Management Accounting Report: Dell Inc. Systems, Costing, and Budgets

This report provides a comprehensive overview of management accounting practices at Dell Inc. It begins with an introduction to management accounting and the different types of systems used by the company, including traditional cost accounting, lean accounting, throughput accounting, and transfer pricing. The report then explores various management accounting reporting methods, such as cost reports and budgets, and highlights the benefits of implementing such systems, including improved planning, control, and coordination. The report also delves into the calculation of cost per unit using both absorption and marginal costing methods, and presents income statements prepared under each method. Furthermore, the report discusses the merits and demerits of budgetary control, analyzing different planning tools and their application within Dell. Finally, the report compares Dell and HP's approaches to management accounting, addressing how management accounting responds to financial problems and concludes with a summary of findings and recommendations.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirement of different types of management accounting
systems........................................................................................................................................1
P2. Different methods used for management accounting reporting............................................3
M1 Benefits of management accounting system........................................................................3
D1 Integrating management accounting system and reports with the processes of organisation
.....................................................................................................................................................4
TASK 2............................................................................................................................................4
P3 Calculation of Cost per unit on the basis of absorption costing and marginal costing
method.........................................................................................................................................4
M2 Preparation of Income statement on the basis of absorption costing and marginal costing. 6
D2 Financial Report....................................................................................................................7
TASK 3............................................................................................................................................8
P4 Merits and demerits of budgetary control..............................................................................8
M3 Analysing the use of different planning tools and their application in preparation of
budgets......................................................................................................................................10
D3 Evaluating response of planning tools for solving problem in Dell....................................11
TASK 4..........................................................................................................................................11
P5 Comparison between Dell and HP in adopting management accounting systems..............11
M4 Management accounting in respond to financial problems................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is determined as a process whereby information related to
accounting is analysed, interpreted and presented. This is collected using financial and cost
accounting and it aids management in decision-making process. These management reports and
accounts assist managers for making day-to-day decisions, forming different policies and
regulating commercial activities of an organisation (Van Helden and Northcott, 2010). In this
process, performance is measured, risk involved is assessed and resources are allocated as well
as various finance related statements are presented to the management. It assists managing staff
to improve the performance by taking corrective measures. The present report focuses on
management accounting and importance of different types of management accounting systems of
Dell Inc. which is a multinational computer technology based company that is owned privately.
Company is engaged in the business of developing, selling, repairing and supporting computer
and other related products and services. Moreover, the assignment highlights difference between
absorption and marginal costing method in preparation of income statements. Further, the study
provides a critical analysis of different planning tools of budgetary control used by Dell Inc.
TASK 1
P1 Management accounting and requirement of different types of management accounting
systems
Management accounting is determined as a process whereby information related to
accounting is analysed, interpreted and presented. This is collected using financial and cost
accounting and it aids management in decision-making process. It is the combination of
management, finance and accounts. It provides management with timely and accurate
information which assists them in taking short term decisions (Christ and Burritt, 2013). All
kinds of information with regard to financial status, business strategies, etc. are projected in the
management reports which help in taking corrective decisions for improving performance of Dell
Inc.
The cited firm uses different types of management accounting systems that help in
carrying out its construction business effectively and efficiently. Various information are
required by the management, heads of various functions and departments, board of directors as
well as operational officers of Dell Inc. on weekly, daily or monthly basis which is provided by
management accounting. There are various considerations that are taken into account while using

management accounting systems. Management accounting encompasses cost of production
related to different products and services provided by the cited organisation. Following are the
main types of management accounting systems frequently adopted by company
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 Traditional Cost Accounting System: It is an accounting method that helps Dell Inc. in
predicting profits. The cause and effect relationship is used in this technique and all direct
and indirect costs as well as expenses are taken into account (Traditional Costing &
Accounting, 2014). This method also refers to conventional method of management
accounting. In this system, there is allocation of costs of production overheads to the
products that are produced by company. Indirect costs incurred in production process are
assigned to the unit of production. The process and job order costing is considered in
traditional costing method. The procedure is based on the volume or quantity of units of
production, direct labour overheads and production overheads. According to traditional
costing, the cost allocation of a product is based on average overhead rate. All the
indirect expenditures are pooled together and distributed equally by using appropriate
cost drivers such as direct labour, material and machine hours . Job order costing is
applied in case of large or big projects where cost of individual projects can be easily
identified. It is difficult to handle the cost allocation of individuals or homogeneous
products that undergo through a number of processes.
