Detailed Management Accounting Report for Imda Tech (UK) Limited

This report provides a detailed analysis of the management accounting practices of Imda Tech (UK) Limited, focusing on the need for improved financial information for decision-making. It covers key functions of management accounting, differentiating it from financial accounting, and explores various management accounting systems like cost accounting and inventory management. The report includes calculations of product costs using both marginal and absorption costing methods, along with income statements prepared under each method. It highlights the importance of integrating management accounting systems with reporting for effective decision-making and emphasizes the role of budgeting and the balance scorecard. The report aims to help Imda Tech improve its financial returns, reduce expenses, and enhance its overall business decisions.

1
Management
Accounting

2 INTRODUCTION
Management accounting is used to inspect, record and report any financial information
for decision making. They do not follow any accounting standards of any country as they
themselves design management accounting according to the company and its operations or
management. We could say that management accounting is the process of investigation,
explanation and presentation of accounting information gathered with the help of financial
accounting and cost accounting. The information which is gathered is used for making
organisational decisions. All the report will be dealing with the management accounting of Imda
Tech (UK) limited who is producing special charger for mobile telephone and other carry
gadgets for a retail outlet in the UK (Asosheh, Nalchigar and Jamporazmey, 2010). The
department managers of the company in the last senior management meeting complained about
the lack of financial information to improve decision making. So as per the instructions of line
manager a report has been produced as a part learning which will include functions and
importance of management accounting, different types of management accounting system, cost
of the charges for mobile telephone, income statements, budgeting and its aspects,
implementation of balance score card and etc. This report will contain all the information related
to management accounting of the Imda Tech Limited which will help them in making proper and
effective decisions.
3 TASK 1
1 (a) Functions of Management Accounting.
Management accounting is related to the information that is needed by the management
of the company so we can say that it is technique or process which aims at providing managers
the information related to the accounting (Tseng, 2010). We know that in today's world the duty
of management accounting is not only restricted to report the score of the company but to use the
score or numbers in influencing the decisions of the company. These can be used to extracted
any new strategy or plan related to the management of the organisation. People who are assigned
with the task of preparation of information related to accounting should posses knowledge and
certain skills because through their report all the decisions, policies and plans will be made. A
manager takes decision on the basis of the accounting information which is provided to him, it is
basically the background of the company which defines what where the company stands or what

is the performance of the firm in past financial years (Chen, Hsu, and Tzeng, 2011). Accounting
information will assist Imda Tech (UK) limited to control the working and take significant
decisions which would benefit company for a long run. It is seen that people take management
accounting same as the the financial accounting but they are different from each other. A table is
made below to differentiate between the financial accounting and management accounting.
Financial Accounting Management Accounting
Financial accounting is related to financial
information like balance sheet, income
statement, cash flow, income statement and
financial statements. These information is
provided outside the business to the financial
expert, shareholders and etc.
Management accounting deals with providing
information which is useful in maintaining the
efficiency of the management of the company.
We could say that in this the information is
provided to the internal body of the
organisation.
In this the information of all the company is
included or we could say that all the
departments of the company are analysed for
this report.
In this case only analyse or inspection of the
specific department or area is done, there may
be a particular product management accounting
is restricted by the company.
Time period is set for the financing accounting
report or a time period is considered for this.
For example, Imda Tech (UK) wants to prepare
its financial reports so they will take past
financial year and consider the growth and
development of the company (Giovannoni,
Maraghini, and Riccaboni, 2011).
Management accounting does not include or
specific any time period as they prepare reports
according to the demand and requirement of the
organisation.
It is a mandatory or compulsory for most of the
companies to extract or maintain financial
accounting.
It could be optional and but in modern era
companies also take note of it.
For the preparation of the financial accounting
information reports they accept general
accounting principles in the UK and other
policies.
Companies while making managing accounting
report develops and follows rules according top
the needs of the company (Macintosh and
Quattrone, 2010).

It is the high-level summary of the business of
the company.
It emphasis on the certain required details of
the organisation.
Whatever the information extracted from management accounting process plays a significant
role in the decision-making process of a company (Van der Stede, 2011). This will provide them
the information in relation to the performance of the Imda Tech (UK) Limited which would be a
great help for them in recognizing the performance of the specific departments. This information
can be evaluated and can be compared with the expected results. What all plans and strategies
has gone wrong which has resulted in downfall of the performance and by this the cost of the
product can be managed.
2 (b) Different types of management accounting systems.
There are different management accounting systems which can be used by the Imda Tech
(UK) limited to inspect or record information related to its products and service. Following are
some management according systems: -
Cost Accounting System: - Production related activities can be traced through use of
inventory perpetual system (Scapens and Bromwich, 2010). This is one of the important system
used by the organisations and five parts of the system which are an input measurement basis, an
inventory valuation method in which valuation of inventory is done, third includes accumulation
of all the cost methods, fourth one is assumption of cost flow, and in the last one capability at
certain levels of recording inventory cost flows.
Inventory Management System: - Through this numbers of the products which is to be
sold can be managed because it helps in controlling the storage, orders and what are their use in
production of the items. Any decision concerned with the quantity and storage can be taken
through inventory management system.
Job costing system: - This is a process of accumulating information related to the costs
attached with a product. The information which is extracted through this are required in order to
give cost information to a buyer or customer and this can be also a useful method for
determining the accuracy of the company's estimating system. Imda Tech limited can earn profits
by quoting the price of the charges they are producing. Job costing system gives information of
the cost related to material, labours and other.

