Detailed Management Accounting Report: DIZED Ltd Financial Analysis

This report examines management accounting practices within DIZED Ltd, a UK-based company. It covers the roles of management and financial accountants, their differences, and the application of various management accounting systems like cost accounting, inventory management, and job costing. The report includes income statements prepared using marginal and absorption costing methods, along with an analysis of their advantages and disadvantages. Furthermore, it explores budgetary control tools such as cash budgets and flexible budgets, highlighting their importance in financial planning and decision-making. The report provides a detailed overview of how these accounting techniques are utilized to assess financial performance, manage costs, and support strategic planning within the organization.

Management
Accounting
1

INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Section 1..........................................................................................................................................3
Section 2..........................................................................................................................................7
Section 3..........................................................................................................................................8
Section 4........................................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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INTRODUCTION
Management accounting is the process of handling internal process which required running
their operations effectively. In this growing market environment, managers in management will
play a key role in leading their organizations (Caskey and Laux, 2016). Their position is no
longer limited to collecting and reporting financial information. With the help of management
accounting, managers of the organization able to take effective decisions or formulate strategies
for future. This report is based on DIZED Ltd which is UK based company and sells single
products.
This assignment covers several topics such as management accounting systems and
reports which is required by the managers in their decision making process. Use appropriate
management accounting techniques to calculate cost and prepare income statement to identify
profit and loss for the period. In addition, organization the planning tools for budgetary control.
MAIN BODY
Section 1
Role of management accountants:
Management accountant's function involves gathering, documenting and disclosing
financial data from multiple units within an organisation, tracking and reviewing their
budget and recommending financing and distribution. It includes cost estimates of raw materials,
labour, distribution, sales and advertisement, social media networking, campaigning and the
internal operating costs of the company. Management accountant must communicate with all
divisions concerned in order to carry out an overall review of the operating resources of the
organization and the accessibility of funds and then report all the details to top management and
boards of directors. CFO is therefore a source of information that the directors and CEO need to
take decisions. Management accountant must review the historical data in order to provide a
reliable estimate of projected spending for a year. Budget maintains cooperation between the
businessman and his workers in the execution of all the plans for the coming year. In context of
DIZED Ltd, management ensure that company’s managers plays all the essential role which is in
favour of the business or helps in maximising productivity as well as profitability.
Management accountant needs to know of everything, whether it is a political
environment that affects the economy, inflation, other industry risks, competition, labour costs,
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raw materials, corporate activities, communication within a organization between various
departments as well as its contact with the rest of the industry world and social networking sites.
Managers of DIZED Ltd should be master of all area where they requires to identifying the
problems ahead in order to plan his organization for liquidity crisis or some other danger. He
ought to notify business owners in preparation so that they can make major decisions taking into
account the funds and criteria that are available.
Role of financial accountant:
Financial accountants can make physical transactions to the accounting records in smaller
companies. Many staff report transactions in most cases while the financial accountant checks
such records for consistency and correct transaction reporting. Upon reviewing the transactions
for a given period of time, the accountant would then evaluate the books and records to ensure
that they correctly represent the organization's operating performance (Dillard, Yuthas and
Baudot, 2016). Such accountants also compile books and records of organizations in preparation
for the organization's annual outside audit. To report top management are essential role for all
financial accountants. Such practitioners produce documentation on all financial issues that apply
to the company, rather than financial statements. While examining and evaluating the accounting
records of the business, accountant provides senior management input and advice, especially on
credit quality, liability status, cash flow preservation and expenses issues. Qualified financial
accountants can offer guidance on the status and usage of corporate capital, reports on the budget
and performance of business plan forecasts and the recent financial news that may impact the
activities of the company.
Difference between management and financial accounts:
Key basis of
difference
Financial accountants Management accountants
Meaning Financial accounting is the practice
used by corporations to generate
financial reports that display their
business performance and position
to stakeholders outside the company,
including shareholders, investors,
suppliers and clients.
Management accounting involves
providing appropriate information
for decision-making, planning,
budget control and efficiency
assessment processes. This turns
data into reality, experience and
information about a company's
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operations. It is a safer move than
cost payment.
Aim The primary goal is to convey
information to a third party such as
shareholders, owners, consumers
etc. are outside parties. Hence, it is
planned primarily to help investors
make informed decisions (Efferin
and Hartono, 2015).
The aim here is different from
financial accounting. Financial
information for management is
typically designed for managers to
make more rational financial
decisions.
Users It is made available to third parties
or external parties. External factors,
such as shareholders, suppliers,
customers, government,
organizations, etc.,
Management accounting
information is helpful to internal
participants, such as CEOs,
executives, partners and senior
managers, etc.
