Management Accounting Report: Financial Analysis and Costing Methods

This report provides a comprehensive overview of management accounting principles and practices, focusing on the case of TECH IMDA Ltd. It explores various types of management accounting, including cost accounting and inventory management, and their effectiveness in recording financial transactions. The report delves into different reporting systems like performance reports and job cost reports, emphasizing their role in analyzing and communicating financial data. Furthermore, it examines various costing methods such as cost-volume-profit analysis and flexible budgeting, used for calculating net profit and interpreting data for business activities. The report also discusses the advantages and disadvantages of using planning tools in budgeting and the utilization of planning tools to overcome financial issues. Finally, it touches upon the balance scorecard and its effective use in resolving financial problems, offering a critical analysis of financial performance and providing insights into effective business management. This report provides a detailed analysis of accounting principles and practices, offering valuable insights for students.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Different types of management accounting and its effectiveness....................................1
P2: Different types of reporting systems................................................................................3
M1: Benefits of using accounting system..............................................................................4
D1: Critical evaluation of reporting system...........................................................................4
TASK 3............................................................................................................................................5
P3: Various types of costing methods use for calculating net profit......................................5
M2: Use of various techniques...............................................................................................9
D2: Interpretation of data for the business activities..............................................................9
TASK 3............................................................................................................................................9
P4: Advantage and disadvantage of using planning tools in budget......................................9
M3: Utilisation and analysis of planning tools.....................................................................11
D3: Critical analysis to overcomes financial issues.............................................................11
TASK 4..........................................................................................................................................11
P5: Balance scorecard and their effective use to resolve financial issues............................11
M4: Evaluation of different financial problems...................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
In recent time, different types of business organisation are using effective management
accounting systems that can assists in recoding financial transaction in their respective
statements. The primary aims of doing so is to attain maximum profit by utilising resources in
more effective manner. By the help of this management can attain their long and short term goals
in more quick time. As mentioned in the case about TECH IMDA Ltd which is dealing
electronic mobile and charges so they need to manage their everyday transaction through using
various system (Gates, Nicolas and Walker, 2012).
Those are being discussed under this report. Such as accounting and reporting systems.
Other than this, certain costing methods are also being illustrated to determine net profitability of
the company. Further, these reports analyse various planning tools use in budget preparation and
those financial issues those are affecting profitability of an organisation. It also covers some
effective measures that can assists in resolving those financial issues that are present in an
organisation
TASK 1
P1: Different types of management accounting and its effectiveness
This seems to be determine that every part of department that are working for the purpose of
increase maximum gain in short span of time. In order to reach at that position, they are using
various aspects which are related with management accounting. It has been seen that
management of every business organisation is always in search of identifying all those effective
ways those are essential for enhancing productivity of “Tech Imda Ltd”. Although this happens
to be important functions of every small and large business organisation in order to make
effective plan, organise and analyse their future needs and wants. While, accounting is a
systematic detail process of summarising, recording and evaluating various transactions those are
essential for the generating maximum earning during the time (Suomala and Lyly-Yrjänäinen,
2012).
Management accounting is said to be crucial profession that included partnering in
effective decision making, devising planning and deliver expertise in proper financial reporting.
This is utmost techniques of evaluating overall business costs and operations to make proper
accounting of reports, records and assist managers to take important decision in near future. This
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will prove to attain future aims and objectives. It is use for the purpose of expanding their
financial and statistical data in order to bring positive light on every single stage of activities that
are commencing by Tech Imda Ltd.
Management accounting Financial accounting
In this, the total attention of getting towards
various parts of business organisation that are
present in various combination of certain
aspects.
Under this accounting the whole enterprises are
working as a whole toward maximising
performance of Tech Ltd.
They are mostly associated with future plans
and rules that can assists company to control
their extra losses.
Financial accounts are mostly associated with
historical and standard data of Tech Ltd.
It concludes total focus on increasing overall
value to external parts those are responsible for
making their capital investments in their
projects.
It relies on universal confidence which would
create validity and goals for future target that
are being set by an organisation.
This is mainly considered quality of
information that are being analyse for further
decision making in the company.
The managers or accountant make sure that
every data much be properly inserted in their
respective statements so that valuable
outcomes can be generate during the time.
Types of management accounting system
There are various types of accounting systems that would be vital for the company to
manage and control their everyday financial transactions in more effective and efficient manner.
Some of them are discuss underneath:
Cost accounting system: Such kind of accounting system will be more essential for locating and
analyse their overall total costs and expenses that are going to be incur during the time of
production. Managers need to make control of all these costs those are either directly or
indirectly make impacts on the overall performance of an organisation. Few costs those are
applied during manufacturing of products are normal, standard and actual costs (AlMaryani and
Sadik, 2012).
