Detailed Management Accounting Report: Imda Tech Corporation

This report delves into the realm of management accounting, emphasizing its pivotal role in organizational finance and decision-making. It commences with an introduction to management accounting, differentiating it from financial accounting, and underscores its significance as a tool for strategic decision-making within the context of Imda Tech, a UK-based manufacturing company. The report further explores various types of management accounting systems, including cost accounting, inventory management, price optimization, marginal costing, and ratio analysis, elucidating their applications across different functional departments. Task 1 provides a detailed explanation of management accounting and its distinctions from financial accounting. The report then highlights the importance of management accounting information as a decision-making tool for department managers within Imda Tech, focusing on its application in cost analysis, product and service production, marketing efforts, and financial forecasting. Task 2 includes calculations of absorption costing and marginal costing techniques. The report concludes by providing a comprehensive understanding of how Imda Tech can utilize accounting information to make business decisions.

MANAGEMENT
ACCOUNTING

Table of Contents

INTRODUCTION
In every business organisation, finance is very important part and in the absence of
sufficient quantity of finance no business firm can carried out its business activities and
functions. In order to manage the finance in an appropriate manner, firm requires to effective
management accounting system. With help of this system, business unit can able to prepare the
cost report and financial statement which aids in manage the financial record and analyse the
financial performance of the organisation. In a simple word it can be said that it is a process of
analysis, interpretation, examination of accounting information which can measured by
formulating of financial accounting, report and statements (Ax and Greve, 2016). These
accounting report and statements assist to business unit in taking the decision related to
allocation of fund, developing policies and practices, maintain the daily operational plans and
other purpose of the organisation. The following project report provides a depth knowledge and
understanding about the management of finance and accounting and how it is used in the taking
business decisions with respect of Imda Tech corporation. It is famous manufacturing
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organisation in the UK which produce special charger for mobile telephones and other carry on
gadgets for retail outlet in the UK. The importance of management accounting information as a
decision making tool in the cited venture has been also discussed in this report. In addition to
this, various types of management accounting system and its implication has been also addressed
in this report.
TASK 1
a) (i) Explanation about the management accounting and to distinguish management accounting
from financial accounting
Management accounting is a systematic process of preparing management reports, accounts,
financial statements which assists in analysing, interpreting and examining of financial
information of the organisation. With assistance of these report and statements of account,
company can easily take the relevant decision about the allocation of fund, managing the risk,
daily operation related decision etc. In a simple word it can be said that management accounting
is the provisions of accounting information which used in the business for taking various
business related information. As per the view of (Brown and et.al., 2016) management
accounting is a profession that involves partnering in management decision making, devising
planning and performance management system, and providing expertise in financial reporting
and control to aid management in the formulation and implementation of the business strategy.
Financial accounting is quite different from the management accounting as financial
accounting considers on the financial statements which are allocated among stockholders,
lenders, financial analysts and other outsides of the organisation. On the other hand management
accounting considers on rendering information within the organisation so that its management
can operate the company more effectively and appropriately (Daskalakis, Devanur and
Weinberg, 2015). In a simple word it can be said that financial accounting is an accounting
system which considers on the formulation of financial statements of corporation in order to
render the financial information to the interested parties. On the other hand management
accounting provides relevant information to the manager to make policies, plans and strategies
for running the business effectively.
Following are some major differences between the management accounting and financial
accounting
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 Financial accounting includes monetary information whereas management accounting
involves monetary and non monetary information.
 The major objective of the financial accounting is to provide financial information to
outsiders. On the other hand management accounting main aim to aids in planning and
decision making process by rendering detailed information on various business related
matters (Giri and Sharma, 2014).
 Financial accounting statements are generally formulated at the end of the accounting
period which is usually one year. On the other hand management accounting reports are
prepared as per the requirement of the corporation.
 In the financial accounting publishing and auditing are required by statutory auditors. On
the other hand in the management accounting neither published nor audited by statutory
auditors (Guinea, 2016).
 Financial accounting are publicly published in order to report the financial success to the
external audiences hence confidentiality is not maintained. On the other hand in the
context of management accounting, report are prepared by the manger and it keeps full
confidential.
 With assistance of management accounting, company can maintain its financial record
and rep[port and use them according to the financial activities and functions.
ii) Importance and significance of management accounting information as a decision making
tools for department manager
Imda Tech company is famous manufacturing corporation in the UK which deals with
mobile chargers and gadgets for retail outlet. It is very important for the organisation to take
strategic decision making for business success and growth in the competitive market. In order to
take the strategic decision related to allocation of fund, long term and short term decision related
to sales performance, corporation required to consider management accounting information.
Following are some importance and use of management accounting information in taking the
decision related to business in the Imda Tech company-
 In the Imda Tech company, manager can find out the way of attaining the business
objective by use of reports, financial accounts and other set of data.
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 With assistance of management accounting, manager of the cited venture can analyse and
interpret the past performance in order to develop effective planning that is cost cutting,
pricing decision and other relevant decisions of the business (Järvinen, 2016).
