Management Accounting Report: Budgeting and Costing at Imda Tech

This report provides a comprehensive overview of management accounting principles and their application within Imda Tech. It begins by defining management accounting and differentiating it from financial accounting, highlighting its importance in internal decision-making processes. The report then delves into various aspects of management accounting, including relevant cost analysis, activity-based costing, and make-or-buy analysis, demonstrating how these tools aid in strategic decision-making. It further explores different cost accounting systems like actual, standard, and normal costing, and their significance in manufacturing environments. Inventory management systems, job costing systems, and price optimization systems are also discussed, providing insights into how Imda Tech can manage costs and optimize pricing strategies. The report includes detailed analyses of absorption costing and marginal costing, with illustrative income statements. Finally, it examines different types of budgets, particularly the capital budget, and their advantages and disadvantages within the context of Imda Tech's operations. The report aims to provide a practical understanding of how management accounting supports effective business management and financial control.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................7
TASK 3............................................................................................................................................8
TASK.4 .........................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFRENCES.................................................................................................................................12

INTRODUCTION
Following report is prepared to understand the importance of management and leadership in the
organisation. Although both are almost similar concepts there are various grounds on which they
are differentiated from each other. The report will help the user in understanding their different
roles and functions which they perform under the same roof (Baldvinsdottir and Nørreklit,2010).
Also different budgets that are prepared in the Imda tech will be discussed in details with their
advantages and disadvantages. Apart from this what is score card and how it is important for the
cited company will be discussed in detail in the following report.
TASK 1
1.1 Definition of Management Accounting and to distinguish Management
Management accounting is a method use by the management of the Imda tech in order to carry
out its various functions smoothly in the organisation. It is a continuous process of planning
organising staffing directing coordinating and controlling the various activities of the business. It
is a very wide concept making financial accounting a part of it. It helps the management in
collecting and interpreting the information gathered so that it can be used in effective decision
making. Financial accounting is entirely a different concept. It gives the management
quantitative data which is used in analysing the financial status of the company at a particular
point of time (Bodie,2013). The data provided by management accounting is for the internal
users of the organisation like the different managers and other operating officials. On the other
hand financial reports are prepared for the external users of the business like government, banks,
investors or other interested parties. Therefore financial accounting can be separated from
management accounting on various grounds like:
1. Management accounting provide the information to the internal users of the company
who use the provided data in taking the various decisions for the concern department. On
the other hand financial accounting focuses on preparing data for the external users like
potential investors as they get to know about the status of the company through these
reports.
2. Theoretical data is provided by the management accounting system which help in
evaluating the performance of different departments with their performance of preceding
years. Financial accounting on the other hand provide the management with the

quantitative data which shows the change in the performance of the business in numerical
terms.
3. Management accounting does not require special skills like knowledge of numericals and
accounting but financial accounting needs to be done by a person having complete
knowledge of how to use different accounting concepts while calculating the different
accounts (Burritt,2011).
4. Management accounting is a system which helps the management in taking better
decisions for the different departments like what should be the adequate time given to
each department to complete the given task. In contrast to this financial accounting help
in taking the monitory decisions like how much amount to be invested in different
options after analysing the previous experiences.
Importance of management accounting:
There are various importance of management accounting. Imda tech. Use the different
management accounting options in its management to take various decisions. Importance of
management accounting as a decision making tool are as follows:
1.Relevant cost analysis- the system of management accounting helps the company in
putting the right price for its products. As there are many companies which are producing
different chargers for different gadgets it is important for Imda tech to set the right process so
that it is accepted by all. This system help the management in deciding how much expense
should be done in different product related activities like advertising, packaging etc. as all these
cost are ultimately added to the final price of the product (Garrison,2010).
2.Activity-based costing- Once the company decides the price of the product it is important for it
to target its customer. The company should be clear to whom it wants to sell its products after
doing the study that which all are the potential buyers of the concern product.
3.Make or buy analysis- The concept of management accounting also helps the management of
Imda tech to take the decision regarding choosing between one either to make or to outsource.
Company has both the options with it. They need to compare the profit margin they receive on
using these different techniques. Whichever gives the company better results should be adopted
and implemented in the business.
4. Utilising the data- Information provided by management accounting helps the business to
understand that how it can grow or expand in future. Budgets, financial systematists, balanced

