Comprehensive Management Accounting Report for Imda Tech

This report provides a comprehensive analysis of management accounting principles and their application within the context of Imda Tech, a company manufacturing chargers and electronic gadgets. The report begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its significance in making effective business decisions. It then delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization. The report further explores financial statement analysis, comparing income statements prepared using absorption and marginal costing methods. Additionally, it examines different budgeting techniques, including cash and sales budgets, along with their merits, demerits, and the procedure for budget preparation. The report also covers different pricing tactics used by Imda Tech. Finally, the report concludes with an analysis of the Balanced Scorecard (BSC) and its application in identifying financial issues and enhancing financial governance. The report offers a practical understanding of management accounting concepts and their implications for business decision-making.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. i. Defining management accounting and differentiate with financial accounting.............1
A. ii. Significance of MA in order to make effective business decisions..............................2
B. Various kinds of systems of MA and their use in departments.........................................2
Cost accounting system..........................................................................................................2
Inventory management system...............................................................................................3
Job costing system..................................................................................................................3
Price optimisation system.......................................................................................................3
TASK 2............................................................................................................................................4
I. Income statement using absorption costing........................................................................4
II. Income statement after considering marginal costing.......................................................5
TASK 3............................................................................................................................................5
A) Various budgets along with their merits and demerits......................................................5
B) Procedure in order to prepare budgets...............................................................................6
C) Different pricing tactics.....................................................................................................7
TASK 4............................................................................................................................................8
A. I. Ways through which BSC used for identifying and responding financial issues..........8
A. II. Use of BSC in order to enhance financial governance and frame effectual strategies. 9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The system under which management reports as well as accounts are framed for taking
internal business decisions, considered as the management accounting (MA). The present report
focuses on the Imda Tech company which manufactures special charger as well as some
electronic gadgets. The study describes about management accounting, its importance in the
company along with its several systems. Further, income statements are prepared on the basis of
two methods like marginal and absorption. Beside this, about the different budgets, process of
preparing such statements as well as various pricing strategies are explained in the present
project. At the end of report, Balanced Scorecard (BSC) is described along with its uses within
workplace of the Imda Tech firm.
TASK 1
A. i. Defining management accounting and differentiate with financial accounting
A process in which financial data planned, implemented, organised as well as controlled
within workplace in order to make it financially sound is considered as the management
accounting. In context to this, as the managers of Imda Tech entity considers this particular
system within workplace then able to enhance financial performance in the relevant industry. It
differs from the financial accounting which stated as below:
Management accounting Financial accounting
The system which focuses on financial plans as
well as tactics for operating business in
profitable direction is known as management
accounting (Granlund and Lukka, 2017).
An approach of accounting where financial
statements are prepared for assessing business
performance is considered as financial
accounting (FA).
For the entities it is not necessary to use MA in
the firm.
On the other hand, it is mandatory for Imda
Tech to use FA within working environment.
Users of the MA are only internal stakeholders
or management of the cited firm.
The financial accounting used by both external
and internal stakeholders.
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Through this, upcoming financial information
determined with the help of budget
preparation.
While, FA provides past financial data which
supports to analyse past business performance.
Any specified formates are not used while
framing reports under the MA.
In order to prepare reports under FA, specified
formates taken into consideration.
Not required to consider auditing as well as
publishing system in the management
accounting.
Under the financial accounting, it is mandatory
to publish final accounts along with the
auditing procedure.
A. ii. Significance of MA in order to make effective business decisions
Management accounting is basically considered at the internal business level in order to
make fruitful decisions. Further, its importance for Imda Tech as a tool of decision-making
within workplace is described below:
 The management accounting system supports to the firm for preparing budgets and
forecast future financial information in an appropriate direction. On the basis of different
budget statements, the manager frames strategies for making changes or modifications in
the firm (Ax and Greve, 2017). Moreover, when financial performance predetermined
then highly fruitful as well as the profitable business decisions are made.
 Apart from this, MA helps to make analysis of the costs associated with each and every
activity of business procedures. During this, if Imda Tech founds that expenses incurred
in higher amount at specific stage or activity then take corrective actions for reducing the
issue. Therefore, it can be said that MA is an important to make cost decisions and
strategies within working environment.
 Another significance of the management accounting is for utilising available resources
and data in the firm properly. On the basis of financial projections upcoming performance
is easily assessed by which manager decides that which data needs to utilise in optimum
manner (Lapsley and Rekers, 2017).
