Role of Management Accounting in Pacific Computers

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ROLE OF MANAGEMENT ACCOUNTING
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Contents
Introduction......................................................................................................................................3
Lo1...................................................................................................................................................4
P1 Essential requirements of different types of management accounting...................................4
P2 Various methods of management accounting reporting.........................................................7
M1 Evaluation of management accounting systems in the pacific computers............................8
LO2................................................................................................................................................10
P3 & M2 Income statements using appropriate techniques of cost analysis.............................10
L03.................................................................................................................................................13
P3 Merits and demerits of planning tools used for budgetary control.......................................13
M3 Analysis of planning tools, their uses and application for preparation and forecasting of
budgets.......................................................................................................................................17
P5 Associating pacific computers is adapting management accounting systems to solve
problems....................................................................................................................................20
M4 How management accounting is leading to sustainable success for pacific computers......21
Conclusion.....................................................................................................................................22
References......................................................................................................................................23
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Introduction
Small and medium size enterprises of the United Kingdom create a big base for employment and
earning sources for the country. United Kingdom is also known for the hub of small and medium
sized companies. Many business units in service sector use the management accounting system
for assessment of internal growth of the company (Hillary, 2017). Management accounting
systems of the companies are essential for evaluation of internal processes of the company which
make the decision making easier for the management of the company.
Being a management accounting officer in Southern Business technology, this research report
will review the importance of different management accounting systems and management
reporting with the benefits and disadvantages of planning tools for budgetary control and how
company should adopt these techniques to deal with financial issues.
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Lo1
P1 Essential requirements of different types of management accounting
Management accounting
Management accounting is the facility of the accounting information for managers to make better
decisions about the company on the basis of the reports, where the reports can help them for
managerial as well as performance based decisions for the organisation (Kaplan and Atkinson,
2015).
Agreeing to Institute of Management Accountant “management accounting refers to an
occupation where the different departments of the organisation like management decision
making, planning, performance management system provides the expertise in the financial
reports to make and control the strategies to be implemented in the organisation (Kaplan and
Atkinson, 2015).
Benefits of managerial accounting to pacific computers
Pacific computer is the United Kingdom based company which operates its operations in
computer technology and software development related to games. The company also uses the
managerial accounting system for better decision making and its benefits for company are as
follows:
Planning
Forecasting and estimation of the arriving situations regarding budgets and cost are already
estimated with the help of financial and non-financial information which are resented on regular
basis like weekly or monthly basis (Brown and Dillard, 2015). This type of information usually
helps the manager for planning the activities of the business. The management of pacific
computers utilises the planning advantage with the help of management accounting.
Organising
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This is one of the advantages of management accounting, where the people are responsible and
authorised for their work. It means the guidelines of the management accounting system explain
the roles and responsibility of each member of the organisation. In pacific computers the
departments of the company have divided their work and they will be responsible for that work
only (Brown and Dillard, 2015).
Decision making
On the basis of forecasting and planning in the managerial accounting, it will be easy for pacific
computers to make decisions. The decisions are taken on the basis of regular reports of weekly as
well as monthly basis and after analysis of these reports and past data the decision will be taken
(Ibarrondo-Dávila et al., 2015).
Controlling
With the help of management accounting, pacific computers measures and compares the
activities with standard which is fixed. If there is any difference found in the standard work and
the actual work which can be controlled, then the management will take the corrective options
(Ibarrondo-Dávila et al., 2015). In this process the standard costing and budgetary control system
will help the management of pacific computers.
TYPES OF MANAGEMENT ACCOUNTING SYSTEMS USED IN AN ORGANISATION
Each organisation is different from other and the accounting systems used by them will also be
different. There are various management accounting systems which are used by the organisation
are:
Cost accounting systems
Cost accounting system is used by the manufacturers and producers to anticipate the cost of the
product at certain level so that profit can be determined by organisation (Solsma, et al., 2018).
This system aids the company to define the actual cost of required for the manufacturing of
different products by the firm to control the excessive cost occurred on product and estimate the
profitability of the product. A firm should always have idea about which products are profitable
and which are not.
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Job order costing system
Job costing system is the system where cost of each product is different from the other product
due to certain differentiation in the product on the basis of client specification. This system keeps
the account and record of direct as well as indirect cost of the product (Solsma, et al., 2018).
Here the production process is dependent upon the customers’ orders received. The goods cannot
be produced to store; they are immediately delivered after production.
Inventory management system
Inventory management system in management accounting through which the supervisor or
manager is able to keep track of the inventories, stock of material, orders, deliveries and sales of
the products. In manufacturing industries it is used for making work orders, bill of materials and
other important documents. This system is used to avoid the over and under stack of goods of
materials (Rothman, 2017).
