Detailed Management Accounting Report for Inda Tech Analysis

This report provides a detailed analysis of management accounting practices within Inda Tech. It begins with an introduction to management accounting, emphasizing its role in decision-making and control, and differentiates it from financial accounting. The report then explores the functions of management accounting, highlighting its importance in various aspects of the business, including cost control, planning, and financial allocation. It discusses different management accounting systems like cost accounting and inventory management, job costing, and price optimization. The report includes calculations based on absorption costing and marginal costing methods, followed by an examination of planning tools and different types of budgets. Finally, it covers the balance scorecard and its significance in performance measurement, concluding with a summary of key findings and recommendations. The report provides a comprehensive understanding of management accounting principles and their practical application in a business context.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Report on the function of Management accounting...............................................................1
P2 Various types of management accounting system-................................................................3
TASK 2............................................................................................................................................4
P3 Calculation on the basis of the Absorption costing and marginal cost..................................4
TASK 3............................................................................................................................................7
P4 Report on the planning tools of different budget...................................................................7
TASK 4............................................................................................................................................8
P5 Balance score card and its importance...................................................................................8
CONCLUSION..............................................................................................................................10
REFRENCES.................................................................................................................................11
.......................................................................................................................................................12

INTRODUCTION
Management accounting is a process through which Inda tech. Takes is various decisions
and also keep control in the organisation by checking and evaluating the performance of the
different individuals. It provide the relevant information to different users of the accounting
reports. Though it is not compulsory for the organisations to maintain management accounting
system it is followed in order to keep coordination in the organisation(Baldvinsdottir Mitchell
and Nørreklit,2010). These reports give the qualitative as well as quantitative data to the
different users so that they can take their decisions accordingly. Through this report the
importance of management accounting in Inda tech is highlighted as how this process helps the
management to keep control over the cost and the employees. Different methods of management
accounting are adopted by the company like the absorption costing and the marginal costing.
Both these are an effective tool of management accounting system.
TASK 1
P1 Report on the function of Management accounting
Management accounting is the process through which different reports are prepared for
the concern department which help the managers to take more effective decisions. These
decisions can be monitory or non monitory. There are various accounting systems which are
followed under the management accounting like audit and taxation,break even analysis,financial
accounting etc. therefore management accounting has wider scope than that of financial
accounting. With the help of the management accounting system the position of the organisation
at a particular point of time can be ascertained(Bennett Schaltegger and Zvezdov,2013). The
current assets,cash in hand total creditors and debtors can be calculated at a particular point of
time with the help of the management accounting system. These reports have both the internal
and the external users.
The internal users are the different managers, heads of different department and external
users like investor. They get the idea of the position of the organisation at a particular time
through these reports. Also these reports helps in keeping control over the management system
by keeping check on the performance of the different departments. Financial accounting on the
other hand gives only the financial details of the company. Under the financial accounting
system financial statements like balance sheet profit and loss account etc. are prepared. These
1

statement gives the user of these reports exact idea about the financial status of the company.
The balance sheet gives the quantitative data about the total of the assets of the company
and also how much is the liability against these assets can be calculated through this report. All
the cash transactions are recorded in the cash flow statements of the company. Which tells how
much fund is invested in different segments of the business and also which fund is giving the
maximum returns. This data is utilised by the different users like shareholders,debtor banks etc.
to take heir actions accordingly. They decide weather to invest or not in the company after
checking its growth rate which is calculated through these reports. Also financial reports help the
management of Inda tech. to do the comparison of the performance of different departments with
the different time period reports(Busco and Scapens,2011).
Difference between management and financial accounting are as follows-
Basis Management accounting Financial accounting
Message
Data
Objectives
Person
This account provides
important information that
assist in taking important
decision.
It is concerned with both
monetary and non monetary
transactions.
It's main objective is to take
appropriate action plan and to
make decision making
policies.
In this, all activities are
operated by internal
management system.
It provides support in making
financial statements that are
prepared in the organisation
It only relates to financial
transaction.
It has specified format in
which all transaction related to
finance will be recorded.
These activities can be carried
out by internal as well external
parties.
Importance of management accounting;
In the process of decision making management accounting plays a very important role.
Manager in the organisation are expected to take various important decision on regular basis for
which he needs the support of various report so that he can take a better and an effective result.
2