Inventory management system: It has been observed that Tech Ltd is working and
dealing in electronic products for this purpose they require a system that can record their overall
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production detail of raw materials. By the help of this, managers can easily make analysis of all
those costs are helpful in keeping their overall bills, record of invoice other warehouses.
Job costing system: This accounting system is more effective systems which will be
utilised to measure total allotted products costs to a single products and team group. Basically,
this could be more crucial in order to manufacture goods in more effectively different from one
another.
Price optimisation: This would guide accounting system which will be identifying
different types of customer’s perceptions about various prices of products that are being set by an
organisation. It would be assists them in order to determine price set which will useful in
increase their operation costs of manufacturing.
Benefits of using accounting system
All those above mentioned accounting systems are providing more crucial outcomes for
the company by offering maximum chances of increase their profit as well as efficiency at the
same time (Mistry, Sharma and Low, 2014).
P2: Different types of reporting systems
In every manufacturing business whether operating as small or large scale need to prepare
a well structure report out of their overall performance from the entire year. For this purpose,
they are using various types of accounting systems reporting. The primary motive of using such
kind of reports is to analyse, record, communicate and make proper evaluation of the collected
data from various departments. There are various vital sources from which accounting data can
be gathered. Some of them are taken from internal as well as few of them are taken from
external. These sources would provide valuable information about the current and past year
financial position of the company (Evans, Burritt and Guthrie, 2013). On this basis, investors
could make their various capital investment decisions in order to gain maximum advantage over
other companies. There are various types of accounting reports that are helpful in recording
crucial financial information in their respective set format. There are various types of accounting
system reports which are helpful in recording financial transactions. Some of them are discuss
underneath:
Performance report: According to this specific report, overall performance and financial
condition of the company can be easily identified. This can be prepared by using past and
current year data for the purpose of making actual and standard financial position of the
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company. In order to determine any critical issues some crucial techniques such as Key
performance indicators would be more reliable.
Account receivable report: This kind of reports is more vital for making analysis of total
lists of unpaid customer’s invoices and credits amounts. Through this, company can easily be
able to make essential evaluation of credit amount recovery those are being due from so many
times (Van der Stede, 2015).
Inventory management report: It has been determined that plenty of useful information
are associated with companies stock positions are easily be analyse by using various techniques.
Some of them inventory turnover ratios by which total rotation of inventories can be examined.
ABC costing and EOQ is valuable techniques of making proper analysis opening and closing
stock during the time are recorded as per their mentioned data of occurrence.
Operational budgets: Such kind of reports includes various information regarding their
overall cost and expenses those are being invested for the production of one unit of products and
services. This would be summarising by analysing, sales, production and other raw material
budgets in an accounting period of time.
Job cost report: According to this specific reports production department in order to determine
total cost that are going to be utilised during manufacturing of products and services. With this
Tech Imda Ltd can manage and control their everyday costs and extra expenses those increase
burden on the company (Sisaye and Birnberg, 2012).
M1: Benefits of using accounting system
As per the above mentioned various accounting systems those are helpful for the company
in order to planning for controlling their daily operations. It has been found that all of them are
having their own benefits and limitations. Use of inventory management system can provide safe
and security to their stock for longer period of time. Whereas, job costing and cost accounting
are two of the main systems by the help of this company can increase their productivity and
growth in more quick time. Moreover, this can lead to increase efficiency and future growth for
the company in very limited period of time.
D1: Critical evaluation of reporting system
To generate more specific outcomes in an accounting period by using limited resources of
the company they need to make use of various recording techniques. It is necessary to make use
of various accounting system reporting which will be helpful in recoding various financial
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information in appropriate manner. By the help of all those reports which are made by taking
information from each department can assists investors to make their necessary capital
investment decision under their projects. Some crucial techniques are inventory management
reports which are more reliable sources to record stock information in more systematic manner.
TASK 3
P3: Various types of costing methods use for calculating net profit
In every business organisation costs is utmost important aspects that can increase of
decrease their percentage of growth and performance at the same point of time. These costs are
either directly or indirectly associated with the production of products and services. As costs is
said to be value of money invested by Tech Imda Ltd in accordance to get something in return.
Normal, standard and actual are few costs those are been keen to be determined by the company
before taking any other decision (Moser, 2012). There are various types of costs use as
microeconomic techniques in the manufacturing process. Some of them are discuss underneath:
 Cost volume profit (CVP): This technique is mainly used to determine total changes in
costs and volume that affects a company's operating income and their total earning. In
order to perform these types of analysis, there is various assumption which are needed to
be taken into consideration such as sales price per units is to be remain constant.