 Lean Accounting: This is a fresh and different concept in the field of management
accounting. Traditionally, management accounting focuses on the allocation of costs
incurred in production but lean accounting focuses on cost reduction methods by
controlling waste material caused in the process of production (Pipan and Czarniawska,
2010). This technique involves combination of tactical methods that emphasize on the
elimination of non-value added activities i.e. waste and ensures delivery of quality
products on timely basis.
 Throughput Accounting: Throughput is determined as the volume of raw material or
product that undergoes through a process. The focal point of throughput accounting is
constraints that arise in the manufacturing of units. These constraints are provided by the
organisation and may be related to raw materials, labour turnover and wastage in the
capacity and requirement of plants. This technique emphasizes on the elimination of
constraints and insists on more throughputs so that the quality and quantity of production
can be enhanced. This type of accounting method is followed in line with job order and
process costing in order to achieve effectiveness and efficiency in the work.
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 Transfer pricing: Transfer pricing is generated when the products or services are
transferred from one department to another or from holding to its subsidiary company
(Shah, Malik and Malik, 2011). Every single process of transfer adds some extra costs
when products are moved or transferred from one place to another. The cost generated in
transfer pricing is usually opportunity or shifting price. Main benefit of this costing
method is that it provides flexibility to company.
P2. Different methods used for management accounting reporting
Management accountant uses various different management accounting reports that are
mentioned ad below:
 Cost reports: In cost accounting, cost of units produced are calculated which includes
cost of raw materials, overheads and labour. Cost report summarizes the information that
assists managers in planning and controlling profit margins. It enables the management of
Dell Inc. to make comparison between selling and cost price of products.
 Budgets: One of the main elements of management accounting is preparation of budgets.
The budgets help managers to compare actual results with estimated ones in order to
evaluate the performance of business over a period of time (Lee, 2011). It helps to
achieve organisational objectives by staying within budget limits.
 Performance reports: In the performance report, differences that are projected in the
budgets are listed and on this basis, new budgets are prepared.
 Other reports: Some other reports are also used by management such as order reports,
payroll reports, sales report and job cost reports which help managers in making day-to-
day decisions.
M1 Benefits of management accounting system
Management accounting provides various benefits to the managers of Dell Inc. that helps
in promoting its business activities. Planning : For carrying out the operations effectively, management accounting helps in
preparing and executing plans. Different functional budgets are formed which are then
rearranged for the purpose of planning. Controlling : Management accounting aids to control deviations and measure the level of
performance (Davies and Crawford, 2011). It helps Dell in identification and controlling
of differences as comparison between actual and standard results is done.
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 Coordinating : The accounting system maintains coordination throughout the
organisation. It helps in integrating the work of all the departments and integrates various
functions of Dell such as sales, production, finance, HR that ensures organisation goals
are attained effectively and efficiently. Enhancing efficiency : This system enables the cited organisation to eliminate various
types of wastages, defectives, redundancies and production that helps in enhancing the
efficiency of workers.
 Fosters Motivation : Management accounting system enhances the morale of employees
and motivate them to work efficiently in the workplace. Managers are able to assess the
performance level of employees and identify individuals who need to rewarded or
penalised on the basis of management reports.
D1 Integrating management accounting system and reports with the processes of organisation
Management accounting reporting is present only when the management accounting
systems are adopted in the organisation. Both management accounting system and management
accounting reporting are dependent and inter related with each other (Contrafatto and Burns,
2013). When the systems are used, then, it is required to provide their reports. Dell prepares
management accounting reports on the basis of information generated through accounting
systems. These informations help the management of the company in decision-making process.
Thus, the performance level of Dell is enhanced which enables the organisation to accomplish its
organisational goals and objectives. It also helps the company to gain competitive advantage and
grab opportunities.
TASK 2
P3 Calculation of Cost per unit on the basis of absorption costing and marginal costing method
Calculation of cost per unit
Under Absorption costing method :
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Under Marginal costing method :
It can be interpreted from the above computation that cost per unit is different under both
these methods. The main reason of this deviation is the amount of fixed overheads as they are
taken into consideration under absorption costing but marginal costing methods does not take
into account the amount of fixed expenses (Lukka, 2010). Thus, absorption costing method
provides more appropriate cost per unit as all the costs incurred in the production of a product
are considered under this method. Dell has adopted absorption costing for calculation of cost per
unit and to derive the net income of the company. For preparation of income statements under
both these methods, the cost per unit is multiplied by the total number of units. It can also be
done separately.
