Management Accounting: Functions, Systems, and Analysis

This report provides a detailed overview of management accounting, exploring its functions, types, and importance within organizations. It covers key aspects like financial and management accounting differences, various accounting systems, and their benefits, with a focus on Imda Tech's practices. The report delves into costing methods such as absorption and marginal costing, comparing their purposes and applications. It further examines budget preparation, planning, and financial problem analysis, including the use of balance scorecards. The analysis includes critical evaluations of accounting systems, financial reporting, and data analysis of financial performance, offering insights into how management accounting aids in effective decision-making and problem-solving within a business context. The report also highlights the importance of inventory management, job costing, and price optimization systems for companies like Imda Tech and how these accounting systems help in making internal departments more effective. Finally, the report evaluates the planning process and the use of accounting tools to overcome financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Preparation of report over management accounting functions.............................................1
P2: Management accounting types which are used in an organisation ......................................3
M1: Benefits of accounting system ............................................................................................4
D1: Critical analysis of accounting systems and reporting.........................................................4
TASK 2............................................................................................................................................4
P3: Various costing methods use by Imda Tech .......................................................................4
M2: Analysis of fiscal reporting.................................................................................................8
D2: Data analysis of financial performances of a company.......................................................8
TASK 3............................................................................................................................................8
P4: Preparation of budget............................................................................................................8
M3: Evaluation of planning and its application........................................................................10
D3: Analysis of financial problems...........................................................................................10
TASK 4..........................................................................................................................................11
P5: Balance score card use as an important tool to solve financial issues................................11
M4 Analysis of the problems....................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is an utmost important aspects of any business concern those are
dealing with the large number of financial transactions. It is mostly related with collecting,
recording and summarised of the financial data those are performed during the year. In an
organisation the investors take their valuable decision after making analysis of financial
statements of the cited company (Burritt, Schaltegger and Zvezdov, 2011). Under this project
report, there are various tasks in been covered which are related with management account and
its functions. It importance in making effective decision. There are different types of accounting
systems which are used in recording of transactions are discussed under this project. Or, analysed
the net profit by using various costing methods for Imda Tech Ltd. Use of budgets and its
advantages in preparing plan are also elaborated with its process and related price strategies.
Financial problems which are arise in an organisation explain and how to overcome it by
applying various tools and techniques are mentioned in this report.
TASK 1
P1: Preparation of report over management accounting functions
In an organization, accounting is considered to be effective tool to manage and evaluate
costs and various financial and non – financial transactions. It set a base for managers to take
valuable decisions in order to achieve its aims and objectives those are targeted by the cited
company's. Generally, such accounting reports are prepared at the end of financial year. It consist
of income statements and balance sheet. Both finance and accounting are crucial aspects for a
business entity, but serves various objectives (Albu and Albu, 2012). Management accounting is
mainly concern with operational reports, those are apportioned within a cited company's. While,
financial accounting is comply with different accounting standards which are set in order to
frame a plan.
Topic Financial accounting Management accounting
Purpose The main objectives of financial
accounting is to prepare cyclic reports
to shareholder and other external
parties.
On the other hand management
accounting describe informations to
the top authority to make plan and
control various responses.
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Time aspects It is based on past activities of
financial data. Historical prospectives
are need to be considered.
The total emphasis is delivered current
year positions. But, for future target.
Subject concern It mainly targets on the whole
organisation.
It is based on a particular areas that is
needs improvement.
Auditing Under this system, it is necessary for
external parties (Hoque, 2011).
It is not compulsory to audit. As
decisions are wholly made by top
authority.
Requirement It must follow GAAP and a order
format.
There is no need to follow any
prescribed format.
Measurement In financial accounting, only cash
transactions are recorded.
It consist of non-monetary activities
such as competition and changes in the
cost of money.
Scope It has narrow. It has board scope.
Importance of management accounting: It provide quantitate message regarding economical
situations those are associated with factors which are present in an accounting system. The
importance of this is not only for the management concern but also for other external parties to
come up with various effective (Macintosh and Quattrone, 2010). Some importance are
explained as under:
Related cost analysis: It is mostly used by the company to estimated what should be sold
and how an organisation sell it. The costs analysis is used to identified total costs which are
incurred during that process.
ABC Costing: It is said to be that tools which a manager identifies various activities in
an organization and assigns the cost of every activities. It is based on that cost of production
done by the company through its available resources.
Buying techniques: Some of the decision are primary use of managerial accounting data
which is used in production process.
Utilizing the data: It provide a positive ideas to the company regarding how to increase
small scale business.
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P2: Management accounting types which are used in an organisation
With the proper utilisation of accounting in a cited company such as Imda Tech can
stabilise its financial performance. Financial position can be analysed through using such kind of
techniques which are helpful in decision making precess (Quinn, 2014). Under the IMDA Tech
they are using price optimisation, cost accounting and inventory accounting system in their
business to maintain its business activities. It will be easy for the managers to identified various
investments and cost those are used in production process during the financial year. In order to
make internal department more effective company are using various types of accounting system
which make the way to gain maximum profit in future. It will also guide the manager to use
those system in such a ways so that company would achieve its target in fixed allotted time.