Price optimising systems: - This system shows how the price affects the demands of any
product and then combining all the data with the inventory levels and costs to fix the appropriate
prices which will help company in improving their profit margins. This can be used in checking
the response of the customers when the price of any specific product is increased (Soin and
Collier, 2013).
3 M1
Through management accounting Imda Tech limited can get lots of advantage and can
earn more profits. Through this Imda can reduce its expenses and in this the owners of the
business gets an idea that what cost it takes to run a business. Other than this they can improve
their cash flows, improve business decisions and can increase their financial returns.
4 D1
Management accounting system and management accounting reporting can be integrate
by Imda Tech Limited because before taking any decision or managing the decisions a report
will be required which will contain relevant information and on basis of that a reporting will be
done and that information is extracted or obtained from management accounting system
(Fullerton, Kennedy and Widener, 2014).
4 TASK 2
1 Calculation of the Cost
Marginal cost can be defined as variable cost of manufacturing a product and it is
calculated by adding the direct material cost, direct labour cost, direct expenses and all the
variable production overheads. Marginal cost are charged on the basis of per unit and the total
fixed are deducted from the full contribution. Fixed cost will remain same and does not have any
effect on the level of production. On the other hand absorption costing is the process in which all
the costs which are attached to the product are collected and than they are divided on distributed
on per unit basis. For the creation of the inventory valuation absorption costing is required as per
the accounting standard. In this the product will absorb all the costs whether it may be variable
cost or the fixed costs (Luft, and Shields, 2010)
Income statement on the basis of absorption costing method:
Selling Price £35

Unit costs
Direct materials £8
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £5.25
Budgeted production for the period is 3000
units
Fixed cost for a month:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing
Working 1: Calculate full production cost
Direct material £8
Direct labour £5
Variable cost £2
Fixed cost £5
Total £20
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40000 500*20 = £10000
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000(under absorbed)

Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed selling expenditure
Net loss
0
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
(375)
2 Income statement on the basis of Marginal costing method:
Working 1: Calculate
variable production cost
£
Direct material
8
Direct labour
5
Variable production O/h
2
Variable production cost
15
Working 2: Calculate value
of inventory and production
Opening

inventory
Production
Closing inventory
0
2000*15 = 30000
500*15 = 7500
Net profit using marginal
costing
£ £
Sales
Less Variable costs
Opening stock
Manufacturing
Closing stock
Variable sales
Contribution
Less Fixed costs
Fixed Production expenses
Selling cost
Net loss
0
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
(2875)
3 M2
Absorption costing and marginal costing can be used to calculate the net profits of the
firm and it is seen that both are equally important at their places and are different form each
other. In marginal costing only variable costs are considered and in absorption costing fixed cost
is taken. To reconcile both the fixed overheads will be considered and by doing that profits will
be reconciled and thus bring the appropriate financial reporting document (Qian, Burritt and
Monroe, 2011).
4 D2
If a company wants to achieve its goals and targets than they need to make sure that the
data which is available to them are correct and are prepared through conducting proper research.
A irrelevant data can bring loss to the company because the decision made by the managers are

based on those wrong assumptions. So they should check and conduct the business activities by
keeping a notion in their mind.
5 TASK 3
1 (a) Different types of Budget.
Budgeting is the financial planning by a company in which they decide or comes out with
a plan in which they describe where they will be investing the money or funds. There can be
various types of budget which are as follows: -
Financial Budgets: - Such kind of budget are responsible for managing the income,
expenses, assets and cash flows. Strategies are made to allocate funds for these things and it
shows a company spending in relation to its income from the core operations of the company.
Cash Flow Budget: - This kind of budget shows the projected inflow and outflow of the
cash in the business for a specified period of time is known as cash flow budget. Advantage of
this budget is that the company can know that their funds are utilized in proper manner or not.
They could have an idea of the fact that whether they have sufficient money for the task
(Fullerton, Kennedy and Widener, 2013). Through this they can manage the resources of the
company.
Operating Budget: - An operating budget is a forecast and analysis of projected income
and expenses over the course of a specified time period. To create an accurate picture, operating
budgets must account for factors such as sales, production, labour cost, materials costs, overhead,
manufacturing costs and the administrative costs. They are prepared in a week, month or on
yearly basis. The manager could compare these reports and can see where the company is
trending. The main advantage of this is that it assists in managing the current expenses and also
helps in projecting the future expenses that are required to be done by the company.
Master Budget: - It is a aggregate of a company's individual budget designed to present
a complete picture of its financial activity. It contains factors like sales, operating expenses,
assets, and income streams to allow companies to establish goals and can analyse overall
performance. They are used in the large capital companies so that all the individual managers are
aligned. Its advantage is that it gives complete overview of the company and there is no
specificity in it which can be its disadvantage (Cinquini and Tenucci, 2010).

