Management Accounting Report: Financial Analysis for Imda Ltd

This report provides a comprehensive overview of management accounting principles and their practical application within Imda Ltd. It begins by defining management accounting, differentiating it from financial accounting, and highlighting its importance in decision-making. The report explores various types of management accounting, including cost accounting, inventory management, job costing, and price optimization systems. It details the benefits of a management accounting system, such as improved business decisions, cost reduction, increased financial returns, and effective planning and performance evaluation. The report also examines the integration of management accounting and management reporting systems within an organizational context. Furthermore, the report includes an income statement prepared using both absorption and marginal costing methods. It discusses the techniques of management accounting, such as financial planning, decision-making accounting, performance management, planning, budgeting, and ratio analysis. The report also analyzes different types of budgets, their advantages, and disadvantages, along with the process of preparing a budget and pricing strategies. Finally, it covers the balance scorecard and its implementation as a planning tool, concluding with the role of planning tools in solving financial problems.

Management
accounting

Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
(a)Management accounting.........................................................................................................4
(b)Different types of management accounting............................................................................5
M1 Benefits of management accounting system.........................................................................5
D1 Integration of management accounting system and management reporting system in
organizational process.................................................................................................................6
TASK 2............................................................................................................................................6
Income statement of Imda tech....................................................................................................6
M2 Techniques of management accounting................................................................................2
D2 Interpret the data for the business activities...........................................................................2
TASK 3............................................................................................................................................3
(a)Types of budgets their advantages and disadvantages............................................................3
(b) Process of preparing the budget.............................................................................................4
(c)Pricing Strategies.....................................................................................................................4
M3 Use of different planning tools..............................................................................................4
D3 Role of planning tools in solving financial problems............................................................4
TASK 4............................................................................................................................................5
Balance scorecard and its implementation..................................................................................5
M4&D3 Planning tools................................................................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

INTRODUCTION
This report contain all the relevant information relating to the management operations of
Imda ltd. Present report shows the relevant information like what is management accounting and
what is financial accounting and how management accounting provide relevant information to
the managers in taking important decision for the enterprise. What is cost accounting system,
inventory management system, job costing system and pricing optimizing system is detailed
under this report. How many types of budgets are there and how the enterprise can be benefited
by making the budgets. How these budgets can help the Imda ltd in achieving its objectives. This
report tells how Imda ltd can use the concept of balance scorecard and how this can help them in
achieving their operation efficiency. Absorption and marginal costing are described under this.
What pricing strategy should a firm use to fix the price of its products and services is described
under this.
TASK 1
(a)Management accounting
Management accounting is a technique of using all the relevant information collected
with the help of accounts department of the enterprise in order to achieve the efficiency in the
business operations. The concept of management accounting is based on the information of
financial and non financial data of the enterprise.
Difference between Management accounting and financial accounting
Management accounting is a technique to provide that information to the managers which
will help them in taking useful decisions for the enterprise. By using or apply this managers can
better take the decision in maximizing the profits of the business.
Financial accounting is a process dealing with the monetary terms it mainly deals with
the financial statements of the enterprise and evaluate them in order to improve the performance
of the financial system of the enterprise.
Importance of management accounting system as a decision making tool
Every business enterprise has to take lot of important decisions and management
accounting helps them in taking appropriate and more effective decision by provide them useful
information(Kaplan and Atkinson, 2015). The importance of management accounting can be
understood by the following points:
 Relevant cost analysis: Management accounting system helps the mangers in taking
relevant cost decisions. Management accounting helps the enterprise in deciding what
method should be adopted by them in achieving the objectives with minimum cost.

 Make or buy decisions: Management accounting system helps the enterprise in taking the
decision relating to whether make or buy the equipments or product.
(b)Different types of management accounting
Cost accounting system: Cost accounting system is a system or framework used by the enterprise
to estimate the cost of their products(Macintosh and Quattrone, 2010)
 It helps the enterprise in knowing which products are more profitable and which are less
profitable.
 Inventory management system: It helps the enterprise in maintaining a optimum level of
inventory which will help the enterprise in achieving the objectives and demands of the
customers. Lack of inventory does not make the enterprise able to meet the specific
demands of the customers on the other hand over level of inventory will, give the rise to
storage cost.
 Job costing system: This system helps the enterprise in knowing the cost relating to the
each job and helps in evaluating the profitability related with each job. This is a useful
technique because this helps the managers in focusing on the more profitable jobs of the
enterprise.
 Price optimizing system: It is a technique helps the enterprise in deciding a price by
which the company can best achieve the objective of maximum profit and at the same
time the price satisfy the needs of the customers.
M1 Benefits of management accounting system
By applying or using the concept of management accounting system an enterprise can be
benefited by the following benefits:
Business decision: The most useful benefit of management accounting to the enterprise is that it
helps the enterprise in taking better decisions(Ward, 2012)
Management accounting evaluate all the activities of the business and provide useful information
to the managers and managers can better utilize the information in taking decisions.
 Reduce expenses: Business enterprises use the management accounting system in
reducing the cost of the operations. Firms use the management accounting in analyzing
how the quality can be increased and how the cost can be reduced of the business
operations.
Increase financial returns: Managers apply the concept of management accounting in increase the
financial returns and to enhance the profitability of the business(Baldvinsdottir, Mitchell and
Nørreklit, 2010)
 By collecting all the relevant information the managers can better take the decisions like
what to produce in better achieving or satisfying the customers demand and to achieve
the profitability.

