Management Accounting Report: Financial Analysis for Imda Tech

This report delves into the realm of management accounting, offering a comprehensive analysis of its significance within the context of Imda Tech, a mobile phone charger manufacturer. The report commences by differentiating management accounting from financial accounting, emphasizing its role in managerial decision-making, performance control, and profit maximization. It then explores the application of various management accounting systems, including cost accounting, inventory management, and job costing, to facilitate effective reporting. The core of the report examines the preparation of financial statements using both absorption and marginal costing systems, highlighting their respective methodologies and implications. Furthermore, it investigates different budgeting types, such as zero-base and incremental budgeting, along with their benefits and drawbacks. The report also outlines the process of drafting a budget and presents various pricing strategies that Imda Tech can employ. Finally, it assesses the identification and resolution of financial problems, underscoring the importance of financial governance in the development of effective strategies for Imda Tech.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a....................................................................................................................................................3
1. Stating the meaning of management accounting an distinguishing it from financial
accounting....................................................................................................................................3
2. Presenting the significance of management accounting in decision making..........................4
b. Explaining the different types of management accounting system that is used for reporting
purpose.........................................................................................................................................5
TASK 2............................................................................................................................................5
Preparing statements by considering the absorption and marginal costing system.....................5
TASK 3............................................................................................................................................7
a. Types of budget and their benefits as well as drawbacks........................................................7
b. Stating the process of drafting budget.....................................................................................9
c. Presenting pricing strategies that can be used by Imda Tech................................................10
TASK 4..........................................................................................................................................11
Assessing the manner in which financial problems can be identified or responded.................11
Presenting the use of financial governance in the development of effectual strategies............13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
In the recent times, business entities can attain only success they make optimum use of
financial resources. Moreover, now customers prefer to purchase products or services from the
retailer who charges suitable prices. In this, tools and techniques of management accounting is
highly significant which in turn helps in making control on cost level and thereby facilitates
maximization of profitability aspect. This report is based on Imda Tech which is involved in
manufacturing mobile phone chargers. Hence, report will describe and present the extent to
which management accounting concepts help in making suitable decisions. Besides this, it will
also shed light on the manner in which budgeting tools help in making control on overspending
significantly. Further, report will also highly the manner in which financial problems can be
resolved by business entity by applying the concepts of management accounting.
TASK 1
a.
1. Stating the meaning of management accounting an distinguishing it from financial accounting
Management accounting is the most important field of finance which aid in managerial
decision making to a great extent. In this, manager or concerned authority undertakes accounting
provisions for deriving suitable information for decision making purpose. The main objectives of
manager behind undertaking management accounting tool is to performance control and profit
maximization. It lays high level of emphasis on preparing managerial reports on periodical basis
which in turn gives input for the formulation of strategies and policies (Hoque, 2001). Moreover,
without having appropriate input it is not possible for managers to make suitable short term or
day to day decision. By considering the significance level Imda Tech focuses on employing the
concepts of management accounting. However, there are some differences which take place
between management and financial accounting in the following manner:
 Meaning: Management accounting tools make focus on providing highly accurate
information to the managers which in turn help them in the formulation of suitable
policies. Thus, such field of finance is highly concerned with ensuring smooth

functioning of the business operations and functions. On the other side, financial
accounting tools make focus on preparing final accounts which in turn satisfy the need of
interested parties to the significant level.
 Information: Area of management accounting serves both financial and non-financial
information. In contrast to this, financial accounting tools make focus on providing only
monetary information.
 Specific format: In financial accounting, managers are assigned with the responsibility to
present information in specific format (Kaplan and Atkinson, 2015). On the other side,
there is no specific format which is used by the managers while preparing reports
according to the concepts of management accounting.
 Stakeholders: Internal parties such higher management and executives are the main
authorities who use managerial reports for the purpose of decision making. On the
contrary to this, both internal and external parties undertake financial accounting reports
for satisfying the information needs or requirements.
 Reporting system: In management accounting, detailed reports are presented by
managers on quarterly, monthly, weekly and daily basis (Financial Accounting vs.
Management Accounting, 2017). On the other side, in the field of financial accounting,
summarized reports are presented quarterly, half yearly and annually.
2. Presenting the significance of management accounting in decision making
Now, every organization, whether big or small, undertakes the tools and techniques of
management accounting for making effectual as well as profitable decisions. Moreover, in the
absence of having clear, accurate and precise information it is not possible for Imda Tech to take
suitable decisions. Hence, management accounting is highly significant in the following manner:
 Relevant cost analysis: Management accounting tools provide deeper insight to the
company about products which it should sell or offer at specific price level. Further, MA
also helps in avoiding the common costs such as advertisement to the significant level
(Lord, 2007). In addition to this, by using the tools of MA manager of Imda tech can
decide whether they should manufacture inputs in house or outsource from somewhere
else. Along with this, by applying MA tools firm can take decision in relation to the

