Management Accounting Report: Financial Analysis and Recommendations

This report delves into management accounting principles, focusing on their application within Imda Tech. It covers key aspects such as the differences between management and financial accounting, emphasizing the importance of management accounting in achieving business objectives and improving profitability. The report explores various management accounting systems, including cost accounting, inventory management, and job costing systems. It then proceeds to analyze costing methods, comparing marginal and absorption costing through the preparation of income statements and evaluating business performance. The report also examines different types of budgets, their advantages, and disadvantages. Finally, it touches upon the balance scorecard approach. The analysis reveals that Imda Tech is experiencing financial losses, highlighting the need for corrective measures to improve its financial standing and overall business performance.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its related functions.................................................................1
P2 Management accounting systems of many kinds...................................................................2
M1...............................................................................................................................................3
D1................................................................................................................................................3
TASK 2............................................................................................................................................3
P3 Calculation of cost and then preparation of income statements............................................3
M2...............................................................................................................................................6
D2................................................................................................................................................6
TASK 3............................................................................................................................................7
P4 Different types of budgets and their advantages and disadvantages......................................7
M3...............................................................................................................................................9
D3................................................................................................................................................9
TASK 4............................................................................................................................................9
P5 Balance scorecard approach...................................................................................................9
M4.............................................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the business there are various aspects which are covered and it will be needed that all
of them shall be taken into consideration (Bromwich and Bhimani, 2005). For this they will have
to be accounted in the proper manner and there are various tools that will be used which are
covered under management accounting. Information will be required and that will be collected
with the help of management accounting systems and by that the targets which are set will be
achieved. The below given report is provided in respect of Imda tech and in this different matters
in relation to it will be discussed. Also the manner in which the financial problems will be solved
will also be mentioned in the given report.
TASK 1
P1 Management accounting and its related functions
In every business there are various objectives which are required to be achieved and for
that different functions will be carried out. Also the main focus should not only be toward
maximisation of profits but also in the increase in the value of the business (Chapman and et.al.
2006). By this the organisation will be benefited and in this process there will be various policies
which will be required to be complied with so that the most efficient working can be carried out.
In the process there will be requirement of making relevant decisions and for that
information will be required which will have to be collected. By using the data the activities in
the business will be performed in the best manner. In the business not only management but also
the financial accounting will be used and there is lot of difference which is present among and
that will be understood with the help of the table provided below:
Basis Management accounting Financial accounting
Format In this there is no specific
method that has been prescribed
that will have to be followed.
In this there is required format
which is specified by the law
and will have to be followed.
Information In this both the financial and
non financial data will be
incorporated.
In this only the data in relation to
finance will be included.
Period of time The information will be In this information will be
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collected for any period of time. collected for a single financial
year.
Statutory requirement There is no requirement which
is specified by the authorities in
respect of it.
There are various legal
requirements which are to be
met in this.
Management accounting importance
with the help of management accounting there are various benefits which will be
acquired by the business and they are specified here under:
 In the business the main objective is to increase the profits and that will be achieved with
the help of this.
 For the overall advantage of the business it will be required that various policies shall be
made which will be followed by all.
 By this the saving in cost will be attained and this is because all the irrelevant activities
will be avoided.
P2 Management accounting systems of many kinds.
In the organisation there are various information which is required and for that different
accounting systems are there which are described below:
 Cost accounting systems: In the process of the production there are various cost which
includes material, labour and overhead that will be incurred by Imda tech and it is
required that they shall be accounted in the most appropriate manner (Ezzamel and et.al.
2003). By this all the expenditure that id to be made will be identified and then proper
allocation of the resources will be made to the different departments so that work can be
managed in the most effective and efficient manner. Also there will be some standards
which will have to be complied with by the company.
 Inventory management systems: There is different types of inventory which will be
used by the Imda tech and it will be needed that proper control shall be established in this
respect so that they can be managed and by that the production will be conducted without
any problems being faced. In this the level of inventory that shall be maintained at all the
time will be identified and then orders will be place according to it (DRURY, 2013). By
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this the issues in relation to the material shortage will not arise and the company will be
able to manage its supply in effective way.
 Job costing system: In the manufacturing of any product there will be various activities
which will have to be performed and in respect of them cost will also be incurred. Due to
this reason it will be needed that all the cost in relation to then shall be accumulated so
that it can be identified that how much amount has been spend (Hansen, Mowen and
Guan, 2007). Then the quantities that are made will be determined and the total cost will
be allocated among them. The reasons by which cost is affected will be known and then
in order to control the measures will be taken.
