Management Accounting Report: Business Performance Analysis

This report delves into the core aspects of management accounting within the context of IMDA Tech. It begins by outlining various management accounting functions and their significance in achieving business objectives, differentiating them from financial accounting. The report explores different types of systems used, including cost accounting, inventory management, price optimization, and job costing systems, emphasizing their role in effective decision-making and market positioning. Furthermore, the report analyzes the preparation of income statements using both marginal and absorption costing methods, providing detailed calculations and comparative analysis. The merits and demerits of budgeting are discussed, and the balance scorecard approach is also considered. The report concludes with an overview of the key concepts and their practical implications for business performance and development.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Various management accounting functions and its importance............................................1
P2 Types of systems used in management accounting...............................................................2
M1...............................................................................................................................................3
D1................................................................................................................................................3
TASK 2............................................................................................................................................4
P3 Calculation and preparation of the statements of income......................................................4
M2...............................................................................................................................................6
D2................................................................................................................................................7
TASK 3............................................................................................................................................7
P4 Discussion of the merits and demerits in relation to the budgets..........................................7
M3...............................................................................................................................................8
D3................................................................................................................................................9
TASK 4............................................................................................................................................9
P5 Approach of balance scorecard..............................................................................................9
M4...............................................................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................10

INTRODUCTION
In the business there are various processes which will be required to be undertaken in
order to carry on the business in the effective manner and the combination of all of them will be
known as the management accounting (Bodie, 2013). In this report all of these aspects will be
discussed such as the systems which will be used and the manner of reporting by which the data
will be retained. Also the tools used to solve the problems will be explained. All of this will be
undertaken in context of the Imda tech so that the operations in it can be conducted in the best
manner.
TASK 1
P1 Various management accounting functions and its importance.
In order to achieve the objectives of the business it will be required that the value shall be
enhanced and that there will be the need to undertake various activities which will be covered
under the scope of management accounting. The outcomes which will be received will be the
result of the manner in which the policies will be used by the company so it shall be ensured that
they shall be complied by Imda tech in the best way possible.
The operations of the business will be conducted in the better manner if the company will
be aware about all the aspects of the business and for that information will be required that will
have to be collected with the help of the various systems available. The another method which
can be used by the company is the financial accounting which will be providing all the
information that will be related to finance (Burritt, Schaltegger and Zvezdov, 2011). The major
variations among them can be understood by the table provided here under:
Management accounting Financial accounting
This will be involving the processes in which
the aspects of finance as well as non financial
will be considered.
This will cover only those matter which will be
related to the financial issues.
The main motive behind this is to provide the
management of the company with the
information so that they can carry on the
decision making process (Ward, 2012).
In this the main focus is on providing data to
those who are not related to the business which
means the third parties.
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They will be made in any manner and for the
period of the choice of organisation.
In them the format and the time period both are
predecided according to the rules and
regulations made in this respect.
There is no compulsion on the business to
undergo the following procedure.
They are required by law so will have to be
used by all the companies and will be needed
to follow them.
Significance of management accounting
The management accounting will be required to be used so that all the all the activities of the
business will be carried out in the best possible manner (Busco and Scapens, 2011). There are
various merits which will be achieved with the help of this and the same are mentioned below:
 the main aim of the business will be achieved with the help of this which is to increase
the earnings and by this development will be ensured.
 There will be establishment of the different policies which prove to be of great advantage
to the organisation.
 The evaluation of the data which will be carried out under this will prove to be of help as
by that all the irrelevant cost will be identified and avoided by which the overall cost will
be reduced.
P2 Types of systems used in management accounting.
In the business all the information which will be required will be obtained with the help
of the various systems and an explanation in relation to them is provided below:
1. Cost accounting systems: The proper management of the cost will have to be made so
that they can reduced and by this the profitability of the business will be increased. All
the expenses which are made in the product will have to be identified so that the activities
which are present and are not contributing to the growth will have to be eliminated. By
this the cost in relation to them will be avoided and this will be contributing to the overall
development of unicorn grocery.
2. Inventory management system: In all the processes there will be requirement of the
inventory and so it will be needed that the decision shall be made in respect of the
optimum quantity which will be required to be ordered so that the level of the stock can
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be maintained at the appropriate level (Christ and Burritt, 2013). All the departments will
be needing the stock and the available stock will be allocated to them on the basis of their
requirement. It shall also be needed that cost shall be evaluated by which the best quality
material will be obtained at the least possible price.
3. Price optimisation system: The price that will be quoted on the product shall be such by
which the benefit will be derived to both the customer as well as the business (van der
Steen, 2011). For this various method such as cost plus pricing, contract pricing,
penetration pricing can be used. the price shall be such by which the customers will be
retained for long as they will purchase the product only when it will be affordable for
them. it can be said that the demand of the company will be highly affected by the price
that will be quoted in respect of the particular product.
4. Job costing system: In this the decision in relation to various jobs which are undertaken
will be made by which all of the jobs will be performed in the manner that will be best
for the Imda tech. All the cost of the jobs will be derived and then they will be used for
the allocation of them among all the products made. By this the cost which will be related
to the single unit will be derived and that will be used by the management in the
decisions which will be taken in this respect.
M1
In order to conduct the business in the most effective manner and to carry out the
expansion of it there will be need to conduct many tasks and for them management accounting
will be used by which relevant decisions will be made (Fullerton, Kennedy and Widener, 2013).
The information will be made available by the systems described above and this will help the
company in establishing and maintaining the market position.
D1
In the organisation there are many policies which shall be utilised so that the performance
of the company can be evaluated by the help of them and this will be useful in the conduction of
the process in relation to the improvement (Vakalfotis, Ballantine and Wall, 2013). The reports
will be made and by them the decisions to deal with the competition will be taken so that
advantage can be received above them.
