Analysis of Management Accounting Systems in a Manufacturing Company

Desklib provides solved assignments and past papers to help students succeed.

MANAGEMENT ACCOUNTING
1

Table of Contents
INTRODUCTION........................................................................................................................3
PART A......................................................................................................................................4
1. MANAGEMENT ACCOUNTING.......................................................................................4
2. TYPES OF ACCOUNTING SYSTEMS.................................................................................4
3. METHODS FOR MANAGEMENT ACCOUNTING REPORTING..........................................5
4. USE OF METHODS OF MANAGEMENT ACCOUNTING....................................................6
MARGINAL COSTING (INCOME STATEMENT)...................................................................6
ABSORPTION COSTING (INCOME STATEMENT)................................................................8
5. INTEGRATION OF MANAGEMENT ACCOUNTING WITH AN ORGANIZATION...............10
6. BENEFITS OF ACCOUNTING FUNCTIONS FOR ORGANIZATION....................................11
PART B.................................................................................................................................... 13
a) ADVANTAGES AND DISADVANTAGES OF TYPES OF PLANNING TOOLS FOR
CONTROLLING BUDGET......................................................................................................13
b) ANALYZING TOOLS OF PLANNING AND APPLICATION FOR FORECASTING AND
PREPARING BUDGET...........................................................................................................15
c) EVALUATION OF ADOPTING ACCOUNTING SYSTEMS BY ORGANIZATIONS TO SOLVE
FINANCIAL PROBLEMS........................................................................................................16
d) ANALYZING MANAGEMENT ACCOUNTING FOR LEADING SUSTAINABLE SUCCESS TO
ORGANIZATION.................................................................................................................. 17
CONCLUSION.......................................................................................................................... 19
REFERENCES........................................................................................................................... 20
2

INTRODUCTION
This assignment will include the systems of accounting management by showing its
principles, functions, and methods used for reporting. This will discuss the elements of
systems of management accounting and evaluation of the integration of management
accounting with an organization. This will also discuss the benefits of accounting functions in
the organization and will also reflect its application. This assignment will explain the pros
and cons of diverse tools of planning which are used for planning budget for the company
by analyzing the application of preparing and forecasting the budget as well as the adoption
of management accounting in the different organizations for solving the financial problems.
3

PART A
As an accountant clerk at TPG processing, this is a manufacturing company and have deep
experience for investing across the world. The company provides services like
transportation, manufacturing, distribution and services of a business.
1. MANAGEMENT ACCOUNTING
Management accounting is the professional skill and knowledge which is used for the
preparation of accounting information in a smart manner which is used and capable of
supporting the management for framing policies and strategies (Kaplan and Atkinson, 2015).
This also helps management for planning and controlling the financial operations. This
provides support and help to the TPG Company’s manager to make the financial data
statistically and utilize fruitfully (Kaplan and Atkinson, 2015).
Financial accounting: This type of accounting helps in tracking the financial transactions of
TPG processing. This accounting uses the standard guidelines and information where the
transactions of the company are also summarized, recorded and presented in the financial
statement and report (Williams and Dobelman, 2017).
Management Accounting System: These are focused towards the development of reports
for the management which are used by the company for compelling decisions in relation to
the activities of the business (Kaplan and Atkinson, 2015). The accounting system creates a
report for fulfilling the requirements of the company by including budgeting, cash flow
statements, preparing taxes, income statement etc. This system provides information to the
managers to take the decisions effectively by using the information (Johansson and Siverbo,
2014).
2. TYPES OF ACCOUNTING SYSTEMS
There are some types of accounting systems which can are considered by the manager of
TPG processing company:
Cost accounting: this system is used by TPG processing for estimating the products cost of
the company which also evaluates profit, inventory as well as cost control. This is being used
4

