Management Accounting Report: Imda Tech Limited - Financial Decisions

This report provides a comprehensive analysis of management accounting practices within Imda Tech Limited, an electronic industry company specializing in mobile chargers and gadgets. It begins by defining management accounting, differentiating it from financial accounting, and highlighting its significance in internal business decision-making. The report explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, detailing their benefits and applications within the company. It then presents income statements prepared using both absorption and marginal costing methods, along with a reconciliation statement. Furthermore, the report examines different types of budgets, such as cash and sales budgets, discussing their merits and demerits. Finally, it concludes by applying the balanced scorecard approach to evaluate Imda Tech's performance and strategic alignment, offering valuable insights into the company's financial and operational strategies.

MANAGEMENT ACCOUNTING
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INTRODUCTION
Management accounting is a method which helps to the company in order to take
effectual and fruitful internal business decisions for makes it the most profitable. There are
several kinds of approaches and systems come under the respective kind of accounting method.
The current study of the project is based on the company such as Imda Tech Limited which
operates in the electronic industry where it offers very special and particular type of charges for
the mobiles. Along with this it provides several electric gadgets to the retail stores and shops.
The study shows about the management accounting systems which are helpful and used by the
company along with making difference with the financial accounting. Further, it shows
preparation of the income or profit and loss statement by using two methods like as absorption
and marginal. Apart from this, the report describes about the different budgets as well as method
or steps followed while preparing the statement of budget. At the last, the current case study
looks upon the balanced scorecard approach which is the most beneficial for Imda Tech firm.
TASK 1
(A) I. Defining management accounting as well as segregating with financial accounting
Management accounting is a process of recording, analysing, interpreting, managing,
controlling as well as administering various financial transactions in appropriate way. With the
help of the management accounting the business entity such as Imda Tech able to know that how
and in which way the financial resources needs to manage. Apart from this, different types of
internal kind of business decisions are to be taken by the firm when it considers the management
accounting at the workplace (Cheng, 2012). There are two branches of accounting systems which
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are such as management and financial. Further, different among such both the aspects is given as
below:
Management Accounting Financial accounting
Key objective of the management accounting is
to provide report to the managers in effectual
way by which they can take fruitful business
decisions.
Purpose of the financial accounting is to record
day to day financial transactions and assess
health of the entity in form of financials.
In this the accounts can be prepare by
management at any time or as per their
requirements.
Several financial reports and statements are to
be prepared at the specific period of time which
determined by regulatory framework which is
such as quarterly, half yearly as well as yearly.
In this case there are statutory compliances are
not required.
In financial accounting all the statutory as well
legal compliances are required properly (Cohen
and Karatzimas, 2013).
Apart from this, in the management accounting
focuses or looks upon the present and current
financial data along with the future also by
doing estimating or forecasting.
It focuses on those kinds of data which are
comes under consideration at the workplace in
the past. Further, it shows all the historical
financial data and informations.
On the basis of management accounting
internal business decisions are to be made as
well as it is used by the internal business
members (Kastberg and Siverbo, 2013).
By considering the financial accounting there
are external decisions are to be made by the
firm and helpful or used by the external parties
as well as stakeholders of the entity.
(A) II. Significance of management accounting in order to make business decisions
At the time of administering as well as managing the overall business in smooth way
there are management accounting plays an integral role. When the entity like as Imda Tech going
to make decisions for internal business process then such kind of accounting approach is the
most beneficial. Moreover, key significant role of management accounting in the company
provided as below:
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 When the management make any kind of business plan or decisions then always consider
the management accounting approach because it gives all the information and financial
data in the proper way. Due to helping and supporting to the firm to prepare the business
plan the company able to combat in the industry as well as meet all the objectives and
purposes in the fruitful manner (Kraus and Strömsten, 2012).
 At the workplace of Imda Tech firm when it manufacture different kind of mobile
chargers then by considering the management accounting method it able to know and
determine that which parts of charger needs to prepare within firm or which needs to buy
from outside. Hence, the respective and existing accounting method helps to take
business decisions that what needs to buy or make within the firm.
