Adapting Management Systems: Eastern Engineering Co. Ltd Case Study

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This report analyzes the application of management accounting principles within Eastern Engineering Co. Ltd, a private manufacturing sector company. It covers the importance of management accounting in planning, decision-making, strategic management, and performance measurement. The report discusses various management accounting techniques such as margin analysis, capital budgeting, inventory valuation, product costing, trend analysis, and forecasting. It also examines the advantages and disadvantages of budgetary tools and compares how Eastern Engineering Co. Ltd adapts its management systems to respond to financial problems like lack of finance, improper cash flow management, and excessive debts. The analysis includes a comparison with Incremental Engineering Ltd, highlighting different approaches to financial problem-solving through management accounting systems and key performance indicators. The report concludes that effective management accounting is crucial for enhancing organizational efficiency and productivity.
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Unit 5
Management accounting
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Contents
Introduction.........................................................................................................................................3
Main body............................................................................................................................................3
Principles of management accounting and its importance...........................................................3
Different techniques and methods used for management accounting report..............................5
Advantage and disadvantage of budgetary tools...........................................................................5
Comparing how organisations are adapting management systems to respond to financial
problems...........................................................................................................................................6
Conclusion............................................................................................................................................8
References............................................................................................................................................9
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Introduction
The management accounting is a modern conception of accounting act as a tool in
management. It helps organisation to conduct business in efficient way and concerned with
all such accounting information that can be useful for management in performing its
functions. The management in organisation is assisted in task for maximising profits and
minimising losses as it comprises of accounting methods, systems and techniques (Akbari,
and Pourzamani, Z., 2018). The following report is based on Eastern Engineering co. Ltd
which is private manufacturing sector. The report will cover principles of management
accounting wit its importance, different techniques and methods are used for management
accounting report. Further, pros and cons of budgetary tool is explained and comparing
organisation adopting management systems in respond to financial problem.
Main body
Principles of management accounting and its importance
The management accounting is way toward getting administration reports and records
which provides precises and appropriate budgetary and measurable data. This includes
preparation of reports in business operations which helps managers in making short- and
long-term decisions. The accounting information is used by manager in context to Eastern
Engineering co. Ltd and assist in management and performance of their control functions.
The financial data are communicated to managers through identifying, analysing, interpreting
and communicating information (Banerjee, 2021). It involves the components of budgets,
report of income & expenses, return on investment and sales analyses.
Importance of management accounting
Planning- In organisation to management the financial and non-financial information
is presented in regular intervals such as weekly. Forecasts, budgets and in-depth
analysis is involved in presentation. Therefore, management accounting helps Eastern
Engineering co. Ltd in planning business activities efficiently. This helps manager in
performing better analysis and forecasting which enables in framing of proper plans.
Decision making- There is presentation of several charts, forecasting and analysis
which is used by management for effective decision making. All financial information
of Eastern Engineering co. Ltd is collected and analysed which is available within
organisation and presenting them in simplified charts, tables etc. Hence, better
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understanding is provided regarding organisation affairs and appropriate decisions can
be taken at right time.
Strategic management- The management in context to Eastern Engineering co. Ltd
take decisions based on information which is presented by management accounting
regrading the continue a product or modification in sales strategy. This is not
regulated by law, by which management can decide areas which require more
analysis, investigation and in accordance draw strategies (Fisher, 2018).
Measuring of performance- The overall performance of organisation is monitor and
measure by management accounting by taking use of several tools such as variance
analysis that can measure company performance with pre-established standards in
order to find deviations. In performance of company all variations are identified by
managers in context to Eastern Engineering co. Ltd so that corrective measures can be
taken for removing them.
Principles of management accounting
Designing and compiling- The management accounting system is designed in such
manner which presents relevant data of accounting information, records, reports and
statement for meeting particular need of business or specific problem in Eastern
Engineering co. Ltd. Further accounting information can be modified and adopted for
meeting requirement of management.
Management by Exception- This principle is followed to present information to
management which take use of budgetary control system and standard costing
techniques. This helps in making comparison between actual performance and pre-
determined in order to find deviations (Harper, and Dunn, 2018).
Accounting for inflation- The value of money is not stable which is necessary for
assessing value of capital that is contributed by owners of business concern in terms
of real value of money through revaluation accounting. In such way, rate of inflation
can be taken into account for judging real success of business organisation.