by the manager of the manufacturing company for recording the production and level of
inventory (Lanen et al., 2013).
Figure 1: Types of Accounting Systems
(Source Appelbaum et al., 2017)
Inventory management: This system reflects the inventory management by managing the
raw materials, process, finished goods and the place of storage and warehouse. This system
makes sure that the activities of production and material stock are being calculated daily
(Wild, 2017).
Price optimization: This system helps in calculating demand in a mathematical way that
directly proportional to the change in processing demand and prices. This process helps in
finding the best price of offered service and product and ensuring the company about selling
the products at the right place by maintaining profit also (Appelbaum et al., 2017).
Job casting: This system is used in the allocation of costs for a particular undertaking job in
the TPG processing company. This benefitted to the company for taking numbers of projects
instantaneously by separating each member into an individual unit of goods (Appelbaum et
al., 2017).
3. METHODS FOR MANAGEMENT ACCOUNTING REPORTING
There are some methods for management accounting reporting which get utilized by the
TPG processing company:
Budget reporting: This report aims to approximate the profits and expenses for the present
and the future year on the basis of facts and figures of the past year's budgets. This helps in
5

determining the process efficiency for the TPG Company by providing effective incentives to
its employees. Budgeting report helps the company in analyzing and evaluating the methods
for controlling the cost of the company (Reichard and Van Helden, 2016).
Job costing reporting: This report helps in describing the expenses of TPG Company which
also helps in determining profitability by comparison between costs and revenues. This also
helps in deciding the selection of job and evaluating a particular role and description of job
associated with manufacturing (Davidson et al., 2015).
Accounts receivable aged reporting: This report helps the company in providing credit to its
customers and aims to breakdown the customers based on the duration of owing the
customers. This report also helps in defining the existing problems in the process of
collecting credit and the collection department of the TPG processing company also gets
helped in overlooking for bad debts (Sawyer, 2015).
Inventory and manufacturing reporting: This report utilizes the important information of
the TPG processing company in order to manage the report of organizational inventory,
manufacturing, overheads and labour. This report analyses the effective and efficient
storage of inventory and which get analysed by the manager of the company (Chouhan et
al., 2017).
4. USE OF METHODS OF MANAGEMENT ACCOUNTING
MARGINAL COSTING (INCOME STATEMENT)
INCOME STATEMENT FOR YEAR 1
Particulars Amount (£)
sales revenue 2520000
The marginal cost of sales
material cost 432000
Labour cost 576000
Variable production overhead 800000
Selling and distribution expenses 10000
Interest expenses 1000 -1819000
6

Contribution 701000
Fixed costs
Administration cost 15000
Selling and distribution costs 10000 -25000
Net Profit 676000
It can be evident from the above calculations that the net profit for the year 1 was £ 676000
that has been calculated using marginal costing method.
INCOME STATEMENT FOR YEAR 2
Particulars Amount (£)
sales revenue 2800000
The marginal cost of sales
material cost 480000
Labour cost 640000
Variable production overhead 960000
Selling and distribution expenses 10500
Interest expenses 1250 -2091750
Contribution 708250
Fixed costs
Administration cost 15000
Selling and distribution costs 10000 -25000
Net Profit 683250
Using marginal costing method, It can be evident from the above calculations that the net
profit for the year 2 was £ 683250
INCOME STATEMENT FOR YEAR 3
Particulars Amount (£)
7

sales revenue 4200000
The marginal cost of sales
material cost 720000
Labour cost 960000
Variable production overhead 1020000
Selling and distribution expenses 11000
Interest expenses 1500 -2712500
Contribution 1487500
Fixed costs
Administration cost 15000
Selling and distribution costs 10000 -25000
Net Profit 1462500
For the third year, the net profit was £ 1462500 with the application of the marginal costing
method.
ABSORPTION COSTING (INCOME STATEMENT)
INCOME STATEMENT FOR YEAR 1
Particulars Amount (£)
Sales revenue 2520000
The marginal cost of sales
material cost 432000
Labour cost 576000
Administration cost 15000
Selling and distribution costs 10000
Interest expenses 1000 -1034000
Gross Profit 1486000
8