 Information which are served by the management accounting information system aids in
performing relevant cost analysis. With assistance of management accounting, company
can able to take the decision related to the specific kind of product and services
production and manufacturing activities. It assists in taking the decision related to
marketing efforts and plan.
 Management accounting information renders a systematic analysis of data by use of
various tools such as budgeting, financial statement projection and balance scorecards.
With aid if this management accounting system company can take the decision related to
business activities and function in the existing as we;ll as future business (Schroeder,
Clark and Cathey, 2016).
 Management accounting system also assists in predict cash flow and the impact of cash
flow on the business. It assist in identifying that from where will its revenue come from
and will the revenue increase and decrease in the future.
 In the Imda Tech company manager can identify the future required resources and scope
of investment with help of management accounting system. They can forecast the future
revenue and take the decision related to future investment, allocation of fund within
business activities by help of existing accounting information.
B) Description of various types of management accounting systems and its use in various
functional department of the cited venture
Management accounting is a computerised application which collects the data from wider set of
operations like sales, cost of material, labour, inventory and other process in order to formulate
the report of business. With assistance of this management accounting system, company can able
to analyse its financial condition and forecast the future revenue. It aids in identity the various
information about the profitability and loss of business and according to management accounting
information company can be to take the decision related to business activities and function.
Cost accounting system- The cost accounting system have major objective is to provide the
relevant information and data about the cost and price of the product and services. In the Imda
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Tech company, cost accounting system provide a framework to manager in anticipating the sum
of total payment and cost of the product and services (Taleizadeh and et.al., 2017). Cost
accounting system generally used in the production process under which production department
manager can figure out the sum total of direct and indirect expenditures incurred in the
production process so as manager can estimate the total cost and expenses of the production in
the company.
Inventory management system- Inventory management system is related to the inventory of the
organisation. It is based on the computerised software which is beneficial for inventory tracking
because by use of this system, company can gather the information elated to distribution of
product and services, delivery, sales order. With help of this system, company can adjust the
item accordingly. In the context of Imda Tech Ltd company, this inventory management system
assist in creating order, conduct billing process and other documentation for the production
function (Taylor and Scapens, 2016). It can be said that with help of inventory management
system, company can easily mange the inventory and stock. With help of this tool, delivery and
distribution of product and services can mange within the market.
Price optimisation system- Price optimisation system can use in the selling department of
the Imda Tech Ltd company. Price optimisation system assist in determining various prices of
the product and services through different channels. It will assist in determining the relevant
pricing strategy for company's product and services. Price optimisation is the mathematical
analysis by the corporation to determine how customer will respond to different price for its
product and services through various channels. Sales and marketing department of the cited
venture can use this price optimisation system in order to set the prices of the product and
services. It will help in making analytical based prices that is reasonable for both the corporation
and customers.
Marginal costing- Marginal costing is very essential part of the management accounting system
which assist in taking the suitable pricing decision. It enables firm to derive the number of units
which it required to produce and sell for attaining the desired level of profit margin. The major
use of the marginal costing is that it assist in determine the level of margin of safety (Thai,
Varghese and Barker, 2015). It aids in making appropriate decision related to the cost and price
of the product and services within the organisation.
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Ratio analysis- Ratio analysis is another major part of the management accounting which used in
forecasting, making plan, communicating and coordination business activities and function. In
the context of stakeholder like employees, customer, supplier can get the information about the
profit and revenue generated in the business enterprise (Casini, Marone and Scozzafava, 2014)
In addition to this ration analysis aids management in getting the data about the extent to which
resources used by the employees.
TASK 2
Calculation of absorption costing and marginal costing technique
Marginal costing- Marginal costing is very essential part of the management accounting system
which assist in taking the suitable pricing decision. Major marginal costing used by organisation
in formulating the financial statements in every financial year. The major use of the marginal
costing is that it assist in determine the level of margin of safety (Christopher, 2016). It aids in
making appropriate decision related to the cost and price of the product and services within the
organisation. In this marginal costing, calculation of management account can take only
material, direct labour and variable production and fixed expenses. In a simple term it can be said
that marginal costing is an ascertainment, by differentiating between fixed cost and variable cost
of marginal cost. The increase and decrease in the total cost of production run for making one
additional unit of an item is known as marginal cisting.
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II: Absorption costing: Absorption costing is also known as the full costing and complete costing
and in this costing method different sort of cost are taken in to account namely like fixed and
variable cost. This fixed and variable cost is very important in the absorption costing. Under this
fixed costing is one which does not alter even production level get changed. On the bother hand
variable cost is that cost whose value get always changed with every variation that is observed in
the manufacturing of products in he organisation.