Following types of systems are used by the cited company:
Inventory management system: In an organization stock management department are
responsible for controlling and maintains of their inventory. These are done so because it can be
use during production. There are so techniques which can be used by the managers to maintain
their stock level. Such as: ABC techniques which is used by the company according to the
durability and quality of the stock present. Other methods are related with shipping, tracking and
recording of stock eateries.
Cost accounting system: It is said to be that techniques which are used by the managers
in order to overcome the cost which are incurred during the production process. It will help to
determine total cost of goods for analysis of gains, inventory evaluation and to manager the extra
unit costs of production (Pitkänen and Lukka, 2011). As it has been observed that costs are one
of the most important aspect for the company which they can use it in future expansion of their
business. It consist of various other costing such as standard costing, normal and actual costing
which are incurred in direct cost of productions.
Job costing system: Under this system of accounting, manufacturing cost to an
individual goods or products batches. It is used as when the goods those are manufactured are
related with different from each other. In Imda Tech the products are arranged in a sequences as
a unit of chain so the they can easily calculated. These are said to be combines costs which are
which incurred on the individual units of products or each unit of production.
Price optimisation system: Under this system company which need to determine the
perception of the customers. That is they are able to buy products according to the range set by
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the company for there products. prior setting of the price company need to set an objectives after
making proper analysis of the customer attention towards their brand.
From all these methods job costing and inventory is more reliable and accurate for Imda
Tech to manage their electronic gadgets (Hiebl, 2014). The company would be able to plan and
earn extra profit if they are using above mentioned accounting in their business operations.
M1: Benefits of accounting system
From the above analyses of all the management accounting system for the IMDA Tech
Pvt Ltd. Out of them inventory system and job costing system is more reliable and valuable for
generating positive results for the cited company. The basic advantages for using these system is
to maximise the productivity and growth of the company. The efficiency in work among various
departments will increase through using the these systems in more perfect manner. The future
planning and forecasting is also based on the manager decision which they are made with using
those systems. The financial statement can be analysed before making any investment under the
company.
D1: Critical analysis of accounting systems and reporting
According to the Jansen, 2011 reporting of financial transactions can make the company
more effective to take valuable decision regarding the future growth and planning. The main part
of this system is associated with the social and operations need which are arise among
stakeholders of the company. In the above mentioned plan and accounting system a cited
company has budget reporting, inventory reporting and operational expenses reporting system.
These all can be use by the managers in order to prepare a perfect plan and report for future
period. The resources should be utilised in proper manner so that more positive results can be
achieved in order to get its objectives.
TASK 2
P3: Various costing methods use by Imda Tech
In an organisation, there are various costing methods which are used in order to get more
effective outcome in the benefit of a company. It help to determine total cost which are incurred
in manufacturing of products and services during the year. So in the ways to find out after
incurring total cost how much net profit a company able to generated during the year. So in that
process they are using following of the two methods:
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Absorption costing method: It is considered to be that costs which are incurred on direct
cost of production (Hopwood, Unerman and Fries, 2010). It mainly included direct labour,
material and overhead costs. Under this costing fixed costs are not considered except all others.
The main objective of using this method is to find out over and under absorption in that process.
The standard and actual costing which are use to analysed the total outcome from the cited
process.
Marginal costing method: It is associated with that costs which is related with both
fixed and variable costs. Under this process contribution per unit is calculated by the company
in-spite of gross profit. In the calculation of net profit fixed costs are considered with all those
variable costs. In other words, it can be said that costs which are current for the production of
one extra units of products and services.
Comparison among above two costing methods
BASIS ABSORPTION COSTING MARGINAL COSTING
Purpose It is based on external purpose. It is generally, prepared for the internal
reporting.
Profits If the company is having higher
ending stock, the profit will be
higher (Cooper, Ezzamel and Qu,
2017).
If it goes lower of ending stocks, the
profit will get low.
Fixed overhead
treatment
Fixed costs are considered as
product costs.
Under this period cost are considered.
High spot Only Net profit is calculated. Contribution per units are calculated.
Cost per units In this costing, opening and
closing inventory get affected as
the cost per units.
Under this beginning and closing
inventory are not influence as the cost
per unit of total outcome.