Utilization of resources- In organisation there is need to utilized resources in
effective way as reason is there are some resources which is available in plenty and
some in scarcity throughout the year. Therefore, it is principle of management
accounting to utilised the available resources in most efficient and effective way
(Hoque, 2018).
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Different techniques and methods used for management accounting report
The accounting report is important aspect for knowing the business performance. The
management accounting reports helps in displaying financial status of business which is
presented over specified period of time. The financial information is complied with these
reports from accounting records and involves data such as transactions, operational costs,
profitability etc. The types of report are job cost report, budget report, inventory and
manufacturing report and many more (Kachelmeier, 2020). The management accounting
report in context to Eastern Engineering co. Ltd involves details of company available cash,
recent generation of sales revenue, current state of organisation accounts payable &
receivable etc. There are various methods and techniques in management accounting report
which is mentioned below-
Margin analysis- It is foremostly concerned with incremental benefits for optimizing
production. It is fundamental and essential; technique in management accounting
report which involves calculation of breakeven point and identifies optimal sales mix
of company products.
Capital budgeting- This is related with analysis of data and information which is
needed for making important decisions in relation to capital expenditures. In this
analysis, managerial accountants calculate NPV (net present value) and IRR (Internal
rate of return) for helping managers in deciding on new capital budgeting decisions
(Passoni, and Glavam, 2018).
Inventory valuation and product costing- It includes identification and
investigation of actual costs which is connected with product and inventory of
company. This process generally implies calculation and allocating of overhead
charges along with assessment of direct costs in relation to cost of goods sold
(COGS).
Trend analysis and forecasting- It is concerned with identifying of patterns and
trends of product costs along with recognition of unusual variances from forecasting
values and reasons for such variances.
Advantage and disadvantage of budgetary tools
The budget is defined as financial plan for business which is prepared in advance for
demonstrating and dedicating future course of business working. It is an estimation of
revenue and expenses over specified future period of time which is used by governments,
business and individuals. It helps in enhancing the success of any financial undertaking.
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The budgetary Control is procedure of comparing several actual revenues and
expenditures with budgeted planned income or expenditures for determining in order to take
corrective action is needed or not and calculating variances. In such budget are prepared and
their actual results are recorded (Skouloudis, and et.al., 2019). This is continuous process
which helps in planning and co-ordination. It is a system of controlling costs which
comprises of preparing budgets, coordinating departments, establishment of responsibilities
and comparison of actual performance with budgeted and acting upon results for achieving
maximum profitability.
Advantages
Maximization of profits- The budgetary control helps in maximizing profit of
organisation for which there is need of proper planning and coordination of different
functions in Eastern Engineering co. Ltd. Proper control over several capital and
revenue expenditure is taken and resources are put in best use.
Tools for measuring performance- The target are provided to various departments
in which budgetary control provide tool in order to measure performance. In this
comparison is made between actual and budgeted to find out deviations. To top
management the performance of each department is reported and enables introduction
of management by exception (Speklé, and Widener, 2018).
Disadvantages
Uncertain future- For future period the budgets are prepared as future is uncertain
and situation which is presumed to prevail in future may change which can upset the
budgets of Eastern Engineering co. Ltd on basis of certain assumptions. The utility of
budgetary control system is reduced due to future uncertainties.
Problem of co-ordination- The budgetary control success depends upon co-
ordination among different departments. The performance of one department affects
to another which create problem of co-ordination and leading to poor performance. In
order to solve this there is need to appoint budgetary office in Eastern Engineering co.
Ltd.
Comparing how organisations are adapting management systems to respond to
financial problems
The financial problems define to issues which is faced by organisation while
operating their business activities when they are not in capable position in order to generate
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sufficient revenue and unable to pay off their financial dues in context to Eastern Engineering
co. Ltd. For instance, in order to perform business activities effectively there is lack of
cashflow. Some financial problems in relation to Eastern engineering co. ltd are as follows-
Lack of finance-For the companies’ finance is considered as blood that helps in
ensuring operational effectiveness. Without having sufficient finance, the company
cannot be able to think for its growth and expansion in its business operations &
functioning. The Eastern engineering co. ltd also face issue in routine operations due
to insufficient finance.