Output The financial accounting reports
consist of profit and loss analysis,
balance sheet and cash flow
statement.
Management accounting reports are
also the annual, weekly, or yearly
analysis of products, regional areas,
operations, etc.
Management accounting systems:
Cost accounting system: Managers use this method to analyze costs related to operations
and company practices to increase productivity. This has an important necessity for recognizing
unnecessary costs and removing those costs when manufacturing goods. This accounting method
is used by DIZED Ltd's to know the real cost of raw material used in manufacturing. Maintaining
the costs and reducing unnecessary costs by using cost accounting method is essential to all
businesses. Therefore, using cost accounting method and having real operating costs in business
organization is important for all organizations. It is essential for organization to estimate each
unit cost and try to control cost for entire production period.
Inventory management system: This system is used to monitor or track inventories that
are kept in stores and warehouses (Ghasemi and et. al., 2016). The basic necessity has as it
allows keeping records of all inventories that determined which inventory is in stock and which
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is not. DIZED Ltd's manager keeps track of all materials through a program which helps to
understand the accessibility of a particular stock. In addition, it is necessary to know the under-
stock and over-stock situation at the workplaces and accordingly sell the goods. It include three
different methods such as LIFO, FIFO and average cost, from these methods, DIZED follow
FIFO to manage their inventory level which is essentially required for them.
Job costing system: It is another stated method used to track work-by-job costs and
profits to improve employment-by-job productivity. In other words, this is a tool that is used by
managers to monitor manufacturing job costs rather than process costs. This has basic criteria
such as no company can keep records of the costs of each job without such a program manager,
retaining data that is more relevant for company. It is essentially required for DIZED Ltd's
managers to allocate costs to particular employees that help monitor corporate expenditures and
make decisions to efficiently conduct business operations.
Types of management accounting reports:
Budget report: This is significant document within which a organisation's financial
performance is described. Budget report is the company's internal report used by management to
equate the projects budgeted with real projects to raise the profit margin. It helps to create the
overall budget for all expenditures and revenues involved (Leitner and Wall, 2015). At DIZED
Ltd, managers set projected budgets and compare them with real budgets that aid to indicate just
how much company needs to invest. In fact, it helps managers provide better benefits for
workers, cut expenses and execute budgets that help preserve profit margin.
Inventory management report: A report that is used to track the stock or finished product
details known as the inventory management report. This study lets administrators understand
how much warehouse inventory they have on hand. It helps maximize the level of inventory and
ensures that managers monitor the inventory properly. For example, DIZED Ltd's manager
prepares inventory management report on raw materials to identify that show much required for
production of goods.
Performance report: This report deals with the results of an individual's performance or
function. The report will compare real results with a estimate or norm, and the discrepancy
between the two estimates. If there is an adverse difference, the reader of a results assessment is
expected to take action. In context of DIZED Ltd, manager use this report to evaluate their
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employees performance as well as entire operations. With the help of it, management build
effective or accurate strategy to meet their business goals & objectives.
Section 2
Income Statement by using marginal costing:
Particulars 2016 2017 2018
Sales (58) 52,20,000 63,80,000 55,10,000
Less: Variable Cost
Direct labour 400,000 440,000 360,000
Direct material 800,000 880,000 720,000
Overheads 800,000 880,000 720,000
Contribution 3220000 4180000 3710000
Less: Fixed cost:
Production overheads 90000 90000 90000
Administration cost 80000 80000 80000
Income for the period 3050000 4010000 3540000
Income Statement by using absorption costing:
Particulars 2016 2017 2018
Sales (A) (58* 90000) =
52,20,000
(58*110000) =
63,80,000
(58*95000) =
55,10,000
Cost of Goods Sold:
Direct Material (100000* 8) = 800,000 (110000*8) = 880,000 (90000*8) =
720,000
Direct Labour (100000* 4) = 400,000 (110000*4) = 440,000 (90000*4) =
360,000
Variable Production
cost
(100000* 8) = 800,000 (110000*8) = 880,000 (90000*8) =
720,000
Contribution 20,00,000 22,00,000 18,00,000
Fixed cost:
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Production overheads 90000 90000 90000
Administration cost 80000 80000 80000
Total (B) 21,70,000 23,70,000 19,70,000
Profit (A-B) 3050000 4010000 3540000
Marginal costing: It described as a form of costing method, through which the results of
activities arise in unique ways. The fixed costs are considered expenditures for the duration
while variable expenditures are called unit costs. It has some advantage which is as follows:
Advantage:
 Occasionally, variable costs rise or fall but in the longer term, overall costs are constant.