 Price optimisation system: In all the business it is required that the most optimum price
shall be chosen and this is due to the reason that price and demand are related to each
other. If the price will be set at upper level then the demand will be reduced and vice
versa. So in order to increase the sales it will be required that proper pricing policy shall
be used from the ones which are present.
M1
It will be required that the best decision shall be made so that expansion of the business
can be carried out by sing all of them for this purpose. In this process various systems will be
used by which the relevant data will be obtained. All of this will be contributing towards
maintenance of the position in the market.
D1
The performance of the company will be required to be maintained and for this it will be
needed that proper examination of it shall be done at regular interval of time. By that the
company will be able to take the advantage over the many competitors which are present in the
market. For this purpose various reports will be made which will help in taking decisions for the
benefit of the company.
TASK 2
P3 Calculation of cost and then preparation of income statements.
In order to make the income statement it will be needed that all the cost and the incomes
will have to be identified (Kotas, 2014). There are two methods which are present and they will
be used in this process and an explanation in respect of them is provided below:
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Marginal costing: This is the form of costing which is also known as variable costing because in
this all the variable expenses which are made by the business will be considered. This is that
cost which is affected by the production and will vary with that in the direct proportion. By this
the profit will also have to bear the impact so it is needed that it shall be controlled (Hoque,
2002). Contribution will be calculated so that decision can be taken on the basis of it and for this
the variable cost will have to be deducted from the amount of the sales made.
Absorption costing: This method is also called as full costing because in this all the cost is
required to be included while calculating the profits. The fixed cost will be distributed and if any
under or over absorption is determined then that will also be considered to find the Net profit.
Income statements will be made by using both methods and for the better understanding
of them the same are represented here under so that all the required facts can be easily known
and then steps will be taken so improve the profit levels.
Income statement as per Marginal costing method:
Working 1: Calculate variable cost of production £
Direct material cost 8
Direct labour cost 5
Variable production expenses 2
Total Variable production cost 15
Working 2: Calculation of value of closing inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Particulars ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the opening
Cost of production
Stock at the closing
Variable sales overheads
NIL
30000
(7500)
52500
(22500)
(7875)
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Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
15000
10000
22125
(25000)
Net loss -2875
Income statement as per Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this Actual cost is £10,000 and budgeted cost is £15,000
Selling cost: In this Actual cost is £7875 and budgeted cost is £10,000
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct labour ￡5
Direct material ￡8
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
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0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Particulars ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenses
Fixed selling expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
M2
There are many techniques which will have to be used so that the financial reports can be
made with the help of them. By this the company will be able to take the decisions and that will
be done by the analysis of the information provided in them (Horngren and et.al. 2005). All the
authorities will be using them to manage the departments allocated to them in the best way
possible.
D2
In the business there are many measures which will be used by it in order to evaluate the
performance and the results which are obtained by the calculation made above. The company is
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not in good position and this is determined as it is making losses which amounts to 375 in case of
absorption and 2875 in marginal costing. There is the difference in the amounts due to the
manner in which treatment is provided to fixed cost in both cases. So to improve the position of
company various corrective measures will have to be taken.
TASK 3
P4 Different types of budgets and their advantages and disadvantages.
In the organisation there is high requirement that proper planning shall be done so that all
the functions shall be performed in the best manner and for this there are many tools and
techniques which can be utilised. The most commonly used among them is the budget in which
an approximate statement is made which will be specifying the amount of incomes and expenses
that will have to be maintained (Horngren and et.al. 2002). For this purpose it will be needed that
all the past data shall be analysed and also the projections shall be made in relation to the future
and then they will be used in the making of budgets. They will always be prepared for a specified
period of time in which the targets will be mentioned that will be required to be achieved and by
this the control will be established on the amount of expenditures made by the company.
There will always be some of the variations which will be present between the actual and
budgeted figures and they will be identified with the help of the comparison which will be
carried out. By that the performance will be measures and then the reason due to which the
variance is arising will be determined so that the plan will be made by which the required
changes will be undertaken in the formulation of new budget. That will help in achieving the
better effectiveness by which the growth will be achieved by the company and productivity will
also be improved. The different methods which will be used in formation of budgets are
described here under: Operating budget: Many expenses will be required to be incurred in the process of the
production as there are various operations which will have to be performed and for this it
will be needed that proper budget shall be made. It will be made for a given time frame
and then the money will be spend by keeping that in order so that the excessive
expenditure can be controlled and the amount saved will be used to incorporate required
modifications.