 Planning: Management accounting system helps the manager in plan all the activities of
the enterprise by providing all the relevant information related to the all business
operations.
 Performance evaluation: Management accounting does not only evaluate the other
activities of the enterprise but also helps in evaluating the performance of the employees.
D1 Integration of management accounting system and management reporting
system in organizational process.
Management accounting system helps the managers in taking various important decisions
related to the business activities. Management accounting evaluates all the activities of the
business and shows that if any corrective action is needed in the enterprise to increase the output.
Imda ltd can use these two techniques to increase the efficiency in their business operations.
Management reporting system is a technique which record daily activities of the business and
tells the manager about the true picture of the business. On the basis of that a manger can take
better decisions and can increase the efficiency of the business operations. Management
reporting tells any corrective action needed in the business activities and improve the activities of
the business. This also evaluates the performance of the employees of the enterprise and helps
the managers in planning the development and training programme for the employees. Both
management accounting and reporting system helps the enterprise in working efficiently and
achieve its goals effectively(Lukka and Modell, 2010). Imda ltd can use both the techniques to
improve the efficiency in their activities.
TASK 2
Income statement of Imda tech
Income statement on the basis of Absorption costing method:
Selling Price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £1

Budgeted production for the period is 600 units
Fixed cost for a month:
Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £3
Fixed cost £5
Total £19
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*19 = £1900
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £3300
Fixed overhead: £3500
Total £200(over absorbed)
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
0
21000

Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod. O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Net Profit
13300
(1900)
1800
700
600
(11400)
200
9800
(3100)
6700
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales 21000

Less Variable costs
Opening stock
Manufacturing
Closing stock
Variable sales
Contribution
Less Fixed costs
Fixed Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9800
(1400)
2000
700
600
(8400)
(1800)
10800
3300
7500
Absorption and marginal costing
Absorption costing means all the costing which occurs in making or manufacturing a
product. It calculates all the variable cost which occur in making the product it ignores the fixed
cost because fixed cost is that cost which will occur while there is no production at all. It a
process of calculating all the cost occurred while making a product whether it is direct or indirect
expense. Absorption costing adds direct materials, variable manufacturing overhead and
manufacturing overhead in calculating the cost. Absorption costing is an important tool of
calculating the cost of a product includes direct and indirect cost.
Marginal costing is the opportunity cost which occurred while making an extra product. It is the
change in cost which happens when one product is produced by the enterprise. When an
enterprise make one product then it can rise two situations one is increasing in the total cost and
the other is decreasing in the total cost. By knowing this the managers of the enterprise can take
decision whether to make one more product or not(Renz, 2016.). If making one new product
increases the total cost of production than the enterprise should go for making the one more
product and if the production cost rises than the enterprise should continue with the old process
of making the product and should not add the one more product to the production process.

M2 Techniques of management accounting
 Financial planning: The most important objective of every enterprise is to maximize the
profits with minimum cost and also achieving the customer satisfaction. This objective
can be achieved by the enterprise by doing financial planning
 Decision making accounting: Every manager wants to take an decision which can give
fruitful results to the enterprise and management accounting helps the manager in
providing useful information which helps the manager in taking or making an appropriate
decision for the enterprise.
 Performance management: Performance management tool is used to compare the
performance of the employees with their standard performance to take appropriate
decision.
 Planning and budgeting: Records of sales is continue checked by the management to do
the further planning like how to increase the sales.
 Ratio analysis: It is used by the management to do the followings functions like planning,
coordination and control. It is a method of effectively controlling all the business
activities.
D2 Interpret the data for the business activities
To run the all the business activity successful the manager of every enterprise has to
predict some data to make the future decisions(Otley and Emmanuel, 2013). A manager can
predict the data by the following information available through:
 Past data: Past budgets help the manager in taking future decisions the mistakes which
occurred in the past can be removed in the present budget.
 Sales records : Sales record used by the manager to forecast the sales of current year and
managers take the decisions or make policies to increase the sales of the enterprise.
Other than this the manager of the enterprise can predict the data for taking various important
decisions for the business.
TASK 3
(a)Types of budgets their advantages and disadvantages
 Sales budget: Sales is the forecasting of total sales revenue generated by the firm by
selling the products and services to the target customers. It is one of the most important