aspect that whether they need to add more products in the concerned line or discontinue
the current operations.
 Utilization of data: By undertaking the managerial reports higher authority can assess the
return associated with specific project. Hence, business entity can select suitable
investment proposal by making evaluation of monetary returns which will be offered by
each alternative proposal. In addition to this, managerial reports assist in forecasting
future cash flow and thereby help in developing highly realistic framework for upcoming
time period.
 Assist in making suitable framework: By conducting variance analysis business unit can
assess the department that failed to meet budgeted figures. In this way, variance analysis
technique helps in assessing the training and development requirements of personnel
(Mitchell, O'Donnell and Ramsay, 2005). Besides this, by assessing and evaluating the
causes of deviations business entity can prepare highly competent budget for the
upcoming time period.
b. Explaining the different types of management accounting system that is used for reporting
purpose
 Cost accounting system: It provides assistance in determining suitable cost of the
products or service. Moreover, such system furnishes information about cost incurred and
profit margin.
 Inventory management system: Such report provides deeper insight about the inventory
which business entity of Imda Tech should order for ensuring smooth functioning of
operations.
 Job costing system: It helps in assessing the cost incurred for manufacturing of specific
chargers.
 Price optimising system: This report helps business entity in assessing the ways that can
be undertaken for reducing the price level and enhancing profit margin (Seibert and
Macagnan, 2015).

TASK 2
Preparing statements by considering the absorption and marginal costing system
Absorption Costing:- Absorption Costing is a costing system in which all trade costs
include like: production cost, product cost, irrespective weather they are variable or fixed cost.
The cost of a unit of product absorption costing method consists of direct materials, direct
labour. In other words absorption costing means all the costs include form production to sales is
called absorption costing (Li and et.al., 2013).
Marginal Costing:- Marginal cost at each level of production includes any additional or
other cost required to produce the next unit in the production. In other words marginal cost os
forecasting or analysis of production cost of the product produce by the organization.
There are two different costs for the valuation of inventory:-
They are absorption costing and marginal costing. In absorption costing is a costing
technique in which all costs are included, whether fixed or variable are absorbed by the total unit
produced. It is used for financial and tax reporting (Libby and et.al., 2010). Absorption costing is
better than compare to marginal costing because the absorption costing procedure, apportions
fixed of production to the output whereas the marginal costing system ignores it. So that the
absorption costing is better than compare to marginal costing.

TASK 3
a. Types of budget and their benefits as well as drawbacks
Zero base budgeting

In such budgeting tool or method, manager of the firm re-evaluates every line of items
before setting financial plan or framework. Hence, in such modern technique manager starts with
zero bases and justify each expense that will be incurred by department. Hence, all the expenses
which are related to current year properly justified by the manager (Ogunlana and et.al., 2010).
In this, manager considers actual expenses which need to be incurred during the period rather
than on incremental basis. Thus, by using such modern technique manager of Imda Tech can
develop suitable plan.
Advantages
 Facilitates efficient allocation of
monetary resources.
 Such technique helps in assessing
opportunities and enables to assess the
cost effective ways to perform
activities. This in turn may result into
decline in cost level and positive cash
flows.
 Helps in motivating personnel by
involving them in decision making
aspect.
Disadvantages
 Highly time consuming process
 Requires highly skilled personnel for
framing budget
Activity Based costing:-
Activity Based costing (ABC) means that identifies activity or cost in an organization
divided the cost for each activity with resources and services to the actual consumption by each
utilization cost actuation costs to outputs (Pettersson-Lidbom, 2010).
Advantages of Activity Based costing:-
 Improves Over all processes:- Adopting Activity Based Costing organization improve
over all process of the production and other in the organization.
 Helpful for Reducing Wastes
 Pricing is Better Organized

