Management Accounting: Job Costing, Pricing & Inventory at Imda Tech

This report analyzes management accounting within the context of Imda Tech Ltd, a UK-based manufacturing firm producing mobile telephones and gadgets. It explores the core functions of management accounting, including planning, organizing, controlling, and decision-making, and differentiates it from financial accounting. The report delves into various management accounting systems like cost accounting, inventory management, job costing, and price optimization. It then applies absorption and marginal costing methods to prepare income statements, providing a comparative analysis of their impact on Imda Tech's profitability. Additionally, the report touches on the use of budgets and their benefits and limitations, concluding with an overview of the balance scorecard. This comprehensive analysis provides insights into how management accounting supports effective business decisions and operational efficiency within the firm.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting can be defined as process of preparing records that supports in
getting accurate information about financial condition of the company. It is statistical tool that
gives in-depth information to managers so that they can make sound decisions for the welfare of
entity. Any form of accounting which help the managers to conduct business operations more
efficiently can be termed as management accounting. It helps in getting the accounting
information to the managers so that individual can make sound decisions for the well fare of
entity. It is the essential tool through which management can forecast the uncertainties and can
prepare planning for reducing such adverse effects. Present report is based on the Imda tech
Limited which is a manufacturing firm that produces mobile telephones and other gadgets for the
retail outlets in UK. Current assignment will discuss the importance of management accounting
as decision making tool in the organization. Job costing, price optimizing, inventory
management system and cost accounting system will be described in this study. Calculation of
absorption and marginal costing will be done in this report in order to prepare the income
statement. Furthermore, explanation of balance score card and its uses will be illustrated in this
report.
TASK 1
a) Functions of management accounting
Management accounting is the essential tool that plays significant role in the
organizations. Four main functions of management accounting are as following:
Planning: It is one of the most important function of management accounting. By this way
manager of Imda Tech Ltd can get necessary information such as marginal costing, probability,
trend etc. and plan the activities to achieve the goal of the organization.
Organizing: It is another function of the management accounting through this way manager of
cited firm can organize the activities in effective manner. It tries to organize the operations as per
the current market situation (Kokubu and Kitada, 2015).
Controlling: By using the budgetary control, accounting ratios, standard costing mechanism
manager of Imda Tech Ltd can control over the cash flow and can evaluate the capital budgeting
significantly.

Decision making: It is the most important function of management accounting, with the help of
this managers can make short term or long term business decision and can support in the growth
of the company.
i. Definition of management accounting and difference between management accounting and
financial accounting
Both these terms are important for the business and by his way company can improve its
efficiency level. Financial accounting can be defined as branch of accounting hat tracks
financial transactions of the organization regularly. It helps in preparing the financial records
such as income statement, balance sheet etc. On other and management accounting the branch of
accounting in which managers use information in order to make sound decisions for the
organization. Difference between management accounting and financial accounting are as
following:
Differences Financial accounting Management accounting
Base It monitors the transactions of
the organization time to time
and according to the
monitoring results
management makes the
decisions (Grunewald, Syrbe
and Bastian, 2014).
It collects the information from
the financial accounting and
according to these detail
management takes decisions .
Decision making It helps in getting the financial
statements and according to
this statements company takes
the decisions.
Decision making is done with
the help of planning,
controlling and handling of
operations.
Rules and standards It is necessary to follow the
instruction of GAAP for
preparing the financial
statements.
No specific rules just needs to
focus on internal operation s.

Data collection In the financial accounting
Imda Tech can take historical
data for preparing the
statement.
In the management accounting
company can take support of
financial and non financial
information (Masztalerz,
2013).
ii. Importance of management accounting
Decision making is one of the essential part of business, if company is able to make
sound decisions then it can help in improving its performance. For taking internal as well as
external kind of the business decisions there are management and financial accounting both are
one of the best and highly helpful for the Imda Tech business entity. To take decisions there are
current and future informations are necessary to identify and determine which are done by using
key aspect of management accounting like as budget. On the basis of budget managers of Imda
Tech assess financial information for future and after considering this data it takes decisions that
what strategies should follow in the upcoming accounting periods. In addition to this, for making
decisions that whether some kind of raw materials and products needs to buy from other
companies and suppliers or produce within entity management accounting is the helpful aspect
for Imda Tech (Management Accounting: Reporting for Decision Making, 2015). For utilising
all the available raw materials as well as resources in the highly optimum way for generating the
revenue there the managers of Imda Tech use respective accounting system within entity.
Regarding to this, to compare business performance with current and past or actual and expected
the management accounting having the crucial place and on the basis of accountable factors of
arising deviation are to be determined properly. When the management determine the causes for
reducing performance and profitability then corrective actions and strategies are made and then
further decisions are easily able to taken by Imda Tech. Hence, it can be clearly said that to take
different kinds of business decisions in the company management accounting is one of the highly
significant concept.