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B. Various kinds of systems of MA and their use in departments
Under the management accounting different kinds of approaches and systems are
included which helps to various departments. Further, such systems are described below:
Cost accounting system
An approach in which various kinds of expenditures associated within workplace of a
company are analysed is known as cost accounting system. It generally used by the cost centre
and accounting department of the company where expenses related data transacted. Further,
basic use of this system is to assess production cost which supports to make pricing decisions.
Inventory management system
According to this framework, stock available in the workplace are managed in order to
boost up total financial performance at the end of year. As the level of stock is properly managed
and reduced in Imda Tech then it will support to increase sales. Under this, valuation of
inventory is also analysed by the manager where basically three methods used like FIFO, LIFO
and weighted average (Soderstrom, Soderstrom and Stewart, 2017).
Job costing system
When costs and expenses of products on the basis of job are needed to analyse in the
company then job costing system is undertaken by the management. The Imda Tech business
produces products in basically two job order like special charges for mobile phone and other
electronic gadgets. Moreover, for determining cost of each job product this method is taken into
consideration.
Price optimisation system
Another system of management accounting is price optimisation which helps to the entity
bin order to make profitable pricing decisions while selling products and services. The Imda
Tech firm charges different price level where number of customers also varied. Further, this
system helps to it for analysing a specific price at which more number of consumers respond and
used for selling in the market.
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TASK 2
I. Income statement using absorption costing
From the above statement it has been assessed that, Imda Tech business entity generates
loss at the end of September 2010. Further, total sales earned is worth of £52500 at the month
ending where net loss incurred is -£5375. This particular situation reflects that company not able
to manage variable and fixed costs at the end of month in proper manner.
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II. Income statement after considering marginal costing
When looking at profit and loss account prepared with the help of marginal costing then
it can be ascertained that, Imda Tech generates net income worth of £4625 at the end of
September 2010. The reason for differing net income on same amount of revenue is considering
different methods of costing. The marginal tool considers only variable expenses whereas
another technique uses both variable and non-variable expenditures.
TASK 3
A) Various budgets along with their merits and demerits
In the company when any kind of financial data requires forecasting or predetermining
then budget is prepared by the managers. There are wide range of budget statements included in
an entity which are like cash, production, revenue, material purchase, direct labour etc
(Lachmann, Trapp and Trapp, 2017). Among them some are explained with their advantages and
drawbacks below:
Cash budget:
The financial statement in which cash incomes as well as expenditures are estimated for
the upcoming accounting period is known as the cash budget. Higher the value of cash balance at
the end of budget reflects that, Imda Tech will perform well. Moreover, benefits and limitations
of the cash budget are described below:
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The cash budget supports to management of Imda Tech in order to concentrate on the
financials after considering to the plan prepared. For enhancing effective communication within
workplace and establishing better coordination among employees it is one of the importance tool.
Along with this, it helps to make allocate financial resources in an adequate and proper direction
among organisational functions (Smith and Driscoll, 2017).
However, a big demerit of cash budget is reliance on the assumptions and estimations
made for preparing it within workplace of the Imda Tech. When this budget incorporated in the
firm then imposes expense burden.
Sales budget:
A forecasted statement which refers to the revenue needs to generate the company at the
end of next fiscal period is considered as the sale budget in management accounting. On the
basis of this, Imda Tech able to determine that how much amount requires earning for achieving
objectives. Further, sale budget has some advantages and demerits which are such as follows:
It is an important budget which drives other stated budgets within Imda Tech like labour,
cash, manufacturing, production etc. It helps to make raw materials purchasing decisions by
which stock can be managed properly (Duff, 2016). Along with this, plan for earning estimated
revenue can be framed in fruitful direction.
On the other side, if the market situations not analysed appropriately then issue of stock
increasing will be occurred in the cited company. Further, in case demand of the products
fluctuate then goal of revenue generated cannot meet by the firm (Mack, 2016).
B) Procedure in order to prepare budgets
In the workplace of Imda Tech when budgets are preparing then particular procedure is to
be followed. Further, stages involved in the budget preparation process are such as follows:
 At the very first and foremost stage of budget preparation, data which needed in order to
frame the budgets obtained and estimated. For completing this particular step past
financial data or statements taken as a base by the management. Further, each department
is considered while obtaining data and estimating in the company (Agarwal, 2016).
 At the second stage, all the above stated estimations are coordinated with the budget
committee of Imda Tech company. Further, all the estimating are reviewed and evaluated
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by the authorised party. It is one of the significant stage because after completion of the
evolution by committee next step is used.
 Once the estimations are coordinated then communicated with the managers of
department of the firm. Under this, managers of the respective organisational function
assess that whether the resources are adequate for them or not. Moreover, when they all
agreed on the estimations then move towards next step.