No matter the level of output, marginal costs stay the same.
 Thanks to the isolation of fixed overheads from manufacturing costs, it reduces the level
of over or under-recovery of overhead costs.
Disadvantage:
 Cost splitting into fixed and variable is a challenging problem. Semi variable or semi-
fixed costs are also not found in marginal costing.
 Selling price estimate will remain the same at various operating rates. They can alter in
real life, and offer impossible results.
Section 3
Cash budget: It is a prediction of a company's resources for a point of time. Budgets are
used to determine if the company has enough cash to function (Luft, Shields and Thomas, 2016).
Companies use revenue and performance projections to construct a cash budget, together with
assumptions about expected spending and accounts receivables collections. Cash budget is
needed to determine if a business will have sufficient financial resources to continue its
activities. For example: if DIZED Ltd has £ 20,000, then employees enable to spend more than
that as the cash budget sets the spending capacity. Following are the advantage or disadvantage
of cash budget:
 Advantage: When organization working off a cash budget, so they can easily find out
whether you're going to have enough cash to fulfil their obligations. If not, then you can
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cause a remedial action to ensure that expenditure targets can be achieved. Willingness to
borrow money from a company perspective is not limited to being cash-only.
 Disadvantage: Ulterior inspired managers to manipulate budget figures to focus on them
well. Manager takes decisions affecting the cash budget that estimate their expenditures
for the budget period. These reports planned disproportionately small cash payments.
Flexible budget: It is a plan that changes or transitions through volume or organizational
adjustments. The most demanding and realistic budget is more flexible than a static budget. The
static budget estimates remain unchanged from the required amount for the planning and
approval of static budgets (Masoud, 2016). This budget can be used by DIZED Ltd, so managers
can modify their budget limit according to the requirement. For example: company required to
spend £ 150 more on staff training which help in enhancing their productivity which is beneficial
for them. so, this budget allow managers to spend and extend their budget limit. There are some
advantages or disadvantages which are as follow:
 Advantage: It could be used as another overall cost management device because flexible
budgets respond to adverse circumstances. Static budget is based on hypotheses,
judgements, projections and estimations. But, flexible budget based on awareness and
value to prepare plans. It is used to assess success in both management and operations.
 Disadvantage: Flexible schedules are meant to make it easier to stick but these schemes
are unlikely to promote the same consistency or long-term behaviours as more
conventional solutions by not adopting the same strict schedule each month.
Master budget: Master budget is a costly business plan that records projections of future
revenue, rates of production, acquisitions, potential expenditures incurred, capital assets and
even tons to be purchased and repaid (Mouritsen and Kreiner, 2016). In other terms, the master
budget contains all other financial forecasts as well as a written statement of profits and balance
sheet. When a firm conducts merger and acquisition process then the master budget is planned
what the business profits from the acquisition of the targeted business transaction. For example,
every organization has an HR and Admin unit, which will result in several employees in the
same division when an organization is acquired. This budget has some merits pr demerits, which
are as follow:
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 Advantage: Master budget acts as a descriptive budget for the analysis and management
of the company owners. The master budget reveals what the company receives, and
whether the costs as a whole are incurred.
 Disadvantage: The Master budget recognizes and addresses the unexpected issues in
advance. For example, one of the business divisions does not function well and the cost
generated exceeds the spending limit set. This leads in the firm's lower productivity.
From the above discussed planning tools, managers of DIZED Ltd follow flexible budget so
they can make changes into their budget according to the requirement. With the help of this,
requirement of resources or money can be available for employers to enhance their potential or
achieve maximise outputs.
Section 4
Financial issues or financial difficulties are a circumstance where organization gets stressed
by money problems. Most people face difficult financial times and the mental wellbeing effect
can be important (Serrano-Cinca and Gutiérrez-Nieto, 2016). It may seem difficult to solve these
issues but they can get support and take steps to correct your situation. There are some financial
challenges which affect the DIZED Ltd and these are as follow:
Error in accounting records: Direct or indirect manipulation of figures leading to improper
reporting of financial statements which can be defined as some kind of financial problem. Due to
this problem, companies are unable to find direct sales, investments and much more. DIZED Ltd
is dealing with this problem company affects their financial statements.
Inadequate protection to financial resources: this financial issue has a huge risk of losing
money. It will generate when organization unable to monitor define or undefined assets. Further
it create problem regarding lack of capital and many more.
Methods to resolve financial problems:
There are several management accounting methods which are used by the organizations
to resolve the challenges or financial issues they currently face. Some of them discussed below:
Benchmarking: This approach correlates a company's financial aspects to strategic
enterprises that seek to detect adverse variants. It helps the company to find out which causes are
the product of the financial problem. DIZED Ltd use that approach to determine their real
monetary problem. They connect financial factors to other businesses.