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Advantages: By this the company will be able to meet the cash needs in better manner as they
will be identified in advance and then will be arranged in the required time so that no problem is
faced by the company because of cash deficit (Salehi, Rostami and Mogadam, 2010).
Disadvantages: As the formation of budget requires estimations to be made so there is the risk
involved that they may be wrong and company will be following incorrect targets by which its
performance will be affected. Master Budget: This is the budget in which all the information about various functions
will be cumulatively presented. Due to this reason this is known as the summary of all the
other budgets and by the help of this decisions will be taken by the organisation in
relation to all the aspects.
Advantages: By this the time which is wasted in preparation and analysation of the various
budget will be saved as there will be no requirement to make all of them (Setthasakko, 2010).
Also the cost incurred in all the process will also be avoided.
Disadvantages: In the process of the updation of the budget there will be various difficulties
which will have to be faced by the company as it is not easy to keep the notice of all the changes
in various departments and then incorporate them in the budget. Cash flow budget: In the conduction of different transactions there will be involvement
of the cash and it will be highly required that proper management shall be established in
respect of them. This budget will be including the details regarding cash balance to be
kept and the manner in which it shall be utilised.
Advantages: It is needed that cash shall be in sufficient amount so that all the transactions can be
performed without any hindrance and that will be achieved by it. Also additional advantage will
be earned as the surplus will be invested in such projects which will yield maximum benefits.
Disadvantages: No accuracy can be ensures so it will be always be carrying some amount of risk
with it.
Process in budget making:
In this process the most important task that will be performed will be to carry out the
research by which the required data will be obtained and then that will be used in the budget
formation. Also the future preferences will be estimated and then they will be involved so that
they can be considered. In this expert opinion will also be used so that risk can be eliminated.
Strategies in pricing:
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In order to earn maximum profit it will be required that proper pricing strategy shall be
used so that the priced set will be such by which the business and customers both will be
receiving advantage. For this proper evaluation of all the aspects of the business will be done.
M3
In the business there are many tools which will be used for the planning purpose so that
effectiveness can be achieved. The best among all is the budget in which forecast will be done so
that objectives can be achieved and it can be ascertained that whether there is any shortcoming.
D3
For achieving success it is important that all the problems shall be timely identified and
then tools will be used to solve them on the priority basis. By this the growth level of the
organisation will further increase.
TASK 4
P5 Balance scorecard approach
All the activities which are performed should have the required mount of balance
between them and that will be achieved with the help of this approach. This approach covers the
four main areas of the business which are growth, finance, customers needs and internal
processes. In order to maintain them the problems in them will be identified and then measures
will be taken to create balance (Zang, 2011). As the needs of consumers will be known so they
will be satisfied in best manner by which the brand image will be improved.
Due to the fact that all the areas are included under the scope of this approach, it will be
made possible to solve the problems which will be arising in those aspects and for that
improvement will be done.
The other methods that can be used will include following:
Performance indicators: This is the tool by which the performance attained will be examined
and then the issues faced in this will be determined so that the individuals will be forced to
improve themselves according to the parameters.
Benchmarks: In this the employees will be required to perform according to the standards made
so that the targets can be achieved and also no problem will arise as everything will be done
according to the plan.
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Financial governance: In this the process will be followed by which financial areas will be
governed so that problems faced by that department will be dealt in correct way (Otley and
Emmanuel, 2013). Also resources will be managed in best manner and policies will be used for
this. In this there will be various functions which will be performed by the board such as it will
be noticed that funds will be utilised in the most effective manner. It will also be ensured that
company shall have the optimum amount of funds by which the problem of shortage will not be
face by company. It will also be noticed in it that all the laws which are present shall be followed
so that no penalty or consequences in respect of default shall be borne. There are various
responsibilities which are specified and are to be followed so that whole work is performed in
best manner and that will be achieved by the use of this approach. So by this the problems will
be solved in proper way.
M4
Management accounting tools will be used so that sustainability will be achieved and this
will be possible as all the problems will be resolved in the best way so that overall performance
can be maintained in long run.
CONCLUSION
From the report it can be concluded that information will be collected by using various
tools and that will be very helpful. Also the methods used for making statements have also been
described together with the practical presentation of them. Measures to solve problems are also
understood with this report.
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