Analysis of Management Accounting Techniques at Dell Inc (Unit 5)

This report offers a comprehensive analysis of management accounting techniques employed by Dell Inc. It begins by differentiating between management accounting (MA) and financial accounting (FA), highlighting how MA supports internal decision-making through non-financial and financial data, contrasting with FA's external reporting focus. The report then explores various MA systems used by Dell Inc, including job costing systems, inventory management systems, and price optimizing systems, detailing their requirements, benefits, and applications. Furthermore, it examines the different management accounting reporting methods utilized by Dell Inc, such as budget reports, accounts receivable aging reports, and inventory reports. The report also analyzes cost accounting techniques, specifically comparing marginal and absorption costing through income statements, and includes a break-even analysis to illustrate the application of these techniques. This report provides an in-depth understanding of how Dell Inc utilizes management accounting to optimize its operations and financial performance.

MANAGEMENT
ACCOUNTING TECHNIQUES

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
PROJECT PART 1..........................................................................................................................1
Management accounting and Financial accounting.....................................................................1
Management Accounting Systems and their requirements & benefits........................................2
Management accounting reporting methods................................................................................4
Different types of cost accounting techniques used by the Dell Inc............................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUTION
Management accounting could be defined as the profession involving partnership with
decision making, performance management and devising planning and to provide expertise in the
financial reporting as well as controls for assisting management in implementation and
formulation of the organisational strategy. Management accountants look after the processes and
requirements for running the operations smoothly without interruptions (Otley, 2016). Present
report is based over Dell Inc which develops, designs and manufacture computers. It is one of the
largest suppliers of computers. Report will address the management accounting systems used by
organisation and their application and benefits for the business. It will also be providing about
the different reporting and the costing techniques that are used by company. It will enhance the
understanding of management accounting techniques aiding in process management.
PROJECT PART 1
Management accounting and Financial accounting
Management Accounting
MA refers to accounting processes that includes the combination of financial as well as
non financial statements with motive of enabling managers in taking effective decisions for the
organisation. It helps the managers to measuring, planning, collecting and prepare reports and
records for the management of company.
Financial Accounting
Financial accounting refers to the branch of accounting which keeps record of all the
financial transactions. It involves using standard guidelines for recording, summarising and
presenting the financial information in financial statements such as income statement, balance
sheet and cash flow statement.
Difference between MA and FA
 MA is used for preparing reports that provides information to the managers for making
policies, plans as well as strategies to run business operations effectively (Maas,
Schaltegger and Crutzen, 2016). On the other FA focus over preparing reports or
financial statements that are useful for external users.
 FA reports are prepared at end of financial year where MA reports are prepared as per
requirements of management.
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 MA do not follow any prescribed format or standards as for internal use while FA
statements are to be prepared following set standards and formats.
Management Accounting Systems and their requirements & benefits
MA systems are internal systems which are used by the Dell for measuring the processes
for management of organisation. There are various MA systems that company uses for
management of processes.
Job Costing Systems
JCS refers to process of gathering the information about costs that are associated with the
service job or specific production. Information is required for submitting cost information to the
customers under the contract that will be reimbursed. Information provided is essential to
determine the accuracy of estimating system of company that enable the managers in quoting
prices which allows reasonable profit to the firm. Information could also be used by the
organisation for assigning the inventoriable cost to the manufactured goods (Bromwich. and
Scapens, 2016). In job costing there are three types of the cost expenses that are direct material,
direct labour and the overheads. It provides the correct estimates about the costs to be incurred in
particular or specific job. The job costing enable the company to identify the costs related to
every job.
Requirements
Job costing is required by the Dell Inc for identifying the costs associated with each job
separately. It keeps record of all the charges related to the specific jobs produced by the
company. It enables the Dell to quote prices for the products at time of special orders and
specific job.
Benefits
 It allows the Dell Inc in track the cost of each job separately and expenses related to the
job such as materials, labour and overheads.
 It is beneficial for Dell when it receives special orders regarding the products and
services to quote the prices separately(Weetman, 2019).
 Dell Inc with the cost information provided by the systems takes decisions regarding the
profit margins to be kept for job.
Application
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JCS is applied in the Dell for measuring the cost of each specific job separately for