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Key Performance Indicator (KPI): This can be defined as a methodology linked to an
active evaluation of the monetary and non-financial aspects (Shiau, Chen and Tsai, 2015). On a
financial perspective, market competition, expenditures etc. are included, while employee stress
rates, ties, etc., are listed in the non- financial context. With the help of this method, managers of
DIZED Ltd evaluate financial or non financial factors which affect the operations and its
productivity. Further they build strategies to improve the overall performance or resolve the
financial issues which company face.
Financial governance: It can be described as a method in which an organization correctly
documents all of the financial transactions for a given duration. With this approach, the real
financial problems are defined and responses to the problem can be used.
Comparison of organizations that how they resolve their financial issues by using different
management accounting systems:
Basis DIZED Ltd Creams Ltd
Financial problem Due to error in financial accounts at
the time of recording DIZED Ltd
faces issues and unable to find
accurate figures of their investments,
sales etc.
Company face a problem of
inadequate protection of assets
which create uneven flow of
cash. It affects the overall
performance of the company.
Management
accounting systems
Business use cost accounting system
and predict each unit cost which
further help managers to maintain its
records and done proper accounting
to produce financial statements
(Zalaghi and Khazaei, 2016).
They follow inventory
management system to
manage their inventory and
make sure to keep track the
level of stock and order
appropriately.
Techniques Organization use benchmarking
technique to resolve financial issues.
With the help of it, managers identify
the issues and its root cause.
Compare their performance with
previous one or formulate strategies
accordingly. Compare their financial
With the help of key
performance indicator (KPI),
managers able to identify
financial or non financial
factors which affect or cause
financial issues. After that
implement strategies to
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performance with other to measure
that where is the mistake which
required improving.
overcome these problems.
CONCLUSION
From the above analysis, it has been observed that management accounting plays several
roles which are beneficial for the organization not only in terms of making decisions but also
ensure that external factors not affect the business operations. There are various systems and
reports which are used to produce budget or make strategies. In addition, by using marginal or
absorption costing method, managers evaluate the profit or loss during the year. With the help of
planning tool, company produce budget or encourage their employees to work accordingly.
Along with this by using management accounting systems, company resolve their financial
issues which affect the productivity as well as overall performance.
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REFERENCES
Books & Journals
Caskey, J. and Laux, V., 2016. Corporate governance, accounting conservatism, and
manipulation. Management Science. 63(2). pp.424-437.
Dillard, J., Yuthas, K. and Baudot, L., 2016. Dialogic framing of accounting information systems
in social and environmental accounting domains: Lessons from, and for,
microfinance. International Journal of Accounting Information Systems. 23. pp.14-27.
Efferin, S. and Hartono, M. S., 2015. Management control and leadership styles in family
business: An Indonesian case study. Journal of Accounting & Organizational Change.
11(1). pp.130-159.
Ghasemi, R., and et. al., 2016. The mediating effect of management accounting system on the
relationship between competition and managerial performance. International Journal of
Bol, J. C., Kramer, S. and Maas, V. S., 2016. How control system design affects
performance evaluation compression: The role of information accuracy and outcome
transparency. Accounting, Organizations and Society. 51. pp.64-73.
Leitner, S. and Wall, F., 2015. Simulation-based research in management accounting and
control: an illustrative overview. Journal of Management Control. 26(2-3). pp.105-129.
Luft, J., Shields, M. D. and Thomas, T. F., 2016. Additional information in accounting reports:
Effects on management decisions and subjective performance evaluations under causal
ambiguity. Contemporary Accounting Research. 33(2). pp.526-550.
Masoud, N., 2016. The Development of Accounting Regulation in the Libyan Region Countries
in Africa. Development. 7(12). pp.45-54.
Mouritsen, J. and Kreiner, K., 2016. Accounting, decisions and promises. Accounting,
Organizations and Society, 49, pp.21-31.
Serrano-Cinca, C. and Gutiérrez-Nieto, B., 2016. The use of profit scoring as an alternative to
credit scoring systems in peer-to-peer (P2P) lending. Decision Support Systems. 89.
pp.113-122.
Shiau, W. L., Chen, S. Y. and Tsai, Y. C., 2015. Management information systems issues: co-
citation analysis of journal articles. " International Journal of Electronic Commerce
Studies". 6(1). pp.145-162.
Zalaghi, H. and Khazaei, M., 2016. The role of deductive and inductive reasoning in accounting
research and standard setting. Asian Journal of Finance & Accounting. 8(1). pp.23-37.
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