Product costing system
Process costing or operation costing system enables the producer to determine the cost of the
product at every stage of production (Rothman, 2017). This costing system of management
accounting is mostly used in manufacturing industries and factories in which the product has to
pass through different stages or processes to transform it into the final product.
Pacific computers need the management accounting system in their company to analyse the
internal control system of the company by evaluating the performance of different departments
of the company (Otley, 2016). The company must use cost accounting system in their company,
as company deals in retail sector and sales the software and gaming to the clients, so it should go
with cost accounting system to determine the cost of the software and profitability from the sale
of the software as well as games (Otley, 2016).
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P2 Various methods of management accounting reporting
Management accounting reporting
Management accounting reporting provides the results of the analysis, which is later used for
decision making for various aspects like planning, organising, controlling, regulating, making
decisions and evaluating performance (Grossi et al., 2019). These reports are created on the basis
of book keeping and accounting period based on requirement. These reports are produced to
forecast the sales and profitability for the company.
Management accounting system has different types of management reports and they are stated
below:
Performance reports
Performance report of the firm or company reflects the result of the activities performed by the
companies. These reports always compare the actual result with the standard result expected by
the company or the difference between the two (Grossi et al., 2019). The company needs to take
corrective actions if the performance is unfavourable or it is lower than expectation.
Operating budget report
Operating budget reports of the companies enables the managers to make estimation about the
revenues and expenses of the company in the current financial year, and to create measures to
maintain the changes (Maas et al., 2016). Many of the companies use it as different plan for each
area of business. The budget reports which are commonly used by the companies are sales
budget report, production overhead and labour report and administrative report.
Debtors account receivable ageing report
Debtors account receivable ageing report is the report which shows number of outstanding or due
customers which are grouped on the basis of their days of due payment or outstanding payment
(Maas et al., 2016). This report is created within minutes with the help of online accounting
software or it can be created manually by the supervisor as well. This software helps to send the
automatic reminders to the customers as well as accepting online payments also.
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Inventory reports
An inventory report is the comprehensive account for the stock of the goods and supply of
different items. With the help of this report the manager can review and analyse the
manufacturing process of the organisation (Maas et al., 2016). The reports are majorly generated
to keep and evaluate the inventory required for the manufacturing of goods and services.
M1 Evaluation of management accounting systems in the pacific computers
Benefits of cost accounting system
Cost accounting method of the management accounting enables the manager to determine
profitability objects in the organisation like product, distribution channel or product line. With
help of this method the manager will easily divide the revenue and expenses of the pacific
computers (Kaspina, and Khapugina, 2017). This method assists manager to identify the
problems in the organisation and lead to solve the issues in pacific computers.
Benefits of job order costing system
Job order costing system allows the manager of pacific computers to identify the profit gained
by each individuals job and performance, which substantially helps them to ascertain the jobs to
the person and is it desirable to pursue that job in future by the individual (Kaspina, and
Khapugina, 2017). This method relies on the statistical calculations for record keeping and not
on the input. It is essential to determine each cost produced by the individual.
Benefits of inventory management report
In pacific computers, for keeping the track of inventory and stock of computers and games, they
use the inventory management report for calculating the required the number of inventory for the
company. Due to this method the company will have real time data and monetary benefits and
can keep the record of the materials in hand which will save the time as well as money of the
company (Hopper, and Bui, 2016).
Benefits of price optimisation
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Price optimisation system is advantageous to pacific computers as it provides the company to
focus on key areas like sales margin and number of conversions. The company can easily
generate the revenues from these sources and they can help the company for expansion (Hopper,
and Bui, 2016). Here the companies do customer behaviour analysis which can be used for
making decisions like pricing of the product.
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LO2
P3 & M2 Income statements using appropriate techniques of cost analysis
CALCULATION OF INCOME USING MARGINAL COSTING
Nov Dec
Particulars Amount (£)
Amount
(£)
sales revenue 500000 600000
Marginal cost of sales
material cost 216000 180000
Labor cost 48000 40000
Variable production overhead 36000 300000 30000 250000
Contribution 200000 350000
Fixed costs
Fixed production overhead 99,000 99,000
Fixed selling overhead 14,000 14,000
Fixed administration overhead 26,000 139000 26,000 139000
Net Profit 61000 211000
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CALCULATION OF COSTS USING ABSORPTION COSTING
Nov Dec
Particulars Amount (£) Amount (£)
Sales revenue 500000 600000
Marginal cost of sales
Material cost 216000 180000
Labor cost 48000 40000
Administration cost 26,000 26,000
Selling and distribution costs 14,000 304000 14,000 260000
Gross Profit 196000 340000
Variable production overhead 36000 30000
Variable selling overhead (working note
1) 50000 86000
60000 90000
Net Profit 110000 250000
WORKING NOTES:
1] Calculation of variable selling overheads (10% of sales price)
Particulars November December
Sales Price 500000 600000
*10% *10% *10%
variable selling overheads 50000 60000
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