Disadvantages of Activities Based Costing:-
 High implementation cost
 Time consuming process
 Data flaws
 Reduction is not Always possible
Incremental budgeting
Under such technique, manager adds some specific percentage in the previous budgeting
framework. Hence, new budgeting framework of company is highly based on past year’s
financial plan (Pettersson-Lidbom, 2010). In this, business entity does not make evaluation of
activities which need to be performed during the year.
Advantages
 Simplicity and easy to formulate
 Saves time of higher management
 Help in preparing competent plan.
Disadvantages
 Not suitable for the strategic business
environment
 Such budgeting technique does not
place high level of emphasis on current
activities or plan while making
allocation of financial resources.
b. Stating the process of drafting budget
Budget preparation includes highly structured steps which in turn help in framing
competent financial plan or framework. Thus, by following the below mentioned steps Imda
Tech can make suitable budget:
 Identification and evaluation of goals: Primarily, business entity if Imda tech makes
evaluation of business goals and objectives such as maximization of productivity and

profitability. Moreover, budget or financial plan does not give suitable outcome when it
is not aligned with the current goals.
 Forecasting revenue and expenses: Through assessment of goals, business entity
identifies the activities which need to perform during the specified time frame (Tien and
et.al., 2012). Thus, manager makes forecast of revenue and expense level at this stage on
the basis of concerned business activities related to the particular time period.
 Preparation of budget: In the third stage, manager formulates final budget or plan by
taking into consideration the estimated income or expense level.
 Getting approval: Once, budget has been prepared thereafter manager sends it to the
team of higher management for getting approval. Hence, higher management team makes
evaluation of budgeting plan in against to the predetermined goals & objectives and
provides feedback regarding this.
 Making changes and circulation of budget: In this, concerned authority makes changes
in budgeting plan as per the feedback provided by senior authority. Hence, after getting
approval from management team in relation to modified budget senior authority manager
circulates the same at upper level.
 Identifying deviations: In this, managers make comparison of actual performance in
against to the budgeted figures with the aim to find out deviations. This stage presents the
extent to which each department has performed activities in a well manner.
 Taking significant action: At the last stage, by evaluating the causes of deviations
business entity undertakes suitable action for improvement that aid in both productivity
and profitability.
c. Presenting pricing strategies that can be used by Imda Tech
In order to attain success, it is highly require for the firm to consider suitable pricing
strategy or framework. Moreover, price which is charged by the retailer have greater influence
on the decision making aspect of customers. There are several pricing strategies that Imda Tech
can undertake as follows:
 Mark-up or cost plus pricing: In such pricing method, by adding specific profit margin
in cost per unit business entity can determine price. This is the simplest form of setting

prices which enable business entity to attain desired margin by offering or selling per unit
of charger.
 Penetration pricing: According to such pricing method or strategy business entity should
set neither too higher nor too lower price of charger. Moreover, individual customer takes
time to become loyal and faithful. On the basis of such strategy or method, business
entity should set high prices only when loyalty has built among the customers. Such
strategy will enable firm to get benefits in long run.
 Skimming pricing: Under skimming strategy, owner of firm sets high prices with the
motive to attain high profit margin (Yang and et.al., 2010). However, by using such
strategy business entity can get success only for short term. Moreover, customers give
high priority to the retailer which offers products at suitable prices. Thus, business entity
should keep in mind such aspect while taking decision about pricing strategy.
 Competitive pricing: Competition is the main factors that closely influence the decision
making aspect of company regarding pricing. Moreover, now customers take purchasing
decision after making evaluation of rival’s strategies. Thus, by setting prices according to
the competitors policies Imda tech can influence the decision making of customers.
Out of several strategies, it is recommended to Imda tech to undertake competitive
pricing method which proves to be more beneficial for it. Moreover, customers usually make
comparison of price with the quality of products or services. In this, by charging prices in
accordance with competitors business entity can build faith in the mind of customers. Thus, by
attracting more customers firm would become able to get desired level outcome.
TASK 4
Assessing the manner in which financial problems can be identified or responded
Achieving profitability in businesses has always been necessary requirements for
continues growth and expansion. Managers of the organisation are the responsible for success of
the organization.