and also of various other costs occurs during the operations of the activities in the
organization (Otley, 2016).
Management accounting system
BLC ltd. is a manufacturing company it involves various course operations for which the
management accounting system plays an important role in the easy working of the operations.
This system is the process through which the management accounting of a firm takes place with
the help of the various types of this system which are discussed below.
Job costing system
This system is about the finding of the different costs of the jobs which can be considered as the
operational activities which involve the various expenses for performing those activities so, to
determine the costs of each job activities is referred to as the job costing system (Your article
library, 2019).
Inventory costing system
This system estimates the inventory process of the organization, it identifies the costs of the
inventory helps to reduce these costs which further helps in increasing the revenue of the firm.
Stocks generally involves various indirect costs such as the shipping and the delivery charges so,
this system of help in reducing such kind of the indirect costs (Your article library, 2019).
Cost accounting system
This system of accounting involves the costs which are incurred in the process or the operations
of the business. This involves costs about the forms, [processes, control and the reports which
incurred the management report about the costs, profits and the income from the business. The
information from this accounting helps the managers in various ways such as cutting the costs of
the business, matching the actual costs and the budgeted costs, etc (Schmidt, M. and Nakajima,
M., 2013).
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Price optimization system
It is the identification of the customer's response which helps in determining the prices of the
product. It is the mathematical ability of this system to determine the prices of the various
products through different channels and watches the reaction of the customers in the changes of
the price (Enotes, 2019).
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B.
Management of accounting reporting
To know about the complete picture of the operations of the business organization this reporting
system plays an important role as it helps in making the reports yearly or quarterly.
Budget report
It is a very important report for managerial accounting as it helps the owners or the managers to
understand and control the costs within the firm or the various departments. This method helps in
analyzing the expenses of the current year and making the estimate about the budget in the future
as well as helps in reducing the costs which can be further increases the income.
Account receivables aging reports
This report is important for organizations that are offering credits to customers. It makes the
credit balances into the categories based on the periods of 30, 60 or 90 days. This further helps to
adjust the credit and find the defaulters in the organization (Ignitespot accounting, 2014).
Job cost report
This report helps in identifying about the profitability of the different jobs by identifying the sots
accrued in the one process compared to expected revenues of the future. It further helps in the
optimization of the process of the job operations which are overall profitable (Ignitespot
accounting, 2014).
Inventory and the manufacturing reports
It is very beneficial for the organizations which are producing physical products especially the
manufacturing organizations. They help in centralizing the data of the production process which
involves the costs such as the labor, inventory costs and the other overheads and also provides
the raw data which helps in machining and the assembling.
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C
Job costing
Advantages
• It helps in defining the prices of the product through the identification of the expenses
incurred in each job activity of the firm.
• It helps in finding the efficiency of the manufacturers while taking into consideration the jobs
performed by them.
• It helps in analyzing the different expenses occurred through the manufacturing process that
involves the direct cost, labor costs and the variable expenses of the firm (Otley, 2016).
Disadvantages
• This system is purely based on costs. The problem comes in finding the whole costs of the
complete process so sometimes it becomes complicated to find the expenditures of the occurred
one by one during the process.
• It can be considered as an expensive system as it involves the process and analyzes every
activity of the job performed.
• Sinch the direct costs and the indirect costs cannot be differentiated in a specified manner so,
there is no exact procedure for estimating the job costing system.
Inventory management system
Advantages
• It helps in increasing the revenue of the firm by reducing the various kinds of stock costs
during the operations of the business.
• Reduction in the inventory reduces the size of the investment which helps in reducing the
investment and also helps in improving the sales of the firm.
• It helps in maintaining the necessary control by protecting against the stock leakages, theft of
stock and the replenishment of the stock.
Disadvantages
• This system helps in efficient control but does not eliminate the risk involves in the business
of the firm.
• It is very difficult to control the inventories as it is very complex because it involves many
functions that are to be performed.
• Operations in this system sometimes conflict with each other as it involves the various
operations such as the reduction in the inventories, improving the sales by providing the services
to the customers, etc (Your article library, 2019).
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Cost accounting system
Advantages
• This system of accounting is very adaptable to the organization, as it is according to changes
that are needed for the business.
• It was easier to observe and control the labor costs with the help of this system. During the
estimation of the marginal productivity of employees, this system plays an important role.
• This system shows the data in different ways as it involves the accounts, calculations, and
reports that can be viewed from different angles (Wisestep, 2019).