 Management accounting is supportive in order to derive or predetermine the future data
and on the basis of forecasting or estimating system the Inda Tech able to earn as well as
generate maximum level of the profit and margin at the end of every financial year
(Grabner and Moers, 2013).
(B) Several kinds of systems of management accounting
In the management accounting approach or method there are variety of huge number of
systems are available which helps to take better and effectual business decisions. Further, several
management accounting tools and systems are analysed and stated such as follows:
Cost accounting systems
The system under which those all the costs and expenses are recorded which are
associated in the firm and then further decisions are to be taken is known as cost accounting.
When the management of Imda Tech company incur any kind of expenses in manufacturing r
administering process then treated in the books of costing. All the costs as well as expenditures
like as salary to the electric engineer, wages for labour, raw materials purchase, fuel cost,
insurance, rent on land and building etc. are recorded in the cost accounting system (Corina,
Alina and Cristina, 2014).
Inventory management systems
Method of management accounting under which level of stock as well as inventory is to
be valued and then analysed is known as inventory management system. For administering and
managing the stock available in the firm it is necessary to utilize it in highly optimum way and
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due to this the company can generate higher amount of sales. At the time of valuing and
determining stock available in the Imda Tech there are basically three methods are used and
executed. Such methods or techniques of inventory management are like as LIOFI (last in first
out), FIFO (first in first out) as well as weighted average method.
Job costing systems
In the firm there are different kinds of products and services are to be manufacture and
deliver up to the customers. For this it is necessary to determine level of costing and expenses for
each and every kind of product range. The job costing system supports to the business entity in
order to assess costs for different kinds of services and goods (Clinton and White, 2012). On the
basis of the job costing there are management of the company can know that in individual or
specific batch or product there are how much costs incur and then appropriate business decisions
are made.
Price optimising systems
It is another system of management accounting where the firm able to know and assess
that on the prising level of products the consumers are giving response in which direction. By
considering this, the potential managers of the firm able to decide as well as derive the price of
product or service which they deliver to them. Apart from this, it is used by the firm that on the
specific price the company fulfil objectives of customers along with improving as well as
maximizing the operating profit by reducing operating costs (Cheng, 2012).
M1 Benefits of management accounting systems along with its application
The management accounting systems which are evaluated in the above section are very
helpful as well as the beneficial for the Imda Tech due to assessing as well as raising the
financial data and various informations. Using and applying the cost and inventory accounting
Imda Tech is beneficial for determining cost of the products and managing stock respectively.
Along with this, it can utilize all the inventory for producing products and generating revenue in
the optimum and higher way. Apart from this, for taking decision as well as optimising price for
selling the charger is also taken by the Imda Tech which is the beneficial for it.
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TASK 2
I. Preparation of income statement with the help of absorption costing
It has been said by the above income statement that the Imda Tech incur loss at the end of
an accounting period because of having higher amount of the expenses along with lower
incomes. At this condition or method of costing there are all the costs just like variable, direct
and fixed are to be added and after that subtracted from the revenue generated. Due to this
accountable factor the company having loss worth of -5375 GBP at the fiscal year ending.
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II. Preparation of income statement with the help of marginal costing
By looking at the above mentioned table it has been ascertained that Imda Tech business
entity generates amount at the year ending in the positive and favourable way. When there are
amount of the expenses are lower than amount of incomes, then the company definitely generate
positive amount which is better for it (AbdulHussien and Hamza, 2012). Further, in the marginal
costing there are only direct and variable costs are to be adopted for calculating and due to this
firm generates profit worth of 4625 GBP in the end of years.