Total number of units produced = 50000 units
For absorption costing = 50000 * 42 = 2100000
For marginal costing = 50000 * 32 = 1600000
To arrive at gross profits, the above amount would be deducted from the amount of total
sales. The amount of net profit varies under both these methods, except in the case when no
opening stock and closing stock are given.
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M2 Preparation of Income statement on the basis of absorption costing and marginal costing
Income Statement as per Absorption costing method
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Income statement as per Marginal costing method
D2 Financial Report
To
The Managing Director
Dell Inc.
Date : 24th March 2017
Subject :
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According to the computation of cost per unit, result under marginal costing are
different from that absorption costing. As per income statement, it can be analysed that under
marginal costing, gross profit is higher but amount of net profit is more under absorption costing.
This is because, in absorption costing, fixed overheads are taken into account while computing
gross profits but marginal costing method does not consider fixed manufacturing overheads.
Thus, the results provided by absorption costing method are more appropriate. Hence, Dell
should continue with the same method only.
Sincerely
Management Accountant.
TASK 3
P4 Merits and demerits of budgetary control
Advantages :
 A basis for internal audit is established by budgetary control as it constantly monitors and
evaluates the departmental results.
 The scarce resources are utilised in an optimal manner that helps in controlling
expenditures (Sisaye and Birnberg, 2010). Also, it enables the management to make plans
for future which is essential for attainment of long term goals.
 It helps in enhancing motivation as participation of various people is involved in planning
for budgets under effective budgetary control mechanism.
 It assists in improvement in communication and coordination among various
departmental functions. Also, the goals of individual are aligned with the organisational
objectives.
 Variance analysis report enables the management of Dell to identify the areas of
inefficiency and allows them to take corrective measures.
 This tool enables the managers of the cited organisation to compare the actual results
with the standard ones rather than comparing with past results and thus, provide better
evaluation of performance.
 It helps in defining clear roles and responsibilities which is communicated to the people
who are responsible for items of cost and revenue.
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Limitations :
 Use of budgetary control methods can adversely impact the labour relations as they
consider it is as a pressure which is imposed by the top management on the workforce.
 Managers may over estimate the costs and as a result, there would be no monitoring on
over spending by them in the future.
 It is not easy to motivate labours who consider budgetary control as a pressure
(Angelakis, Theriou and Floropoulos, 2010). As a result, there are chances of incorrect
record keeping due to pressure.
 Various conflicts can arise among departments for the allocation of resources. When they
fail to attain the targets, there may blame each other.
 There is probability that the budget may be uncertain as it may vary according various
factors like change in climatic conditions, over demand, changes in technology,
competition, inflation etc.
 The comparison between current costs and estimated costs is based on the historical
analysis.
A. Computation of standard cost of PVC sheets
Standard cost of PVC sheets for manufacturing 4000 keyboards
Evaluation the difference between actual and standard for PVC sheets in manufacturing 4000
keyboards :
B. Computation of quantity variance and material variance
Material quantity variance is computed using following formula :
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Material price variance is calculated using the following formula :
M3 Analysing the use of different planning tools and their application in preparation of budgets
Dell uses different planning tools for preparation and forecasting of budgets, some of
them are explained as follows :
Material Price and Usage variances : It focuses on the prices and material used in the
production process. If the answer is positive, result is unfavourable and vice versa. Material price variance : It shows the difference between actual cost incurred for the
purchase of actual quantity with the standard cost (Dillard and Roslender, 2011). It is
computed as :
Material price variance = (Actual quantity* Actual price per unit) – (Actual quantity* Standard
price per unit) Material usage variance : It helps in determining the difference between actual quantity
and standard quantity of material used by Dell.
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Material usage variance= (Actual quantity* Standard price per unit) – (Standard Quantity*
Standard Price per unit)
Labour rate and efficiency variances : It takes into account rate of labour and labour hours.
Negative result is favourable and positive result is unfavourable. Labour rate variance : It is determined by computing difference between actual rate
paid for actual hours and standard rate paid for actual hours (Kaplan and Atkinson, 2015).
