HNC Unit 5: Management Accounting Systems and its Applications Report

This report examines management accounting systems and their applications, focusing on KEF Ltd, a manufacturing company. It explores the management accounting system, its requirements, and different types of accounting reports, including cost managerial, performance, and budget reports. The report delves into cost analysis methods, comparing marginal and absorption costing techniques, and provides profit and loss statements using both methods. Additionally, the report analyzes the benefits and drawbacks of various planning tools used for budgetary control, highlighting their importance in decision-making and cost management. The report also discusses the difference between management and financial accounting. The assignment covers key aspects of management accounting, offering insights into financial data analysis and strategic planning within organizations.

Management
Accounting
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INTRODUCTION
Management accounting is the process which help in maintaining accounts which provide
information regarding financial data. Accounting have different activities which include decision
making, effective plan and performance of organisation which help in providing quality
information to the company and also help in implementation of polices in effectively manner
(Kieso and Warfield 2019). Financial accounting help developing effective plan so that for
external environment such as stockholders, money lenders and government. Company must use
effective accounting system which help in keeping records and maintain the resources so that
company can promote high profit and expansion. Present report is done on KEF Ltd which is
involved in manufacturing operations. This report covers various aspect in management accounting
system and also the essential requirement of different management accounting system. Further it
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provide information about different accounting report. Beside this it also covers techniques to
analyse the cost and method to prepare income statement using marginal costing. Along with
this, it describe about different type of planning tools which are used for budgetary control.
TASK 1
P1 Describe management accounting system and provide important requirement in organisation
Management accounting is the techniques which provide report and help in developing
the account and also provide financials data. Accounting have different element such as decision
making, planning the future budget as well as performance of the budget. Financial accounting
focuses on developing the external affairs such as stockholders, money provider and regulation
bodies. It is provide different benefits to the company which help in smooth functioning of the
business activities. Organisation must hire the best accounted after all financial resource are the
pillar for successful enterprise and growth. Here are some different types of accounting system
which are explained down below:
Price optimisation system: It is the process of finding the best price which can be
charged from the customers and they are willing to pay. Companies often make changes in their
supply chain as they are required the best optimisation system through which they can generate
higher profit in limited time frame. For the company like KEF Ltd it is crucial for have price
optimisation strategies so that can reduce the price. They can reduce the logistic cost as well as
operational with help of price optimisation. This help in finding the perfect balance between
profit and value of the product.
Inventory management system: An inventory management system which help in
monitor the business activities and maintain the stock of the product whether they are the
company asset, raw material and suppliers (Sidik 2019). In the context of KEF Ltd must figure
out the inventory items and try to barcode or label them to track them. Company can use bar
code scanner or smartphones for scanning the product. Further company can use software to
maintain the record for the company.
Cost accounting system: A costing system is also known as product costing system
which is a framework used by the firm identify the cost of the product and analyse the current
valuation of the company. For the company like KEF Ltd can use this method which help in
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estimating the closing value of the material inventory. There are two main cost accounting
system which are given below:
Job order costing: It is a accounting system which help help in identify the
manufacturing cost differently for each job purpose (Steccolini 2019). For the company like KEF
Ltd can make use of job order costing to make the product on the demand. This process which
determine the process and provide information whether company need to make product and also
inform the company regarding the market demand and supply.
Here are some importance of management accounting system which help in
understanding the features in brief manner.
Relevance or usefulness: The principal of relevant help in satisfying the needs whose
them. The accounting principles must provide useful information so that company can make use
of relevance data effectively. This is also help in developing plans and blueprint of the
organisation which help in performing task systematically.
Feasibility: The determine that accounting principles must be practicable. This
accounting system data must be feasible as they are important to aspect in making profit. The
principal must understand and easy to interpret by the company so that employees otherwise it
can create chaos in organisation regarding operational activities. There must be quality in
preparing the cost sheet as they decide the future course of action.
Major difference between Management Accounting and Financial Accounting are
discussed below:
Management Accounting Financial Accounting
 It deals in deals within the organisation
and have minimum control over the
organisation.
 Financial accounting is prepared to
analyse the current position of the
company.
 This method help in identifying the
important information regarding
financials as well as non-financial
aspect.
 It include organisation as a team which
evaluate the key performance of
individual and track the resources
which are used by organisation.
 As the accounting books are made by
financials experts so legal requirement
 As resources are limited in nature this
help there must be proper record so that
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is required. company can make use of resources
effectively.
P2 Different types of accounting reports and its importance
Management accounting system is techniques which help in providing the Monterey
information and also help in managing the resources effectively so that effective decision can be
carried out (Kaur and Lodhia 2019). Further this report help in make use of resource so that
employees do not waste the resources. Here are some accounting report which help which are
described down below:
Cost managerial accounting report: Managerial costing report help in providing
information regarding the raw material, overhead cost as well as labour cost. In this process the
total dividend process is divided by the product made by the organisation. As this report offer the
summary of all the information and tell manager to use funds effectively. This report offers
manager to analyse the cost price of a single commodity and on how much price the product is
sold. Profit margin are estimated and monitored through this kind of report and have clear picture
regarding production and procurement.