Improper management of cash flow- This practice can lead Eastern engineering co.
ltd towards the disorganisation of business activities with inefficiency. The poor
management of cash flow leads to confusion and faulty reports in operation of
business. This is significant financial issue which tempers performance of business
adversely (Urakova, 2021).
Excessive debts- On business it creates huge financial distress. The overleveraging of
funds can lead Eastern engineering co. ltd limits in keeping of short-term and long-
term obligations and even can lead to bankruptcy. In meeting day-to-day activities of
organisation, the financial problem also creates hindrance.
The management accounting approaches which is applied by Eastern engineering co. ltd are
as follows-
Financial governance- It includes the policies and procedures benefiting organisation
for tracking financial transactions, performance management and monitoring varied
operations. The effective implementation of this approach will help in determining
risk fast rather than competitors. In context to Eastern engineering co. ltd the
ineffectiveness of this practice restricts in monitoring and gathering correct data about
financial transactions.
Key performance indicator- This defines to set of quantifiable tools which benefits
organisation in measuring overall performance. It is track through automated software
and different analytical tools. It helps company in articulating business goals and
measuring their implications in working.
Benchmarking- This is an exercise of making comparison of company products,
services and strategies with those businesses who reflect as leader in industry. This
practice is used by Eastern engineering co. ltd in its operations as this helps in
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bridging the performance gaps in order to determine areas which needs
improvements.
Comparison of different organisation for applying management accounting system for
solving financial problems.
Basis of difference Eastern engineering co. ltd Incremental Engineering Ltd
Financial problems The lack in working capital is
financial problem for Eastern
engineering co. ltd as it
hampers in meeting day-to-day
activities and requirements
which leads to dissatisfaction
in employees.
The improper management of
cash flow is issue faced by
company which creates
hindrances in its business
operations.
Management accounting
approaches
The benchmarking practice
can be opted by Eastern
engineering co. ltd to solve
issue of financial problem.
This management accounting
approach benefits to measure
company performance
effectively with its
competitors.
The key performance indicator
is used for analysing the past
performance and comparing
with its current which benefits in
evaluating and determining gap
between them.
Management accounting
systems
In order to allocate
procurement cost towards
differential products Eastern
engineering co. ltd adopts cost-
accounting system Which
helps in producing more
income and productivity.
The inventory management
system is adopted by
incremental engineering ltd for
managing its several operations
such as production, supply etc.
This system benefits in tackling
financial problems in an
efficient manner through its
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effectiveness.
Conclusion
From the above analysis it has been concluded that management accounting benefits
in analysing and recording of financial information that is used by organisation in order to
increase efficiency and productivity. In regular intervals financial information is presented for
making effective decisions. The management accounting presents the accounting information
in such manner to benefit management in creation of policies and undertaking of daily
operations. In organisation it takes use of several techniques involving marginal costing,
standard costing, budgetary control and many more that are employed by cost accountant.
References
Akbari, and Pourzamani, Z., 2018. The Firm Management Structure, Environmental Auditing
and Financial Reporting Quality. Journal of Management Accounting and Auditing
Knowledge, 7(26), pp.133-144.
Banerjee, 2021. Cost accounting: Theory and practice. PHI Learning Pvt. Ltd..
Fisher, 2018. A perspective on textual analysis in accounting. Journal of Emerging
Technologies in Accounting, 15(2), pp.11-13.
Harper, and Dunn, 2018. Building better accounting curricula. Strategic Finance, 100(2),
pp.46-54.
Hoque, 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Kachelmeier, 2020. Financial Accounting and Auditing Experiments in the Journal of
Accounting Research: Historical Background and Recent Advances. Journal of
Accounting Research.
Passoni, and Glavam, 2018. Entrepreneurial intention and the effects of entrepreneurial
education: Differences among management, engineering, and accounting
students. International Journal of Innovation Science.
Skouloudis, and et.al., 2019. Corporate biodiversity accounting and reporting in mega-diverse
countries: An examination of indicators disclosed in sustainability reports. Ecological
Indicators, 98, pp.888-901.
Speklé, and Widener, 2018. Special Forum on Survey Research. Journal of Management
Accounting Research, 30(2), pp.1-2.
Urakova, 2021. Management accounting as an enterprise management tool. International
Engineering Journal For Research & Development, 6, pp.3-3.
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