Static Budget: - It is a fixed budget that remains constant regardless of the changes in
factors such as sales volume or revenue. Imda Tech limited might allocate budget for some
products and the budget for them is same every year whenever budget is allotted. These kinds of
budget are easy to follow and implement and it is basic advantage but these budget lack the
flexibility which prove to be its major disadvantage.
2 (b) Process of preparing a Budget.
There are steps which are followed while preparing a budget, at the initial step it should
be ensured that all the estimates which are required for making budget should be taken into the
account than all those should be distributed or allocated according to the need. In the third step
the concerned departments should be communicated and informed about the budget of their
department. All the authorities should be well aware about the budget and in the fourth step it
should be ensured that budget allocated should be properly implemented and should not go in
waste of effort (Lukka and Modell, 2010). A proper inspection makes sure that all the decided
things are under control and in the final stage a feedback is necessary which gives the company
the detail about the what are the profits and losses. Through this they will get to know what went
wrong and what are the areas where they are lagging behind.
3 (c) Pricing Strategies
It is a way through which the prices of the products are decided and price or cost is the
factor on which the profits of the company depends. While making a pricing strategy a lot of
things are kept in mind like what kind of product it is, what are initial costs like the
manufacturing cost, labour cost, transportation cost are included. Other than this the market of
that product is also considered which helps them to know the market value of that product or
service. Prices should be relevant enough not too high and not too low because a too high price
will dis-attract customers and they will switch on to the different brand and a low price may
attract customers but will give losses to the company. So a medium range price will be best and
will give competitive advantage to the company. Following are some of the pricing strategies
which can be followed:-
Pricing at a Premium: In this the prices are set higher than the competitors and this is
adopted when there is something unique about the products or if something new is introduced in
the market. This is the best strategy for the companies who are entering into the new market and
wants to increase their revenues.

Pricing for the Market Penetration: With such strategies the new companies will enter
into the market in order to convince people to try their products. Generally, the prices of the
products will be low in comparison to the other brands. Although this will bring losses at the
initial but will give long term profits.
Economy Pricing: In this companies take low cost approach to the marketing and they
does not do anything fancy. This way they are able to keep prices low and attract a certain
specific area of the market.
Price Skimming: Those firms which has competitive advantage can consider this
strategy and can maximize sales on the new products and services. This way they set high rates
during the introductory phase. But after some time they lower the prices sightly as they feel that
competitors goods appear on the market.
Psychology Pricing: This is a unique strategy or technique in which marketers use to
encourage consumers to respond on emotional levels rather than logical ones. For example; the
price of the watch is set £150 so it will attract more customer than setting it at £200 although the
difference is quite low.
4 M3.
Before implementing any work a planning is made which tells a organisation how they
will work in that situation. For preparation of budget forecasting techniques should be used and
on the basis of that estimates are made that they want to achieve that goal in specific period of
time and will require that specific amount for that activity (Ward, 2012).
5 D3.
For solving any financial problems almost every organisation uses different planning tool
and by using those tools they get a sustainable success. Budget is a planning tools which gives a
idea to the organisation that for such type of activity how much money or fund will be required.
Budgets are based on the estimates so any financial can occur and to overcome that situation they
need to be very conscious in budget planning.

6 TASK 4
1 (a) Balance scorecard approach.
Balance scorecard is a strategy performance management tool they are used by the
companies to track of the execution of activities by the staff within their control and to monitor
the consequences arising from the actions. Organisations uses it communicate what they are
trying to accomplish, use to measure the performance through monitoring progress towards set
targets and align the day to day work that everyone is doing with strategy. It connects the dots
between big pictures strategy elements like mission or the purpose, what we aspire for, core
values in which we believe in, strategic focus areas like themes, results or goals and the more
other operational elements such as objectives, key performance indicators which track
performance and the initiatives. Balanced scorecards are used by the companies and is widely
used management tool around the world (Otley and Emmanuel, 2013). According to the BSC
Imda Tech (UK) limited can be viewed through four different perspectives and if they want to
achieve, measure, develops objectives they can work on these areas. Following are the factors
through which a organisation can be viewed: -
● Financial:- This perspective sees the Imda Tech (UK) limited through on behalf of their
financial performance and how they use the financial resources. Normally whenever
someone wants to see the performance of any organisation he will simply go through the
profits and losses of the company, what is their sales, how much revenues they are
generating, how much marketing they holds and what is the value of their shares in the
stock market. All the data which falls in financial record are the summary of the company
and gives a brief idea about the companies performance in the specific time period. Every
year it comes out with a financial report which states all the things related to sales,
profits, revenues and this report describe the company in a financial year which has gone.
● Customers/ Stakeholders:- This perspective reviews organisational performance from
the customer or its stakeholders point of view. Customer are the assets of an organisation
and if the customers of the company is happy and satisfied than automatically the
company will be in profit. Imda Tech (UK) limited should take the feedback from the
customers about their charges and which will help them in knowing that does really their
customers are happy from the products they are delivering (Renz, 2016). If customers are