b) Explaining various number of management accounting systems
Cost accounting systems
In this kind of management accounting system there are various types of the costs and
expenses which are arises in the firm are to be analysed and then decisions for charging prices
are to be taken. Apart from this, in the books of accounts of profit and loss the cost accounting is
highly supportive because of giving all the expenses and assess profitability position (Gordon
and Fischer, 2011). Costs is one of the very sensitive aspect of the company which is highly
necessary to analyse, reduce and manage within workplace. With the help of current system of
management accounting overall production expenses which are made by Imda Tech are assessed
by the manager. On the basis of that various decisions are easily taken such as calculate cost of
each service or item, derive pricing of same etc.
Inventory management systems
In the Imda Tech opening or closing stock is always there which is necessary to use in the
optimum ways along with making valuation of this. Here the stock level is to be managed in
effectual ways which lead to improve sales and revenue level up to the greater extent. In addition
to this, for valuing inventory generally three methods are adopted which are weighted average,
LIFO and FIFO. Higher the stock level is adverse condition for the Imda Tech firm because it
reduces the revenue and profit generation capabilities within industry. Due to such kind of reason
and responsible element, firm manages stock in better and effective condition which supports to
increase profitability. Moreover, by using the above stated methods it able to determine stock
value which helps to make decisions that in upcoming financial period how much number of
units required to produce or manufacture.
Job costing systems
In respective system costs evaluated and reviewed about those products which relies
under different batches at the workplace of Imda Tech. In the firm when there are goods are
produced in various batches then the job costing system is one of the very helpful criteria
(Ramljak and Rogošić, 2012). At the current study, there are expenses assessed which rely under
chargers and electronic gadgets etc. The very basic and essential requirement of job costing
system in Imda Tech Limited company is to analyse cost of every product range which are
produced or manufactured under the firm. In the current case, cited firm producing several
electronic items along with mobile phone charger. In this, job costing provide information to the

management that there is how many expenses incurred in such all products after making
classification.
Price optimising systems
In this, it has been analysed by the managers of Imda Tech that at which type kind of
prices customers are giving response in terms of purchasing products in which direction. On the
basis of this, Imda Tech able to make decisions that how much selling prices needs to charge of
products by which more number of customers purchase it on consistent basis. The firm makes
change in price of products and chargers within particular period and at which kind of price more
consumers are attracted is determined through this give management accounting system.
Moreover, it is highly easier method in order to make internal business decisions like pricing.
TASK 2
I. Absorption method of costing
In the current calculation there are 2000 units are taken into account for computing total
cost of production. Such value is given in the case study that at the end of September 2010 the
Imda Tech company producing 2000 units and from them only 1500 units are sold and other
remains as stock which are like 500 units. Moreover, cost of each and every unit are also
provided under the case study of Imda Tech.

Analysis-
On the basis of current mentioned income statement it has been assessed that Imda Tech
having not capability to attract more number of the consumers in order to buy the mobile phone
chargers. Due to which amount of sales affects which lead to create negative impact on the profit
condition of Imda Tech. While preparing statement of profit and loss through absorption method
then there are whole kinds of expenditures are take into account (Lavia López and Hiebl, 2014).
At the current case study, the company incurring net loss rather than profit which is worth of -
5375 GBP. To overcome such kind of problems company must control on the expenses which
enhance financial burden on Imda Tech. Costing is one of the basic aspect which impact on the
entity in terms of generating profit at the every accounting period ending.