Performance report: This are kind of report which is used for reviewing the
performance of the company as whole. Every organisation make their own kind of report which
one is suitable for them. Manager of the company use these performance report and make
effective decision for the betterment of the organisation. In the context of KEF Ltd Company
manages must evaluate the performance of each and every department so that changes can be
made in order to make effective product.
Budget report: This report is very critical in measuring the company performance and
are generated as profit for the company as whole. Each organisation create their own overall
budget to analyse the aim and objective for future. It is made on the previous experience. KEF
Ltd must develop the yearly report which help to understand the financial position of the
company and make change as per the requirement. The company can list the sources of earning
and expenditure so that mission and vision can be accomplished.
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TASK 2
P3 Cost analysis methods to prepare income statement to calculate cost
In this stage, it identify the final cost of production for making a single unit of the
product. In this scenario company can use the fixed cost in business operation and help in
developing the direct cost into account. Material and fixed cost for the company. In the case of
marginal costing it is crucial for company to utilise this method because it provide insight for the
company to use their resources in a well-defined manner. Down below are the some important
aspect which help in identifying the cost by using some important formulas which are used to
calculate marginal costing:
Marginal Costing:
It is defined as a costing technique where the variable costs are charged to product units
of costs and the fixed costs of the product are charged in full against its contribution.
Absorption costing:
This is a method which is used for identifying the overall information regarding the
manufacturing cost and other service charges (Huang, 2019). Absorption costing covers the
material cost, labour as well as fixed cost while making product. With the support of the
absorption costing method company can use these costing with other cost of the product. This
not occur with fixed costing but they mainly falls under the inventory which is not been yet sold
to the third party.
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Budgeted production and inventory Data:
Using a) Marginal costing and
b) Absorption costing techniques separately:
a) Marginal Costing
Cost card using Marginal costing
Particulars
Cost per
unit
Direct Material 15
Direct Labour 25
Variable production
overhead 10
Marginal Cost 50
Selling Price 70
Marginal Cost 50
Contribution Profit
Margin 20
Profit or loss statements using Marginal costing
(19000
units) June
20000
units June
Sales Revenue
(18000*70
) 1260000 1260000
Marginal cost of sales
Direct materials (19000*15 285000 (20000*15 300000
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) )
Direct Labour
(19000*25
) 475000
(20000*25
) 500000
Variable production
overhead
(19000*10
) 190000
(20000*10
) 200000
950000 1000000
Add: Opening Stock 0
Less: Closing inventory
(1000/190
00)*95000
0 50000 900000
(2000/200
00)*10000
00 100000 900000
Contribution 360000 360000
Fixed production
overhead 130000 130000
Net Income 230000 230000
Interpretation: The above statement is prepared using costing techniques marginal
costing. In this techniques fixed costs are not assigned to the per units cost of product.
Using this technique company has arrived at profits of 230000 in total and per unit profit
is 20. Cost of production using marginal costing is coming to 950000 where per unit cost
of production is 50. Closing stock does not include fixed associated with manufacturing
of the product.
B)Absorption Costing
Cost card using Absorption Costing
Particulars Cost per
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unit
Direct Material 15
Direct Labour 25
Variable production
overhead 10
Fixed production
overhead 6.5
Absorption Cost of the
product 56.5
Selling Price 70
Total Cost 56.5
Profit 13.5
Profit or loss statements using Absorption costing
(19000
units) June
(20000
Units) June
Sales Revenue (18000*70) 1260000 1260000
Marginal cost of sales
Direct materials (19000*15) 285000
(20000*15
) 300000
Direct Labour (19000*25) 475000
(20000*25
) 500000
Variable production
overhead (19000*10) 190000
(20000*10
) 200000
Fixed production
overhead 130000 130000
1080000 1130000
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Add: Opening Stock 0 0
Less: Closing inventory
(1000/19000
)*1080000 56842.11
1023157.8
9
(2000/200
00)*11300
00 113000 1017000
Gross Profit 236842.11 243000
Net Income 236842.11 243000
Interpretation: This income statement is prepared using absorption costing technique.
Using this fixed costa are also absorbed by units. This technique recognises the fixed
incurred in manufacturing the product. In this technique cost of production is 1073500
for producing 19000 units of product and per unit cost of production is 56.5. This
technique is used by the company as it gives more reliable and accurate products. While
valuing the closing inventory fixed cost associated with product are considered by
company.
Reconciliation Statement
Reconciliation Statement 18000 units 20000 units
June June
Profit as per Absorption costing 236842.11 243000
+ op stk @ FOH rate at op. date 0 0
- Cl stk @ FOH rate at cl. date 6842.11 13000
Profit as per marginal costing 230000 230000
Profits of company are reconciled by preparing reconciliation statement. Profits of
marginal cost are arrived at by deducting the fixed cost charged in valuation of closing inventory
using absorption costing .