Labour rate variance= (Actual hours*Actual rate per hour) – (Actual hour * Standard rate per
hour) Labour efficiency variance : In this variance, difference between standard hours and
actual hours multiplied by standard rates is calculated.
Labour efficiency variance= (Actual hours*Standard rate per hour) – (Standard hours*Standard
rate per hour)
This variances help Dell to determine the variations and take remedial actions wherever needed.
D3 Evaluating response of planning tools for solving problem in Dell
Various planning tools used by Dell respond appropriately in solving the problems : Activity based budgeting (ABB) : It is the tool that enhances transparency in the
preparation of budgets. In this method of budgeting, the costs incurred in all the functions
of Dell are recorded and the relationship between cost and activity is analysed. ABB
helps Dell in allocation of overhead costs which minimize the wastage of cost.
 Balance score card (BSC) : It enables the organisation to track and manage its strategies.
It is based on the balance between leading and lagging (Macintosh and Quattrone, 2010).
These indicators aid Dell to ascertain the attainment of objectives.
 Value chain analysis : This strategic tool is used in identifying the internal activities of
Dell. It assesses the activities and determine which ones need improvement and which are
more valuable. The value created by Dell for its customers is analysed and suggestions
for maximising this value are provided.
TASK 4
P5 Comparison between Dell and HP in adopting management accounting systems
In context of management accounting system, HP is taken as the competitor of Dell.
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DELL HP
The company is trying to improve core
competencies in order to gain competitive edge
by using management accounting system. This
system helps Dell to identify opportunities in
the external environment (Modell, 2010). The
management reports provide information that
enable the managers in decision-making.
Variance analysis assists the company in
analyzing deviations and taking corrective
measures.
Management accounting systems are used by
HP also but the way of operations is quite
different. It has adopted marginal costing
method which does not provide appropriate
results. Management reports provide accurate
results only when manager staff is able to
correctly interpret the information provided by
it. Mostly, sales estimation of the company
comes out to be accurate. Also, HP is able to
maintain its profit margins.
M4 Management accounting in respond to financial problems
Every organisation faces some sort of financial problems that is to be resolved by the
management of the organisation. With the help of management accounting techniques, the
problems related to finance can be addressed and resolved in an appropriate manner. The
information provided by management reports helps the managers staff in taking day to day
decisions and also enables them to take corrective actions wherever needed (Parker, 2012.). The
major financial issues faced by Dell are increase in outstanding debts, increasing costs, shortage
and excess of funds, preparation and forecasting of budgets, insufficient working capital etc. All
these issues are considered by the management accounting and it ensures to respond
appropriately towards all the issues. Finance is the lifeblood of the organisation and proper
management of financial problems helps to accomplish the objectives of organisation in an
effective and efficient manner. The costing methods enables to take right decisions at the right
time which helps in improving the profitability and productivity of the organisation. Therefore,
Dell can improve its performance and sustain in the long run.
CONCLUSION
In a nutshell, it can be concluded that the finance is the lifeblood for any organisation and
it is important to solve the problems related to finance so that business can achieve its goals and
objectives. Management accounting is the process whereby information related to accounting is
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analysed, interpreted and presented which is collected using financial and cost accounting and
this information aids management in decision-making process. Various tools of budgetory
control such as preparation of budgets, computation of variances using standard costing etc. are
used by organisation to compare the actual results with standard ones and taking corrective
measures in case of deviations.
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REFERENCES
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Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
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Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
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management accounting and control systems. Critical Perspectives on Accounting. 22(2).
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Macintosh, N. B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Modell, S., 2010. Bridging the paradigm divide in management accounting research: The role of
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Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Pipan, T. and Czarniawska, B., 2010. How to construct an actor-network: Management
accounting from idea to practice. Critical Perspectives on Accounting. 21(3). pp.243-251.
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Shah, H., Malik, A. and Malik, M.S., 2011. Strategic Management Accounting-A Messiah For
Management Accounting?. Australian Journal of Business and Management Research.
1(4). p.1.
Sisaye, S. and Birnberg, J., 2010. Extent and scope of diffusion and adoption of process
innovations in management accounting systems. International Journal of Accounting &
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management accounting research. Financial Accountability & Management. 26(2). pp.213-
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Online
Traditional Costing & Accounting. 2014. [Online]. Available
through:<https://www.ignitespot.com/traditional-costing-and-accounting>. [Accessed on
24th March 2017].
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