Sales revenue 52500
Less: Cost of goods sold
Direct labor 7500
Direct material 12000
Variable production
overheads 3000
Fixed production overhead 15000
Cost of goods sold 37500
Gross profit 15000
Less:
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Variable selling expenses 7875
Fixed selling expenses 10000
Total expenses 17875
Net profit -2875
TASK 3
A) Explanation about the various kinds of budget and their advantage and disadvantages
In the concept of management accounting, budget is another major important part through which
form can forecast the future business cost and expenses. It assists in taking the decision related to
allocation of fund and invest the amount of capital in the various business activities and function.
In a simple word it can be said that budget is an estimation of the revenue and expenses over a
specified future period. It is a process under which cost, revenue and resources over a specified
period can estimated by the organisation. Following are various kinds of budget prepared in the
organisation- Fixed budget and its advantage and disadvantage- In this budget of management
accounting, company can analyse current business performance and further prepare fixed
planning strategies to be implemented in the further month. Fixed budget refers to an
estimate of pre determined income and expenditure which once prepared, does not
change with the variation in the activity level attained. Fixed budget can not be modified
as per the actual volume and it is based on the assumption. It aids the management to set
the revenue and expenses for the period but it does not always provide accurate because it
is not always determine future needs and requirement of business (Christopher, 2016).
The major advantage of the fixed budget is that it allows organisation to compare
company's actual sales figures stack up against expected sales figures. In addition to this
it also allow company to prepare for expenses in advance. A fixed budget will not change
or fluctuate the amount from month to month and year to year. This makes company's
budget much more solid and the careful planning will make it easier to deal with
emergencies and stressful situation. On the other hand the greatest disadvantage of this
budget is that it have lack of flexibility and if company establishes a budget on a certain
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level of sales volume and that volume enhances. If a company identifies
underperforming area of the business, it can not allocate the additional responses to help.
 Flexible budget and its advantage and disadvantage- In the context of flexibility budget,
flexibility refers to the fluctuation in the financial activities of the entity. Flexible budget
is a financial plan which created for various activity level. In a simple word it can be said
that budget designed to change in the activity level is known as the flexible budget.
Flexible budget can easily fluctuate and modified in accordance with the activity level
attained. Flexible budget is suited for the corporation where there is great and high level
of variability in sales and production. The major advantage of flexible budget is that it
gives effective control during the budget period and it enables company to control the
cost because it shows where the actual performance deviated from the planning
performance (Dagiliene, 2015). On the other hand disadvantage of the flexible costing is
that it requires relevant information and business owner may find it difficult to get
accurate information even if they access to database and electronic process. Another
major disadvantage of this flexible budget is that sales result are the major component for
adjusting a flexible budget and it can adjust for other factor like skill of employees,
interest rates, degree of competition, prices of raw material etc.
B) Process of preparing budget
In the Imda Tech limited company, management accounting plays a very crucial role in
allocation of fund, managing business activities and taking the decisions related to the business
activities and functions. In order to manage the financial activities, corporation requires
formulating an effective budget. In order to prepare a systematic budget, company required to
consider on the following systematic process- Update budget assumptions: In this stage of budget process, Imda Tech company creates
the ideas for further business operation. In this stage company analyse assumption as well
recognizes current business performance. At this state manager of account department
analyse and assess the actual business performance and identified data are updated and
further assumption are acquired by manager in this stage (Fullerton, Kennedy and
Widener, 2014). Review bottlenecks: After analysing and recognise the current performance of the
organisation, in the next stage effectiveness of the organisation is reviewed by obtained
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capability of organisation for investment and implementing action plan related to increase
company's revenue. Available funding:- In this stage, management of company observe available net funding
along with acquired profitability and expenses. In this stage manager analyse and assess
the actual available fund within the organisation for operate business activities and
functions. Creating budget package:- In this stage, overall expenses and revenue is obtained for
adequate production and distribution of service provided by the cited organisation. In this
stage proper budget is prepared for effectiveness of the company and increase its
efficiency at high level.
 Obtain revenue forecast and department budget- After creating budget package. In the
next stage, manager of the cited organisation take the decision for further
implementation. Estimated income and department performance is forecasted for further
implementation.
c) Pricing strategies
Price is major factor in the business enterprise which define the product and services
value in the market. In order to gain effective success and competency, every firm required to set
it's some pricing strategy. Pricing strategy can be set for maximise profitability for each unit sold
or from the market overall. There are various kinds of pricing strategy such as market
penetration, cost leadership, price skimming etc. Pricing strategy is interrelated with preparing
planning for the cost (Jarzabkowski and Kaplan, 2015). By adopting effective pricing strategy
company can develop its own brand image in the market and acquire the large number of
customers. Company have to set the pricing strategy according to the market condition and
demand of the customer toward the product and services. In order to attract the large number of
customer and develop effective brand image on the market, company used effective pricing
strategy. Thus, pricing strategies are of various kinds to fit costs of product and devising
decisions for show of customers towards product choice. It determinant market position and
competitive strategies to set cost according to consumer's affordability. Cited venture have to
adopt effective pricing strategy in order to develop effective brand image in the market and
attract the large number of customer (Ax and Greve, 2016). Pricing strategy is only one which
distinguish company from the other rival and develop its own goodwill in the market.
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