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TASK 2
P3 Calculation and preparation of the statements of income.
The recording of the various operations shall be done so that the profit which will be
earned by the company can be determined and for that the income statement will be prepared in
which two methods are prescribed which can be used and they have been described below:
Marginal costing: In the process which is undertaken there are many cost that are incurred and
all of them can be divided among fixed and variable cost. The main difference among them is
that in case of the fixed there will be no effect of the change in the quantity of the products but in
variable they are directly proportional to the production and will increase and decrease in relation
to them (Hansen, Mowen and Guan, 2007). The overheads which are fixed will not be used in
the calculation of the profits under this method so the decision in this case will not be affected by
them.
Absorption costing: This is the method which will be using all the cost in order to know about
the profits which are made by the company. in this the overheads which are fixed will also be
taken into consideration and then the apportionment of them will be carried out. By this the
profits which will be determined under this will be different from the one calculated in the other
method.
The preparation of the statement of income will be carried out by the use of the above
mentioned methods and this can be better understood with the help of the calculation which has
been provided below:
Income statement as per Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production expenses 2
Total Variable production cost 15
Working 2: Calculate value of closing inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
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Net profit in case of marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the opening
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement as per Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this Actual cost is £10,000 and budgeted cost is £15,000
Selling cost: In this Actual cost is £7875 and budgeted cost is £10,000
Absorption costing working notes
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Working Note 1: Calculate full production cost
Direct labour ￡5
Direct material ￡8
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit in case of absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenses
Fixed selling expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
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M2
There are many reports that will be made and for that the information which will be
required will be collected with the help of the various tools which are present (Herzig and et.al.
2012). All of the recordings will be used in the making of the important decisions and by then
the level of the development will be increased and this will be the main advantage for any
company.
D2
The results which have been calculated with the use of the above mentioned methods will
be required to be interpreted so that the measurement of the performance of the company can be
done. Then the measures will be taken for that (Hoque, 2002). In this it has been found that the
company id incurring losses in both the cases and they are more in the marginal costing at the
level of 2875 and the absorption is giving the loss of 375.
TASK 3
P4 Discussion of the merits and demerits in relation to the budgets.
The planning id the most important tool by which the business can be operated in the best
manner and for this the technique which will be most appropriate and can be used by the
company id the budget. In this the evaluation will be made of the data that will be available in
relation to the previous years and by the use of this the new plan will be made. In respect of the
future also there will be the requirement of the research so that all the important factors affecting
the business can be ascertained and be included in the budget.
The budget will be made for the specified time period and in it all of the expense and the
incomes will be involved which will be of the great help in the business and this will be
providing the scope to the imda tech to make expansion. The important budgets which will be
used are:
 Cash flow budget: In this the transactions which will be involving the use of cash will be
included and by that the needs and the requirements of the business will be met in the
efficient manner. By this the problem of the non availability of the cash will be resolved
as all the cash will be arranges and there will be no issue that will be faced.
Advantages: The company will be able to increase its earnings by the investment of the amount
which will be available and all of this information will be collected with the help of the budget.
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Disadvantages: The main demerit is that all the variations which take place in the balance will
not be taken into consideration and this will result in improper formation of the budget.
 Operating budget: The manner in which the expenditure and incomes shall be managed
will be specified in this budget (Otley and Emmanuel, 2013). This is done so that all the
operations which are involved in the business are conducted in the manner by which the
maximisation of the profits will be undertaken.
Merits: There will be timely completion of all the operations as all will be aware of the activity
which will have to be done by them.
Demerits: The estimations which will be made in this will not always be perfect so there will
always be some amount of the risk which will be involved in it.
 Master budget: If all the data in respect of the various departments will be incorporated
in the one then that will be known as the master budget (Strumickas and Valanciene,
2015). The decisions will be taken by the managers in relation to all the activities and that
will be performed with the use of it.
Merits: The involvement of the time will be reduced and also the cost will now be required in
lesser amount.
Demerits: The important points in relation to some of the functions may remain avoided as it
will be impossible to have all the data about all the activities.
Budget preparation process:
The first step in the process of the budget preparation will be to collect the required data
and for that the analysis will be made of the information in respect of past and also of the future
and for this the proper investigation will be made. Then the report or can say budget will be
formulated incorporating the relevant findings.
Pricing strategies:
The focus of the business will be on the achievement of the objectives and for that the
main aspect will be to increase the earnings which will be only possible when the price will be
set at the level at which the benefit will be achieved by all. For this there will be many strategies
which will have to be formulated and some of them are penetration, cost plus pricing.
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M3
In order to maintain the business in the long run, the tools will be used and by them the
forecasts will be made and the one such techniques is budget. It will be known that whether the
plan made is implemented in appropriate manner or not.
D3
It is important that all of the problems shall be managed in the proper ways so that there
is no adverse impact on the business because of them (Parker, 2012). for this the tolls will be of
the great help which are described above.
TASK 4
P5 Approach of balance scorecard.
In the organisation there are various aspects which will be undertaken and it will be
needed that the balance among them shall be maintained in the most effective manner (Renz,
2016). For this the approach will be used in which the whole of the process will be bifurcated in
the four departments which will be involving internal processes which are undertaken in the
business. Finance in which the cash related matter will be involved, then comes to meet the
customer requirements so for this identification will be made of the needs and then steps will be
taken to meet them. The growth will be last one which will be achieved with the use of the all of
the above methods.
All of them will be useful in the solving of the problem as by them the identification will
be made possible in the advance and then the manner in which the most effective results will be
produced will be determined and used. There are other manner also by which the problems will
be solved and that includes:
 Performance indicators
 Benchmarks
 Financial governance
So these are the methods which will be used and the results and the profitability both will be
improved.
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