Disadvantages
• It is still a question mark about the process of this system how it can manifest itself until a
specific organization is examined as this method differs from the firm to firm.
• This system can become a complex activity as it involves a lot of work and there will need
many adjustments so there might be the possibility of difficulties during those processes.
• This system may not be able to remove the misapplication or the uncertainty of the
accounting guidelines of this system.
Price optimization system
Advantages
• It helps in boosting the competition in the market, by using this method and changes the
prices it provide an opportunity for the firm to improve and grow which further enhances the
competition in the market.
• Companies may get benefits in the form of increased customer base and the optimal price as
this system produces the competition which further motivates the organization to produce a more
and better quality of the product.
• This system helps the customers in getting the better quality and more varieties of the
products such as the medical field – due to the increased competition in the medical field patients
are getting huge advantages by getting the better quality of the medicines and services (Enotes,
2019).
Disadvantages
• Due to the automation process, there may be a disadvantage of the large scale of
unemployment in the market sinch to produce efficiently many complies will automate.
• There may be an occurrence of the financial insolvency in the organization due to the job
losses because of this system which further can hurt the economy (Bale, et. al., 2012).
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• Another demerit is that both good quality and harmful products can be sold on the market
side by side. For example – if a shop can sell the good products they can also sell harmful
products like the cigarette as it depends on the customer’s desire as he may take both products.
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D
Integration of management accounting reports in the organization:
 Budgeting reports: on the basis of these reports future budgets are forecasted. While
making the evaluation of the performance of company & controlling costs, these reports
provide a plan to analyse the performance. Integration between processes of a Belfour
Beatty creates a way for the organisation to focus on targeted objectives & results.
 Order information report: helps management to incorporate operations to achieve less
cost on orders & to see the developments in their business effectively (Bale, et. al., 2012).
 Performance reports: the integration between reports of Belfour Beatty and these system
reports will help in the planning of better future costs and production by comparing the
budgeted targets with actual outcomes, standard performances are analysed &
information finally presented in the performance reports. Prepared on a yearly basis.
 Job cost reports: it mainly deals with the identification of costs, expenditures &
profitability of the individual job. It evaluates whether the project is in progress or not
and can be made as feasible & profitable.
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Part 2
Planning tools used in the organization
These are the instruments which help the organization in taking various steps for the
performance of the activities related to the implementation of programs, intervention, and
initiative, etc. they also help in giving the information about the implementation plans and the
ways through which it can be developed (Bale, et. al., 2012).
There are various types of planning tools which are used in the budgetary control system which
are discussed below:
KPI
It means the key performance indicator; it helps in analyzing the success of the organization in
achieving the objective. This planning tool analysis the progress of the work on the track of
accomplishment of the goal, which also focuses on the performances of the business operations
and the employee's effectiveness (Wu, 2012).
Effectiveness:
One of the important things about the KPI is that it is a form of communication through which
the clear and relevant information is absorbed. KPI can be more effective if the management
starts a proper understanding of the goal of the organization which involves the various processes
such as the feedback from the analysts, department managers, and the heads. This also helps in
finding the errors in the business as well as business needs can be measure. These things can be
done with the help of the KPI (Wu, 2012).
Benchmarking
This planning tool enables comparison between the organizations with other leading
organizations in the market of the same sector. It is also possible to make a comparison with the
firm of the other sectors. The main focus of this comparison is the costs, quality and time of the
organization. It helps in improving the performance of the organization by realizing the better,
cheaper and faster ways of the operations.
Effectiveness:
In the process of benchmarking various processes are identified against the best companies
which are performing very well in the market. It is also very important to make a comparison
between the companies of the same nature. Benchmarking becomes effective in the organization
as it helps in tackling the developments and improvements in a better manner. This can be non-
recurring but it is used as a continuous process which helps in improving the organization’s
performance.
CVP analysis
Cost-volume-profit analysis is another important tool that is used in the organization. It is a kind
of planning process used by the firm to predict about the future scenarios such as the sales made,
cost incurred, activity volume and the profit or revenue generated from the operations. It is the
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estimation of the changes in the cost which can affect the sales and income of the future period
(Liu, et. al., 2012).
Effectiveness
This planning tool helps the mangers of the organization in making various important decisions
regarding future operations. It analysis the costs, profit and prices based on the changes in the
volume of sales. It helps in analyzing the products which can be beneficial in the future to earn
the income of the organization. It helps in estimating the sales volume of the company through
which the fixed level of profit can be achieved; it also highlights the future expected budgets of
the company (Liu, et. al., 2012).
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