scorecards are the different tools used under this system which if utilised effectively can help the
company to develop and expand its scale in future (Herzig,2012).
B) Cost accounting systems (actual, normal and standard costing)
Cost accounting is a system used by the management in order to get the estimation of
their products and services produced. There are different cost accounting systems which are
adopted by the company like:
1. Actual cost accounting- Under this system of accounting cost is recorded on the basis of
actual cost of material, labour, overhead actual cost allocated using the actual resources
during a particular time period. The main feature of this costing system is it include only
the actual cost tat is inured and do not include any of the budgeted amounts. From the
other systems that is available for costing it is one of the most simple method of costing
although calculation under this system take much time as all the cost needs to be
complied in actual cost before starting calculations (Li,2012).
2. Standard costing system- As the company is associated with manufacturing process this
system of costing is widely used. Cost of direct labour,direct material and manufacturing
overheads are calculated under this costing system. It is important to include the actual
cost not the expected cost while calculation as that it will give a reflecting amount to the
user. Therefore a difference between the actual cost and standard cost will always remain
which is known as variance. Unfavourable variance in the cost occurs when actual cost
are greater than standard costs. This shows that if everting remains same company
company will earn less profit than which is planned (Lukkaand Modell,2010). On the
other hand favourable variance shows that if everything remains constant company will
earn greater profit than from the planned earnings.
3. Normal costing- This system of costing is used to calculate the value of goods produced
with the available material, labour, manufacturing overhead costs. These three cost are
also known as the product cost and are utilised in determining the value of the inventory.
Inventory management systems
In order to understand what is inventory management system it is necessary to understand what
is inventory. It includes material which is not in the finished form and need to be processed on in
order to get the final products. Therefore it can also be termed as a raw material which need to go
through a particular process in order to be served to the customer for final consumption.

Inventory can be classified into four broad categories like: Production inventories, In process
inventor, MRO inventory and the last is finished inventory (Macintosh and Quattrone,2010). It is
very important that inventory is managed effectively due to the following reasons:
1. Inventory management ensures that the production process is carried out without any
hindrance in the flow by keeping the supply of raw material continue.
2. So that the amount of quantity that is required in the business as a finished good can be
maintained.
3. Sales of the business remains unaffected.
4. When the raw material is purchase in lot it is cheaper therefore the price of final goods
also remain controlled (Ward,2012).
5. It helps in reducing the material handling cost to the business as under the system of
inventory management only the required amount of raw material is maintained and no
extra cost need to be incurred on warehousing.
6. It also helps the management in utilizing people and other material reasonably.
Job costing systems
This is a system which help the management of Imda tech in analysing the cost of different jobs.
Through this system it becomes easy for the management to prepare budgets for different
departments depending upon their requirements. It is a technique through which management
gets to know about the cost related to different jobs also how much revenue is earned against that
particular job (Zimmerman and Yahya,2011).
Price optimising systems
It is mathematical programme that helps in understanding how demand for different products
varies at different price levels. The data provided in price optimization helps in deciding the best
price for the product as the customers are very price sensitive and when there is a change in the
price for any product it brings change in its demand also (Zimmerman and Yahya,2011).
Therefore in this dynamic environment where the price of the product keeps on fluctuating it is
important for Imda tech to use this technique as an effective tool.
TASK 2
Absorption costing- Under this method of costing all the business enterprise costs are absorbed
by the total number of units produced. Direct material,direct labour and both the variable and
fixed manufacturing overheads are included while calculating the the cost of finished inventory.

Income statement as per absorption costing
Selling price of one unit £35
Unit costs
Direct materials cost £8
Direct Labour cost £5
Variable Production overhead expenses £2
Fixed Production overhead expenses £1
Budgeted production for the given period is 36000 units per annum.
Production = 2000 units
Sales = 1500 units
Selling and distribution expenditure are as follows :
Fixed expenses = £ 10000
Variable expenses = 15 % of sales value
Particulars Amount Amount
Total Sales (1500 x 35)
Less: Variable cost:
Direct material expenditure (1500 x 8)
Direct labour expenditure (1500 x 5)
Variable production overhead expenditure (1500 x 2)
Fixed manufacturing overhead expenditure (1500x 5)
cost of goods sold
Add :
Stock at the beginning
Less :
Stock at the end (500*15)
Margin of gross profit
variable selling and distribution expenditures (52500 x 15%)
Fixed selling and distribution expenses
Net income Or (Loss)
12000
7500
3000
7500
Nil
(7500)
(7875)
(10000)
52500
(30000)
15000
(17875)
(2875)

Marginal Costing- Variable cost of an item is termed as the marginal cost. It is calculated by
adding material cost, direct labour cost, direct expenses cost and the other variable production
overheads. Under this system of costing variable cost are charged to the cost units.
Income statement under marginal costing
Particulars Amount Amount
Sales (1500 x 35)
Less : Variable manufacturing cost related with production
Direct material cost (1500 x 8)
Direct labour cost (1500 x 5)
Variable factory overheads cost (1500 x 2)
Closing stock (500*22500/2000)
Variable selling and distribution overheads
Total Contribution
Less : Fixed Cost related with production or manufacturing
activities(1500*5)
Selling and distribution expenditures
Net Income or (Loss)
(12000)
(7500)
(3000)
(5625)
(7875)
(7500)
(10000)
52500
(36000)
16500
(17500)
(1000)
TASK 3
Different types of budgets
Imda tech use variety of budgets in order to keep control on its different departments.
Different budgets has their own advantages and disadvantages over the business and therefore
there is a need to understand each in detail.
1. Capital budget- It is the biggest budget for any business. It includes all the other small
budgets of the organisation. Before calculating this budget all the incomes and expenses
of the business need to be analysed properly so that it is prepared correctly. It is also
known as the master budget of the company as it is a aggregate of all the other budgets. It
includes different factors like sales, expenses, operating expenses, assets and income
stream.