II. Marginal method of costing
Analysis-
On the other side when the firm prepare income statement by taking help of the marginal
costing method then only variable as well as direct type of the expenses are included. Due to
such factors and causes net income differs which is at the current statement is worth of 4625
GBP. Lower the costs are considers lead to reduce total cost of production and because of this
Imda Tech generates net profit rather than loss. Moreover, as compare to the revenue net profit is
not that much good for improve this effectual actions needs to take along with the appropriate
strategies.
TASK 3
a) Various types of budgets along with benefits and limitations
Cash Budget
The budget statement under which cash position of the company is to be forecasted by
considering mainly two criterias which are like as cash receipts and outcomes is called cash
budget.
Advantages:
It is very helpful for the Imda Tech to assess that and analyse that in the upcoming year
how much money will be needed to manufacture chargers of mobile phone. Moreover, level of

cash requirements along with expenses are also identified at the current year for next accounting
periods with the help of cash budget (Chenhall, 2012). In which direction changes has to make in
the expenditure and from which sources finance needs to raise is also decided through cash
budget.
Disadvantages:
In opposite to the benefits, it is on the basis of various assumptions as well as estimations
by which sometimes the managers not able to make the effectual assumptions which lead to
affect the firm in negative ways. To make and prepare the cash budget there are highly qualified
employee of finance is necessary to hire and recruit at the workplace who charge more salary
from the firm which results is to incur higher cost in Imda Tech.
Production Budget
Kind of budget under which level of production units are to be identified and forecasted
for the further accounting or financial years is called as production budget.
Advantages:
On the basis of production budget various kinds of decisions are taken in fruitful ways
and one of them key decisions is relating to purchase raw materials. If the Imda Tech founds that
in the future higher or lower number of chargers has to be manufactured then in accordance to
that quantity of raw materials will be inbound at the workplace. In addition to this, it highly
supportive in order to manage and reduce stock level along with optimum utilizing to improve
sales of it (Bebbington, Unerman and O'Dwyer, 2014).
Disadvantages:
However, to make the production budget there are marketing expertise employee is to be
required because on the basis of future demand trend level production level is to be forecasted. In
case, it has been estimated that in the future demand of mobile phone chargers will be enhance
up to higher level and Imda Tech purchase raw materials at huge quantity. Furthermore, in the
market if demand reduces then profitability of Imda Tech affects as well inventory increase
which is one of the basic limitation of production budget.

b) Process in order to prepare budgets
For making and preparing statement of the budget there are particular and specific kinds
of the process is to be framed and on the basis of that effectual budget is framed by the company.
For this, various steps and their explanation is given which is as below:
Illustration 1: Budgeting Process Collecting data: At the very initial data and information which needed for making the
budget are to be gathered and collected by the manager who take care and prepare about
the budget statement. The data are collected from the past financial statements of the
Imda Tech which considers as raw material to frame budget (Lim, 2011). Arranging in structure form: Second step to make the budget is to arrange the overall
collected information and data in appropriate and structure form which supports to
prepare budget and forecast about the future data. At this position when whole data are
arranged then it considers as raw budget and on the basis of this draft is made.

 Prepare draft and take approval: In the further step of budget preparation, draft is made
in systematic and structured manner and then shown to the senior and authorized
managers. The managers who have authority to check and evaluate, analyse the draft that
it is effectual and appropriate or not and then give permission to employees for
implement at the workplace of Imda Tech. Budget implementation: At the second last phase above approved the budget statement is
to be implement and execute in the company in systematic ways (Rausch, 2011). It is one
of the significant step in the overall process where prepared budget is adopted by the
company.
 Budget monitoring: At the last phase and step of budgeting process the budget is
reviewed and evaluated by the managers who are accountable for this. After monitoring if
they found any type of the obstacles then make correction in the budget.
c) Pricing techniques or methods
Price is the important element for every business entity at which management able to sale
the services and products whatever it produces. To calculate and determine that at which price
level goods and services needs to sale in market there are different strategies are available which
are such as follows: Absorption pricing method- The technique under which all costs and expenses are added
and determine the cost of production which incur to manufacture chargers and electronic
items. After assessing the total expenses the pricing level is assessed by the top and
middle level of managers who are accountable for the respective decisions. Cost plus pricing- Other method of assessing as well as deriving the prices of chargers
and another products in Imda Tech is cost plus where in the total production cost
expected profit level is included (Quinn and Jackson, 2014). The profit percentage
whatever manager of Imda Tech wants and expect to take from the costumers is to be
included in the cost of every unit. For instance, cost of every charger is worth of 250
GBP and Imda Tech having expected profit is 24% then selling price will be worth of 310
GBP.