There are different types of decisions that a manger has to take. Some are tactical decisions and
some are decisions are related to the day to day operations. Management accounting helps in
both the decisions the long and short term decisions. Company has various choice of generating
and allocating the available finance in different sectors(Christ and Burritt,2013). Therefore it is
important for the company to choose the best resource for raising the fund which is best suitable
among the different available resources. Also choice of financial allocation should be done
carefully after analysing the returns of different alternatives. This process is effectively done by
the process of management accounting as it facilitates effective comparison of different options.
Planning is done in the process of management accounting which helps in taking the
required actions for the future in advance so that the risk of change in the business environment
can be minimised. This help the Inda tec. to maintain its hold in the competition which may not
be that effective if prior arrangements are not done. Also today the companies has the option of
getting things done through others or outsource the work from others. This decision is taken on
the basis of the data provided by the different reports that weather it is beneficial to perform the
task itself or it is beneficial to get the work done from other companies. As if the company gets
its work done through outsourcing there are chances that it can focus on other important
activities due to more time availability which help in the expansion of the business(Cinquini and
Tenucci,2010). Therefore management accounting helps the management to take various
important decisions which helps in the profit maximisation of the company.
P2 Various types of management accounting system-
There are different accounting systems which provide assistance to the Inda tech.
Limited. Each system has there own significance and use in the day to day functions of the
organisation. These reports make the decision taking process more easy and effective. Some of
them are as following:
 Cost accounting system: This system is related to the cost of the product. Through cost
accounting system the decision regarding allocation of finance is taken that which
alternative is best suitable for the company after analysing and comparing the different
available options. Through this system the total cost of production is controlled by
keeping check on various production activities and doing the cost appropriation like
different cost of production selling and distribution. It is an important system for profit
maximisation and expansion of the business.
3

 Inventory management- The total inventory is controlled by the system of inventory
management as it is important to have effective control over the total inventory. Both
excess and deficit of inventory is a wrong situation for any business(Contrafatto and
Burns2013). Cost is incurred in maintaining the inventory in the warehouses therefore it
should not be in excess and also if the total inventory available is less than that of the the
required inventory than it will lead to loss of potential customer. Therefore through
inventory system record of stock is maintained which help in doing the planning
regarding the purchase of the total inventory.
 Job costing system- Every job has different cost. Therefore the job costing system
different job costs are maintained. The total cost of production is affected by various
factors like the labour cost,cost of raw material,overhead cost and other indirect costs. It
is important to keep control over the different cost as they will ultimately be added to the
price of the products which is charged to the customer. As the customer is very price
sensitive there is a need to minimise the total cost of production.
 Price optimising system- It is a system in which reactions of the customer to different
prices of the product is analysed and accordingly the price of the product is charged. If
there is even a slight change in the price of the product is made the total number of
customer will also change. As there are many substitutes available in the market people
switch to another product very easily therefore it is important to keep the best price of the
products and services. Customer has the tendency to first do the comparisons of different
products of same type and there grounds of comparing is their price(Dillard and
Roslender,2011). Therefore much change in the price may effect the total sales of the
particular product type.
TASK 2
P3 Calculation on the basis of the Absorption costing and marginal cost
Absorption costing is a method of accounting management which included all the other
cost which comes while manufacturing process. Basically it deals with all the direct material
sand direct labours which means it is used while calculating the existing cost and covers all the
additional cost absorbed by the the units of production. According to this income statement it
states that with the help of sales all the cost included in sales is direct labour, direct material,
4

variable production overhead, fixed production overhead by which gross profit
calculated. By continuing this administrative and selling, fixed and variable cost is subtracted by
which net loss also get calculated(Fullerton,Kennedyand and Widener,2014). Mainly this above
income statement shows the overall profit and losses calculated with the help of other expenses
like all the additional costs which incurred while performing the task. In additional the above
statement shows the per unit cost or per unit production.
5

Marginal cost is the opportunity cost which changes according to the change in unit of
production which means the cost arises due to the increase in the production unit. Marginal
costing is calculated by using various other cost like first of all sales is 1500 by which per unit
cost get calculated by including all the relevant costing like direct material, direct labor, variable
production overhead due to which gross profit calculated Marginal costing included
administrative and selling cost with other supportive cost for example variable and fixed cost and
by considering the supportive cost overall net profit and losses comes out due to which an
organization estimated their future investment and total revenues. With the help of this
methodology overall budget is shown in tabular form which act a very effective tool while
planning the investment fund while establishing any new branch and business(Håkansson,Kraus
and Lind,2010). Mainly marginal cost signifies the available opportunity by producing a large
number of unit which means due to the increase in production cost opportunity cost also
increases.
6