Advantages of master budget
It gives whole organisation a common goal to achievement
It helps other budgets to be effective.
Disadvantages of master budget:
1. It require special skills to make an effective master budget.
2. If is a time consuming process as preparation of master budget require a lot of time.
2.Operating Budget- This budget is a forecast of the expected income and expense of a particular
time period . It creates an accurate picture by taking the facts of sales, production, labour cost,
and various other costs (Granlund,2011). They are not created for a long period of time but for
different months, weeks or maximum for a year. Therefore these budgets can be compared
regularly.
Advantages of operating budgets-
1. These budgets are capable enough for facilitating compression on short intervals.
2. They are comparatively easy to make.
Disadvantages of operating budgets-
1 They need to be prepared on regular intervals.
2.Any change in the external environment will bring failure of this budget.
Process of budget formation
The budget methodology is as a general rule about the yearly spending cycle events and
practices. Essentially it incorporates the distinguishing proof of advantages and their uses for
satisfaction of organization's targets. A powerful spending fills in as a gadget for money related
and monetary management and duty. It moreover fills in as a framework for dispensing assets
among different needs and necessities and furthermore bringing money related trustworthiness
and improvement. The process involved in its formation is:
 Spending Formulation
 Investigation of Budget Proposals and Dialogue
 Spending Execution
 Spending Monitoring and Control
3.Pricing strategies

Valuing is one of the component of showcasing Ps. It is the most critical thing which is required
to achieve accomplishment by finding the value point. It is most pivotal for Imda Ltd which
needs to accomplish the goals by finding the value point. Organizations can utilize assortment of
evaluating methodologies in light of their own showcasing targets and destinations. There are
essentially such a variety of estimating methodologies, which is to be specific
Premium valuing- It is a technique under which the cost of the items are kept higher in contrast
with the other related items (Fullerton Kennedy and Widener,2013). This technique is utilized as
a part of request to pull in a particular fragment of the market which are more worry with
extravagance and discovers it a state of status in purchasing costly items.
Infiltration estimating- It is a strategy under which the cost of the distinctive items are kept lower
than the results of same sort of different brands. This methodology helps the organization to get a
substantially greater market as clients are value delicate. They react to the results of low cost and
along these lines the interest for the item increases. Albeit later the costs are expanded gradually
in a way that they don't come into the eyes clients.
Economy valuing-Economic estimating is a technique for choosing diverse costs for various
items. It is for the most part utilized by the business managing in the retail area like the
nourishment things, basic needs stores and so forth (Otley and Emmanuel,2013).
Mental evaluating- This system depends on the trust that specific cost have distinctive mental
effect. For e.g. £2.99 is considered as low from £3 which is just a physiological believe.
TASK.4
Balanced score cards
A balanced scorecard is an execution measurements used as a piece of crucial
organization to perceive and upgrade diverse interior utilitarian of a business and their
consequent external outcomes. It is used to evaluate and offer feedback to affiliations. Data
gathering is huge to giving quantitative results, as the information collected is interpreted by
chairmen and authorities, and used to settle on awesome basic leadership for the affiliation.
Under the given circumstance, Imda tech continues on through lost £1.5 million and from
recouping from that they are required to utilize this framework since it firms in keep up its
execution near to their delegate's. In like way change scorecard approach helps the refered to
association for making reasoning thusly, that they can investigate every one of the components
and execute the frameworks as indicated by way. An affiliation can perceive its budgetary issue

with help of this approach(Hiebl,2014). IMDA Ltd in like manner wire all their central goal and
dreams. It displays the total up of blend money related and non-cash related things. Like by
utilizing this approach, This approach helps the referred to association in taking care of out its
budgetary issue.
This scorecard demonstrates the procedures which are figure by the Imda Ltd. It helps in
auditing all parts on unsurprising timetable by the association.
CONCLUSION
From the preceding report of Imda Ltd it is presumed that management accounting is of
tremendous significance as it helps the administration in controlling diverse operations of the
association. It helps the administration in taking powerful choices by giving relative information
of various day and age. From this report the contrast between the administration bookkeeping
and monetary bookkeeping can likewise be comprehended with an all the more clear vision as
they are two totally unique ideas with M.A being a more extensive one. Retention costing and
minor costing are the two unique strategies which were utilized by the organization to determine
the net benefit of a specific year which gave negative outcome. Organization experienced loss of
various sum under various techniques demonstrating that organization needs to take a shot at its
effectiveness so as to bring the positive outcomes. For which it can execute the distinctive
administration bookkeeping methods which help the endeavour in improving business.

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