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TASK 3
P4 explain the benefits and drawback of different types of planning tool used for budgetary
control
Budget is consider as important tool which help company to make effective decision and
make quality measures regarding the expenses. With the help of activity of company can make
higher standard product in limited time frame. In the case of KEF Ltd managers can keep track
of cost and analyse the way cost minimization way to ensure that company can make profitable
product. It also allow to solve different problems and facilitate in reducing future uncertainty so
that workers can perform their task effectively. There are some important pros and cons for
planning tools in making budget
Flexible Budget: The flexible budget adjust and flex according the change in the
environment and policies of the company. These kind of budget are more complex in nature and
have more often used with static budget. They sometime remain constant from the amount
establishment and also at the time of making budget. It also help in identifying the fixed cost and
also segregate them during the budget model. Further this describe the all variable cost and also
provide information regarding the activity which occur during the production process.
Advantages of flexible budget: These are useful in especially in business where cost are
closely aligned with the level of operational activities (Hopper 2019). The major advantages of
Flexible budget is that provide important data regarding the performance of the company as well
as of employees. It also flexibility to the financial department to make budget as per the
requirement.
Disadvantage of flexible budget: Though it is good tool but I t is difficult in formulating
and administration purpose. There are many cost which cannot be fulfilled by this budget. It is
consider as one of the complex budget formulation which employees have mind-set for making
the budget. In this process the there is comparison can be done to calculate the actual budget.
Fixed budget: This budget are also called as static budget which are used to plan
financials of company in effectively manner (Evans 2019). They are also known as set of
volumes which include sales as well as revenue. There are so many ways in which management
plan out the expense and operation so that sales and revenue can be set as per the requirement of
the organisation.
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Advantages of Fixed budget: One of the major advantages of static budget is that it is
easy to implement and follow the budget so that employees can focus on other work (Dai 2019).
Further it also offer Strong insight into company cost as well as profit and find out the variances
which are made during the production.
Disadvantage of Fixed budget: The main disadvantage of fixes budget is that it does not
provide sufficient amount of flexibility to the organisation. In case the company like KEF Ltd
make budget on certain level of sales volume this may not allocate additional resources to their
organisation.
TASK4
P5 Adaptability of organisation management according to financial problem
In today modern world there is a tough competition regarding offering services to the
customers. Here accounting plays a vital role in developing all kinds of plans and blueprint
which help in making sustainable business model for the company. Financial instability may
develop hurdles for the company as without them it not possible to grow and sustain in future.
Some organisation have to go through different phases of problems which are stated below:
Maintain cash flow: Company like KEF Ltd must develop effective plan to spend the
cash in coming quarter. Manager must ensure that company must priorities the ease of doing
business and find alternative that can boost the company performance and help in making
profitability. Organisation must change the suppliers if there is shortage of demand in market. As
inventory leads towards loss and company should avoid in order to maintain the cash flow.
Benchmarking: This is a techniques which is used to measure the individual
performance as well as of company (Clarke, and et.al., 2019). It is crucial to have benchmarking
so that employees can perform at their best. For the company like KEF Ltd it is important to
break the rules and provide the services as per the requirement of client in best possible way.
Company can identify the activities which are involved in process and benchmark on quality of
the product , working hours and also on performance of employees.
Audit and reorganize: To reduce the financial burden company must shift thing around
the make operation team stronger to make effective outcomes. For KEF Ltd managers should
make staff and employees self-sufficient in completing their task on time. Company must make
professional audit on time so to work and reorganize the work and business. The quarterly audit
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help organisation to make changes and reduce the flaw in company. The audit usually help in
reducing the cost by providing guidelines for making effective product.
KPI: It is crucial to know key performance indicator of organisation because it help in
measuring the quality and effectiveness of the company. In the context of KEF Ltd company can
use this method to analyse the key performance so that it can reduce the inefficiency during the
business activities. Company manager can use KPI at different level and also in various
department so that employees can achieve its target in limited time frame. If in case there is low
KPI index which means company must emphasis on improving the individual performance
whereas if organisation have high-level of KPI which shows that company must make future plan
for growth and expansion.
Financials governance: This indicate the process where company collect all the
important data which help in understand the financial position and method to overcome the
problem (Berry and Otley 2019). For the company like KEF Ltd management can develop
develop a hierarchy which help in maintain the current as well as future business activities in the
organisation. This techniques also help maintain books of records so that funds can be tracked
easily. Financial governance help in reducing the monetary waste and shows the right path in to
use the resources effectively. Beside this it set the guidelines for employees as well as for
managed to conduct business activities in a pre-described manner.
CONCLUSION
From the above describe report, it has reached to the conclusion that management
accounting have its importance in the organisation to identify the financial position of the
company in business. Further it also help in maintaining the record of financials data effectively.
In addition to this company can use KPI for reducing the financial burden as it provide the
guidelines for managing the funds in best possible way. Along with this, various tools and
techniques are used in while making financial report. With the help of professional and taking
effective measure company can maintain quality financial report which help in reducing the
overhead cost and help in growth.
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