TASK 3
P4 Report on the planning tools of different budget
It is a future plan of the company that consists the amount of expenses that will
incurred by the company in future and amount of income that will generate by the company from
many sources. In other words ,it can be say that it is future plan that is made by the companies
after taking internal as well as external factors. it is very important for the organisation. There are
many types of budgets which are as follows-
 Capital budgets- A capital budget estimates the all capital assets that will be acquired by
the company in future and estimates all expenses that will incurred by the company in
future on the capital assets for maintenance(Hiebl,2014). The advantages is that it enables
the company to find out the most profitable assets and disadvantage is that there are
involve uncertainty and risk pose.
 Cash flow budget – It includes the inflow and outflow of cash in future .Its advantages is
that it will helpful to know that in future company will have sufficient amount or not for
paying obligation. And disadvantage is that many people can manipulate in it.
The process of budgeting-
For making a budget company have to follow the certain steps that are as follows-
 Strategic plan – Every company member should know about the vision and mission
statement and to know why company are exist. The first step is strategic plan ,it ensures
that company have sufficient resources that will support the strategic plan .
 Business goals- According to the business goal ,company makes the strategy and
implement the strategic plan. Budget provides the resources to achieve the goals.
 Expenses and revenue projection – After that company estimates hat what will be the
amount that will be spend and what are the sources from which revenue will be
generated.
 Annual goals expenses- In this company estimates the amount of expenses that will help
in achieving the goals.
 Board approval – The main authority of the organisation have to approve the budget and
keep current with budget performance and should monitor the budget and evaluates that
no one is manipulating the cash(ansen,2011).
7

 Budget review – In an organisation,a budget committee is made that evaluates the
performance against the goals. It can be done at any time means monthly ,quarterly etc.
 Dealing with budget variances- Budget variance is seen by the responsible
department .If there is any mistakes than by taking corrective action that mistakes is
removed by the head of that department.
Pricing strategies-
Pricing strategies can be used by the company for achieving the large market share and
increasing the sales and profit etc(Luft and Shields,2010). There are no. of pricing
strategies ,some of them are follows-
 Cost based pricing strategies- In this ,the price of products will be that amount that
company incurred for producing that products. It includes absorption pricing , marginal
pricing etc.
 Value pricing strategies – In this it doesn't focus on the cost of the products but it focus
on the value that is perceived by the buyers(Lukka and Model,2010).
 Competition based pricing- In this price are set according to the competitors 'prices. It
is applicable in the competition market.
 Penetration pricing – Penetration pricing is adopted for capturing the market .In this
company set the price low at initial stage after that increases the prices(Macintoshand
Quattrone, 2010).
 Price skimming- In this company set the prices high at initial stage. It is adopted when
products are unique and innovative.
TASK 4
P5 Balance score card and its importance
A balanced score card is a tool which is in a semi structure form. It is used by different
managers to keep control over the different actions of the working staff and also how there
actions can be kept in their control so that the consequences of those actions can be also
monitored(Nandan 2010). These scorecards can be of two types an individual score card in
which the performance of the individual is calculated and measured(Kaplan and Atkinson,2015).
In this the performance of the individual is measured against the standards and than
corrective measures are taken accordingly(Pipanand Czarniawska 2010). For this it is important
8

to have a choice of data that can be measured than the reference value of the data is set and lastly
one should be capable enough to take the corrective actions as required. As these score cards
help in measuring the individual performance control over the different cost can be done in more
effective manner. While performing the different activities one will make sure that he does not
waste the resources and do the effective work as his performance will be evaluated and if there
were deviations than he will be answerable to the authority. This way good cost of wastage is
saved.
Also when an individual know that his performance will be checked he works with more
motivation in order to get appropriation from the authority and people feel good when they get
recognition in the business(Quinn, 2011). This lead to increase in the adoption of score card
strategies by number of organisations. The technique of balanced scorecards provide a
framework to put everyone in the same mission and vision and it has become a unique strategy
these days. It provide more flexibility to the management by providing it the more
responsiveness to adapt the change and making it capable of facing the competition of external
environment(Renz, 2016).
 Key Performance indicators- It is used for indicating the success or failure of
organisation which will be related to financial problems. It's main objective is to evaluate
the progress of the company so that it can move on towards the accomplishment of its
specified goals. It helps in improving various strategy execution through business
activities.
 Benchmarking- This technique is used when company believes that its competitors have
good knowledge about process, application, quality of costing methods etc. After
analysing this, Inda Tech can set its standards that will help in achieving the desired
result.
 Budgetary targets to identify variances and problems- Budget means to set amount of
expenses in which company has to spend. It should be evaluated on a regular basis so
that it can take corrective action if expenses are not done as per budget. This Evaluation
will help to know about the problems related to business that also assist in investing
money and time on right place.
9