M2 Reconciliation statement of profit
Particulars Amount (in GBP)
Marginal profit 4625
Add: (Closing stock - opening stock) * OAR 7500
Absorption costing 12125
OAR = 180000/36000 = 5 GBP
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TASK 3
(A) Various types of budgets along with merits and demerits
The statement of method which helps to the company for predetermines the future
financial data and after making analysis of it the entity generates better business decisions is
known as budget. There are numerous types of budgets are to be generated and framed by the
firm to forecast various types of financial data. Some budgets are like as cash, sales, variable
overhead, direct labour cost, production, material etc. Among these all some budgets are
evaluated as below:
Cash Budget
The budget under which mainly or basically two headings are come under consideration
which are like as cash incomes as well as cash disposals is known as cash budget. It is very
helpful for the Imda Tech firm in order predetermine as well as estimate the data for the future
months and financial years. When the company determine at the present month about future then
it can take highly effectual decisions for make it healthier in terms of financials. In this context,
the firm able to know that how much amount of the incomes will be require for making payment
of several number of expenses (Hopper and Bui, 2016). Further, when the Imda Tech apply the
cash budget within workplace then easily and smoothly able to allocate financial resources to
various types of functions which are available in the organisation.
In contrary to this, there are cash budget provides estimation of various number of
financial data for the short period of time and due to this reason the Imda Tech cannot prepare as
well as take business decisions for long term. Apart from this, if the finance manager or budget
maker allocate resource to different function then conflicts as well as disputes can be occur
which is the negative and adverse situation for the company. Further, because of prepared based
on different kinds of assumption sometimes wrong decision is to be made.
Sales Budget
Other kind of budget which based on generally two aspects like as price of each and
every product or mobile phone chargers for selling as well as total number of units which are
manufactured at the workplace. The sales budget needs to prepare by Imda Tech enterprise in
order to predetermine that how much amount of sales as well as revenue is to be required for the
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further financial month. Apart from this, the firm can assess that in the manufacturing process
there is how much level of output needs to generate (Fadzil and Rababah, 2012).
However, along with the benefits as well as importance sales budget has some kind of
negative aspects as well by which fruitful business decisions for produce units and sell in the
market are not taken. By considering the sales budget if managers of Imda Tech not having the
effectual business strategies as well as cost control techniques then predetermined as well as
expected sales and revenue amount cannot generate. Further, the decisions for manufacture the
specific kind of charger as well as earn net sales are taken for the few time rather than for the
long period of time.
Production Budget
The budget statement of the company under which management desire on the basis of
past data that how much number of mobile phone charger needs to manufacture is known as
production budget. While calculating the current kind of budget then stock or inventory at the
end of year is to be deducted and then final number of products are counted which needs to
manufacture and sale in further month. By taking support of the production budget the Imda
Tech business highly able to utilize available raw materials along with resource in optimum and
appropriate manner. Apart from this, production budget support and help to the Imda Tech for
reducing the stock as well as control over the different kinds of expenses along with eliminate
unnecessary costs.
In opposite to positivity there are key limitation of the production budget is that in case
the employee or current budget maker not having knowledge of market and unable to predict
about the future market conditions then objective of Imda Tech cannot achieve (Johnson, 2013).
Further, production cycle of the products is for the middle time and production budget provides
information for the short time.
(B) Process or steps to prepare the budgets
While making the budget then company or manger needs to follow a particular and
specific steps by which effective budget can be prepare. Further, the steps and process for budget
preparation are analysed as below:
 Obtaining estimates: In this kind of initial step there are all the data which are required at
the time of making budget are to be obtained from reliable sources. When there are all the
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appropriate as well as reliable data are to be obtained as well as determined then Imda
Tech go for the further budgeting process.
 Coordinating estimates: The second step in which all the data which obtained in the
above stage are to be coordinated among each other (Aksoylu and Aykan, 2013). Apart
from this data are to be segregated according to the specific type of budget statement. In
addition to this, here all the available data arranged in the proper structure.
 Communicating Budget: The budget which is coordinated and then comes into the
preparation or final phase then it is communicated and discussed with the authorized
person and managers who are responsible for this. Further, those employees who are
attached with the respective budget then also discussed with them for implement at the
workplace of Imda Tech.
 Implementing the budget plan: At this fourth phase of budget making there are overall
budgets which are prepared in the above step are implement in the Imda Tech business
enterprise. By considering all the factors and elements which associate with the buget
section the budget are apply in the working environment (Bennett, Schaltegger and
Zvezdov, 2013).
 Reporting Interim Progress: At the last phase the budget which are implemented are to be
evaluated as well as examined by the senior manager and authorised or accountable
person. Apart from this, in this stage it has been analysed that whether the budget fulfil
and complete all the objectives of business or not.