 Flexible budgeting: Such kind of budgets would be adjusted or flexes for making
alternation in total volume of mentioned activity. This budget is more reliable and useful
than a static budget which would be remains at one individual amount of entire capacity
of an activity (Archives, 2018).
 Cost variances: It is known as total difference among actual costs value and its estimated
budgeted value. Company uses this cost variances to make use to data analysis and track
their ongoing work (Cost variance, 2018).
 Cost of inventory: This consists of all those costs which are related with holding or
storing stock for sales. This would be considered as opportunities cost of total money
utilised during the time of production.
Types of inventory cost:
 Holding or carrying cost
 Ordering cost
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 Stock out cost.
Benefits of reducing inventory cost:
 It would help in spending less income on material frees up costs for other uses. It will
control and overcome shopping expense, lower insurances and so on.
 Price competitive is other important benefits that can individual would get from using
correct inventory control system.
Absorption costing: These are said to be that costs which are incur overall
manufacturing products and services. Such kind of costs would conclude a both variable and
fixed expense that’s why it is known as full costing. This is not taken as more reliable costing
techniques for making future business decisions (Grafton, Lillis and Mahama, 2011).
Marginal costing: According to this costing methods which are related with production
of one additional unit of products. During the production process only variable costs are taken
into consideration and fixed costs are ignored. However, this happens to be more reliable and
useful techniques to making future decision making. Another name of this cost is said to be
period costs.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value 52500
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Less: Variable costs
opening stock
Cost of production
closing stock
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
(22500)
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labor cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labor ￡5
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Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
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)
Net profit using absorption costings ￡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 expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
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M2: Use of various techniques
There are various other costing techniques those are helpful in collecting more effective
outcomes in more quick time. Such as fixed and variable cost which is varies as per the
percentage change in total units produce during that time. Cost allocation is another reliable
costing technique which will assist in allocating cost at right places so that maximum growth can
be attained. Normal and standard costing is the one which is use to make comparison between
actual and estimated costs a company in investing in their projects.
D2: Interpretation of data for the business activities
For the purpose of generating maximum benefits from their total investment, it is
necessary to have right management techniques or costing methods. The Tech Imda Ltd need to
make use of both absorption and marginal costing to analyse their overall profit and loss. From
the above calculation, it has been found that they are getting different results from both costing
techniques. In spite of this, they need to select that one which is more effective and reliable for
making crucial decision making in coming time.
TASK 3
P4: Advantage and disadvantage of using planning tools in budget
Budget is known as estimation for future cost and expenditure that a company is going to
be incurring during the time of production process. It is a kind of financial plan for defined
period. It is mainly consists of planned sales volume and revenue, resources quantity and various
costs and expenses detail. In every business organisation, it is necessary to have proper control
over their production or costs. This can only be helpful in controlling extra costs which were
incurred during that period of time (Schaltegger and Csutora, 2012). There are various types of
budgets which are prepared by an organisation. Some of them are discuss underneath:
Operational budgets: This seems to be financial budget of any given activities which is
categories into cost account or function units. It consists of estimation of total cost of resources.
 Advantages: It uses to track entire business operations by continuous monitoring and
recording of transactions.
 Disadvantage: Inaccuracy is primary aspect which affects business under certain
situations.
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Master budget: It is known as one of the major budgets which is summaries with all detail
information about total production and costs that is related in an accounting process. These are
prepared by using monthly, quarterly and yearly basis.
Advantage: The main positive aspect of this budget is not to make any additional budget
because all detail is mentioned on a single sheet.
Disadvantage: Such types of budgets are dynamic and costly.
Cash budget: These types of cost budget are mainly used to make use of all cash transaction
from associate activities. Such as operating, investing and financing (Zaleha Abdul Rasid and et.
al.,2014).
Advantage: To determine total cash inflow and outflow in an accounting period of time.
Disadvantage: These restricted to certain limitations as well as tool economical.
Process of budget:
In order to estimate detail idea about preparing budget for the company it is necessary to
collected various information. This information gather from each department can leads to take
action about formulating new budget for the cited company. Some crucial steps involve under
this projects are:
 Before making any new plan, a proper estimation of budget needs can be analyse by the
company.
 In the next step, company’s total forecasted of all income and expenses of various
departments are needed to be submitted to higher level.
 After collecting permission from upper department, process of budget formulation gets
begun.
 Then the next processes are to completed budget and resend it to top management to take
permission for publishing.
 At the end, it is ready to be shown in front of various internal or external parties.
Pricing system: There are various pricing systems those are helpful in setting prices for their
products. Some of the crucial methods are discuss underneath:
 Price skimming: According to this pricing policies which is being charged for increasing
demand of a new products. In the earlier stages, company used to set much higher prices.
 Economic pricing: Under this pricing method, an organisation can set the costs as low
of their different products in accordance to attract maximum customers.
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