Variable production overhead 800000 (800000)
Net Profit 684514
For the first year, the net profit was £ 684514 with the use of absorption costing method.
INCOME STATEMENT FOR YEAR 2
Particulars
Amount
(£)
Sales revenue 2800000
The marginal cost of sales
material cost 480000
Labour cost 640000
Administration cost 15000
Selling and distribution costs 10000
Interest expenses 1250 -1146250
Gross Profit 1653750
Variable production overhead 960000 (960000
)
Net Profit 693750
For the first year, the net profit was £ 693750 with the use of absorption costing method.
INCOME STATEMENT FOR YEAR 3
Particulars Amount
9

(£)
Sales revenue 4200000
The marginal cost of sales
material cost 720000
Labour cost 960000
Administration cost 15000
Selling and distribution costs 10000
Interest expenses 1500 -1706500
Gross Profit 2493500
Variable production overhead 1020000 (10200
00)
Net Profit 1473500
For the first year, the net profit was £ 1473500 with the use of absorption costing method.
It can also be said that the difference in net profit using both methods is 8714 for the first
year while for the second year the difference is 10500. There is a difference of 11000 for the
year third for the third year (Kaplan and Atkinson, 2015). Thus the use of absorption costing
method provides more profit to the organization. With the application of the costing
method, the organization can take the idea about the different costs of the organization and
the profit incurred to the organization after bearing all costs for the upcoming years. This
ensures the business growth and success as the profit can be used for future investments
that will surely derive more success to the organization (Sawyer, 2015).
5. INTEGRATION OF MANAGEMENT ACCOUNTING WITH AN
ORGANIZATION
An integrated system of accounting is application software with having all necessary
features connected with each other. This helps the company TPG in avoiding the collection
10

of documents and having separate books for recording the information for costing, ordering
and financial purposes. This also helps management for planning and controlling the
financial operations. This provides support and helps the manager of TPG Company for
making the financial data statistically and utilizes fruitfully (Kaplan and Atkinson, 2015).
Management accounting helps the TPG processing company by providing qualitative and
quantitative information on financial and operational performance. This helps the company
in continuous improvement by integration and development of cost management systems.
It helps in continuous improvement of the effectiveness of systems and process as well as
the quality of service and goods. This also helps in managing the cost of the company by
developing the cost management systems and also measures the effectiveness of activities
for enhancing the company's performance (Fordham and Hamilton, 2017).
Management accounting is used by the company in order to measure the cost inputs and
reduction of the costs that do not have value. Integrated management accounting system
helps the company in making the decisions by using the information and the system allows
managers to drag the flow of data flawlessly from one module to unit to another (Fordham
and Hamilton, 2017).
6. BENEFITS OF ACCOUNTING FUNCTIONS FOR ORGANIZATION
Some of the benefits of systems of accounting functions in the TPG processing company:
Regulating activities: management accounting provides benefits to the company like proper
planning, coordination, organizing and motivating the employees for bringing regularity in
the activities of the company (Fordham and Hamilton, 2017).
Planning: This helps the company in preparing a plan and executes it for the company’s
operations effectively. Management accounting also helps in preparing financial budgets
and arranging accounting information of the company (Fordham and Hamilton, 2017).
Reliability: This also benefitted the company as the systems of management accounting are
reliable and prepares the data more reliable and accurate which is needed to be supplied to
the management (Fordham and Hamilton, 2017).
11

Customer services: This also helps in providing better and improved services to the
customers by the management which is assured by the accounting system (Fordham and
Hamilton, 2017).
Reduce expenses: The Company gets to benefit from management accounting by reducing
the operating expenses. The owner and manager of the company use the information of
management accounting for reviewing the economic resources costs and other operations
of the company. The information provided by the management accounting allows the
managers for better understanding the value of money for running the company (Fordham
and Hamilton, 2017).
Improve cash flow: The management accounting also involves budget which is prepared by
the owner of the company which is used by them for having the estimation of future
expenditures of the business. The purpose of the budget is to save the company's money
and analyzing useful and useless cash expenses (Aren and Sibindi, 2014).
12