(C) Pricing methods
Cost plus pricing: In this kind of pricing method there are amount or percentage of the profit
which desired and the firm want to earn is to be added on the cost of every unit or mobile phone
charger. Due to its easiness as well as fruitful outcomes most of the business entities use this
method. Formula to assess as well as determine price according such method is like as: Cost =
desired or agreed profit percentage. For instance: if cost of one mobile phone charges is such as
300 GBP and Imda Tech desire to charge 25% profit. In this the price will be such as 300 + 25%
= 375 GBP.
Value added: At this kind of pricing method brand image, reputation of the firm, quality of the
service as well as products etc. are added and take care while calculating the product price
(Tappura and et.al., 2015). For example: in case the brand image and quality of mobile phone
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charger of Imda Tech is at the higher level as compare to other companies then it will charge
more price. The lower image of firm if charge 250 GBP then Imda Tech will charge worth of
280 GBP or 300 GBP.
Penetration: Other kind of pricing method is penetration where the firm sell its products or
services at the very lower cost and price in the market to attract the customers. As the consumers
start to rely and sustain on it then charge higher prices of same product. For example: at the
starting and initial level Imda Tech charge price of mobile phone charger is worth of 230 GBP or
240 GBP. But as it grows in the industry then it will enhance pricing of the product from initial
price and will determine more than 240 GBP for selling.
Market led: Here by considering and assessing market conditions and situations as well as
prices of competitors the selling price of its own products is to be derived. If competitor having
the price of charger is worth of 300 GBP then Imda Tech will sell its product to the customers at
the lower price such as 290 GBP or less.
TASK 4
(A) I. Usefulness of balanced scorecard in order to combat financial constraints
Balance scorecard is the method of determining business performance where basically
four aspects are analysed as well as examined which are such as internal business process,
learning and growth, financial as well as customers. In the financial perspectives it can be known
that are the accountable and responsible factors due to which any financial constraint arises
within the Imda Tech. When such kinds of aspects are determined and examined then company
able to reduce those factors and improve them using appropriate business tactics which are
responsible for it (Vasile and Man, 2012). Apart from this, problems related to customers are
also identified and by which level of sales and revenue enhance. Ultimately, profit will be
improve, financial problems solve as well as objective of the entity achieved.
(A) II. Use of balanced scorecard for improving financial governance along with developing
effectual strategies
The author framework which prepares different kinds of financial decisions and
regulations is identified as financial governance. When the Imda Tech use the respective key
performance indicator at the workplace then can assess that which kind of condition is their of
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the firm in terms of financial. On the basis of the business conditions the financial governance
makes and formulates the fruitful and suitable regulations (Johnson, 2013). Hence, it can be said
that the balanced scorecard is one of the highly effectual and better aspect and process for
resolve different financial constraints and obstacles. With the help of the BSC which stands for
Balanced scorecard the Imda Tech able to know that company is performing in which manner in
context to the financials as well as the customers. Moreover, by knowing level of costing,
revenue and other financial data he can make the decisions in accordance to performance. If
management of Imda Tech found that costing element raises and enhance over the period of all
the years then take corrective actions which supports to the selected business entity in order to
make the financial governance more better. Apart from this, due to reducing the number of
consumers of phone chargers which is assessed by BSC financial condition in terms of the
revenue goes down. Furthermore, by making effectual strategies for attracting consumers Imda
Tech highly capable to enhance the financial governance.
CONCLUSION
By summing up the above overall analysis of management accounting it has been
articulate that there are different kinds of systems of it like as price optimising, cost accounting,
inventory management etc. are useful for the Imda Tech to take fruitful business decisions. When
the Imda Tech calculate net profit and prepare income statement using marginal and absorption
method then outcome of final value differs. It has been clearly assessed that different types of
budgets like as sales, production, cash etc. are beneficial along with some limitations for the
company for determine different financial values for the upcoming period of time. By using the
proper process and effectual pricing strategy budget is to be made and selling price determined
respectively. It can be concluded that with the help of balanced scorecard different kinds of
financial problems are to be eliminated from the workplace.
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