Computation of Net profit through using absorption costing
PARTICULAR ￡Amount £Amount
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SALES
Less: COGS
Opening stock
PRODUCTION COSTS
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Other expenses
Variable sales expenses
Fixed cost expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
Absorption costing
Working 1: Total production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working 2: Computation for the value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40000 500*20 = £10000
Working 3: Evaluation of under / over absorbed fixed production expense
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000(under absorbed)
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Compution of Net profit / loss from the income and statements
Net profit using marginal costing ￡Amount £Amount
SALES
Less: Variable costs
Opening stock
Business costs
Closing stock
Variable costs
Contribution
Less Fixed costs
Fixed Production expenses
Selling cost
Net loss
0
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
(2875)
Marginal costing
Working 1: Calculate variable production cost £
Direct material 8
Direct labour 5
Variable production O/h 2
Total variable cost 15
Working 2: Compute value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
From the above calculation it has been found that company are using both the method to
analsye the total profit. From both of them are getting seperate results. With the total cost of
variable per units as ￡15 they are getting contribution of￡ 22,125 and net loss of 2875. While, if
they are appling absorption costing into the account they using total production cost per unit of
20￡(Tucker and Parker, 2014). From this they are generating a gross profit of 17,500 ￡ and still
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they are getting a net loss of -375. So the company need to select absorption costing as they
value of loss is much less than the marginal costing. The basic possiblitiy from using the
absorption costing is to identifiy over and under absorption from the total fixed cost. In the above
situation it incurs a under absorption of ￡5000. so overall results says that company would select
absorption costing as they are more accurate and positive.
M2: Analysis of fiscal reporting
From the above evaluation of accounting system, it has been found that Imda Tech have
various financial techniques which they can make use in their business operations. Some of them
are comparative income statements, working capital and common size balance sheet (Tayles,
2011). From using these techniques a cited company can evaluate their performance and make
changes accordingly. The investors are firstly look over all these statements before making any
investment decision. The more useful statements are profit and loss statements which carries all
the relevant details about company present and previous year performances.
D2: Data analysis of financial performances of a company
According to the above information collected regarding Imda Tech Pvt Ltd financial
analysis. The company is using both marginal and absorption costing methods to analyse the net
profit for the company during the year. It has been found that from absorption costing a total of
5,000 is categories as under absorption. As in either of costing methods, which are used by
IMDA Tech is getting a negative losses. But, from the one which is incurring less loss for the
company would taken into consideration. The final outcome are not enough to analyse the
organization accounting position. The financial reporting can be more useful sometime when
decision are affecting the profitability of the business entity.
TASK 3
P4: Preparation of budget
Budget: It refers as the company's total estimation of costs, sales and other resource
which a company is going to be use in coming time. The budget reflects the financial position
and future growth potential of a particular company (Quinn, 2011). In that phase, an organisation
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have so many types of budgets which can be prepared from taken guidance from the other
departments.
Importance of budgets:
 It is helpful for the development of company performance in future in order to increase
the goodwill in the market.
 Productivity of the company is the main aspect which need to be increase through using
various budgets.
 Total costs which are incurred during production process can be analysed through
operating budgets.
 Budgets are important tool for making appropriate decision for the company.
Types of Budgets:
Operating budgets: This is related with the expenses which a cited company uses during the
production of goods and services. It indicate a future forecasting of total income required in
order to produce products for the selected time period (Setthasakko, 2010). All those direct costs
which are impact the profitably of the company are need to be analysed through this budgets.
Advantages
 Total expenses are identified during the year are identified from this budgets.
 The alarming losses should be controlled by the company.
Disadvantage:
 Misuse and cost can be control by the single person during the year.
 The regular monetary of production expense can not be done properly.
Master budget: It is the combination of all the financial budget which are made by
manager to bring all the activities into common point. The most of the investors are use to take
decision according this budgets.
Advantages:
 It explains all the main problems of the company that they are facing during the year.
 The overall growth and performance are identified from this single budgets.
Disadvantage:
 Lack of control of department.
 Taken more time to prepared a accurate budgets.
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Cash budget: It is the document that shows the total of estimated inflow or outflow of funds in a
particular time frame. It is an important tool as this way an organisation can plan its cash
requirements and also decision regarding maintaining liquidity can also be taken.
Advantages
 Helps in avoiding the situation of shortage in finance
Disadvantages
 It is difficult to formulate
 require experts for correct preparations
Process of budgeting
It is a difficult process that starts with defining the need of it. Than the past actual data
regarding the subject matter is analysed from which a base for budget is prepared. Than the
available information us access and final plan is made (TalhaRaj aand Seetharaman, 2010).
Thereafter, the process of reviewing the prepared budget starts which continues to reporting and
posting of the prepared program. Lastly when the whole process is completed and execution
starts monitoring is done on its progress so as to see weather it is effective or not.
Pricing strategies: It refers to that plan which are set by the company for there products
and services according to get competitive advantages from other company's. Some of them are:
Price penetration which is based on low price in order to maximise the market share and
competition.
No- frill pricing is a type of pricing which a company used to set for those customers who
are more sensitive in paying high prices.
M3: Evaluation of planning and its application
From the above analyse it has been found that company can increase its performance and
stability through using various budgets. As because, future forecasting can only be done after
proper estimation is generated by the company. Cost benefit and operating expenses analyse can
be the major application which can be analysed properly.
D3: Analysis of financial problems
In the process of resolving financial issues of a company. There are various techniques
which can be used by the company to manage and control the operations. In that process Key
performance indicator, benchmarking are the common tools can be more effective.
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