 At the fourth stage, the above communicated and approved budget plan is implemented
within working environment of the Imda Tech company. After implementation, within
specific period of time reviewed by the relevant authorised party and budget committee.
 At the end of budget preparation process, progress report is reviewed and assessed that
whether all the budgeted objectives are completed as well as achieved in an appropriate
direction or not (Otley, 2016). On the basis of this analysis, corrective actions taken by
the management in the Imda Tech enterprise.
C) Different pricing tactics
Price is one of an important aspect within each and every business enterprise. In order to
determine charges of electronic gadgets and phone chargers the Imda Tech firm uses come
strategies which are explained below: Cost plus pricing strategy: The method in which initially total cost of production in the
company is calculated and then determined by the management. Once overall expenses
and costs are assessed then profit margin added on that value. As per this method
percentage of desired profit are included in cost and whatever outcome comes is
considered as the price of phone charger in Imda Tech. Competition based: Another strategy of pricing in which level of prices of the
competitors are analysed firstly and then go for determine product charges. When rivalry
firm of the selected company charges high price of products then management of Imda
Tech derive low prices of the mobile phone chargers. Due to this strategy, customers of
the competitor company will switch towards Imda Tech (Quattrone, 2016). Market perpetration: According to this tool, at the time of existing in the market low
prices are charged from the customers. As the company operates in industry and grow
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then enhance prices of the products and services. Basic objective behind considering this
particular pricing strategy is to increase market share in the industry and financial
performance as well.
 Market led pricing method: Under this kind of tactic, the Imda Tech management
researches overall market situation of the electronic and assess demand of the gadgets.
For instance: if the demand of relevant products is high then firm will determine high
prices which lead to increase sales and revenue (Chenhall and Moers, 2015).
TASK 4
A. I. Ways through which BSC used for identifying and responding financial issues
A metric which is used by the companies in order to assess business performance and
improvement is considered as the balanced scorecard (BSC). It is one of the highly concerned
approach for identifying and ascertaining performance of the Imda Tech entity in the industry of
electronics. It has majorly four perspectives which include financial, internal business process,
customers as well as learning and growth. In order to assess those problems of Imda Tech which
are related to the financial aspect then financial perspective of BSC is considered by the
management. Under this, it has been identified that the company is in which extent and manner
utilising the financial resources. When the employees use monetary in an optimum direction then
easily able to raise revenue and productivity.
In the financial perspective of balanced scorecard, different key performance indicators
are applied within workplace. Furthermore, those KPIs considered with respect to BSC are like
cost increasing or decreasing, profitability fluctuations, changes in liquid or cash position etc
(Suomala, Lyly-Yrjänäinen and Lukka, 2014). Along with this, quality or products and services
are also measured against to the expenses made for producing it. For example: when the cost KPI
is used in the working environment then it has been assessed that up to which level expenditures
are associated. In addition to this, total cost of the production and output both compared with the
last year. Therefore, it can be properly diagnosed that at which point along with causes expenses
enhanced and then strategies for eliminating it prepared. Hence, the BSC is one of the effective
approach in order to identify and reducing all the financial issues arisen in Imda Tech.
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A. II. Use of BSC in order to enhance financial governance and frame effectual strategies
According to the case scenario, at the time of publishing financial statements of Imda
Tech loss of £1.5 million is identified by the management. For resolving this major problem
some tools and techniques are prepared by the financial governance of the selected firm. The
metric of assessing business performance i.e. balanced scorecard used and implemented by the
financial governance. Therefore, it can easily and appropriately ascertain shortfalls incurred in
the company. As time goes, it makes effective and fruitful strategies for responding such kind of
the issues occurred in the chosen electronic manufacturer (Ab Rahman, Hassan and Said, 2015).
Henceforth, it can be stated that by considering financial perspective of BSC adequate tactics
prepared by the financial governance which lead to improve it within workplace.
CONCLUSION
It can be concluded from the above study that, management accounting is one of the
significant system in order to take profitable and fruitful internal business decisions. Further, the
MA is considered in the working environment as a tool of decision making because it helps to
forecast upcoming financial information. Moreover, there are some systems used by Imda Tech
for enhancing performance which are like cost accounting, stock management, price optimisation
and job costing. It can be ascertained from the income statements that, through marginal and
absorption costing Imda Tech generates net income and loss which is worth of £4625 and -£5375
respectively. Apart from this, cost plus, market based, competition led, market penetration etc.
Pricing strategies are considered by the firm for determining price of the products and services.
Furthermore, financial perspective of BSC is taken into account to assess and eliminate financial
shortfalls within entity.
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