quoting the prices to customers. Using the Job costing method management gets more accurate
and consistent price point which ensures proposals are lucrative and accurate. For example for a
job Dell incurs material 200, labour 150 and overheads 50. It could calculate the cost of job as
400 and requires margins of 20% that makes the price as 480 for customers.
Inventory management System
IMS could be defines as the method use by the organisations for controlling and tracking
the movement of inventory of the organisation. It keeps considerable control over the use,
consumption and production of the finished goods. An organisation has number of inventories. It
keeps track and record of all the inventory from raw materials, finished goods to company assets.
It provides all the information related to inventory in quantitative aspects. There are new
advanced software used by the Dell inc to keep proper record of all the inventory and
components used for the production of goods and services (Ameen, Ahmed and Abd Hafez,
2018). Inventory of the business is key asset and reflects the efficiency of management therefore
to be required adequately.
Requirements
IMS is required for tracking, recording and managing the inventories in Dell Inc. It
enables the management in accurately understanding the present levels of inventory and reducing
the situations of overstocking and under stocking. It provides essential information related to the
inventory movements for decision making purposes. It is required all the locations of supply
networks for preceding planned and regular stock of the materials.
Benefits
 Dell Inc uses the inventory systems for recording all the inventory that is coming in,
consumed and finished goods produced.
 Inventory management also enable the Dell to identify the frequency of inventory
movement of different products of company.
 The advanced inventory management software system enables the managers to identify
the current stock levels.
 It provides information related to the inventory that is essential for decision making and
projections for future requirements.
Application
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IMS in Dell is applied for tracking the inventory and making orders for the future
production requirements. It keeps record of all the inventory over different locations to make
decisions over orders and frequency of movements. For example using IMS Dell Inc manages all
the inventory records centrally. The system automatically reports when orders for the inventory
are to be made based on order levels fed in system.
Price Optimising System
POS refer to a metric used in management accounting for making decision related to the
prices. The system involves application of the mathematical analysis to corporations for
determining how consumers will be reacting over the various price levels for the goods and
services through different channels. It is also known as process used to find the price sweet spot
or to maximise the price against customers that are willing to make payments. Ups and downs of
companies and supply chain in B2C and B2B settings (Hopper and Bui, 2016). Managers of the
company dedicate massive time for deciding the optimum prices for ensuring that the products
are sold quickly at reasonable prices and making profits
Requirements
The method is required by Dell Inc to make decisions related to the prices to be quoted for
their different products and services. It provides the management with the base to identify the
demand of the products at different price levels for deciding most optimum of price for its
products and services.
Benefits
 It enables the management of Dell to decide the most optimum price for its products.
 In depth analysis of the market is done that helps company in knowing demand of
products at different levels of prices.
 Using the system it could analyse the outcomes over different scenarios with
mathematical techniques and tools to get more accurate and reliable results.
Application
POS is applied by Dell to determine the most optimum prices for the products and services
that will be best fulfilling their goals such as profit maximisation. Discovering the alternatives
via cost effective or the highest performance achievable under the constraints provided. For
example using POS Dell identifies the demand for product at price level 150, 125, 130 & 140.
On the basis of demand it sets prices which are most optimum in terms of profitability.
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Management accounting reporting methods
Implementing the MA reporting processes will enable the Dell to represent the managerial
information to the internal users more adequately and appropriately for making strategic
decisions for carrying business smoothly. There are various types of the MA reports that are used
by the management for operating successfully.
Budget report
Budget reports are used by the Dell Inc for making effective allocation of the resources
among different department and processes. it carries out variances analysis that is variations
between the actual performance and the budgeted performance of company. It provides all the
information related to areas where improvements are required. On the basis of budget report
projections for future incomes and expenditures is are made by the company. It enables the
organisation to ensure that resources are utilised optimally.
Accounts Receivable Aging Report
The report is prepared by Dell Inc to identify the number of receivables that are due.
From all the receivable it identifies those that are outstanding from considerable period of time.
On the basis of this report it takes measures for collection of the dues. The report also helps
managers in keeping an eye over cash inflows and the outflows from receivables (Rikhardsson
and Yigitbasioglu, 2018). On the basis of this it could evaluate the customers to whom credit
should not be given and to whom credit period could be exceeded. It could assess the terms and
policies related to the receivables for managing cash flows for business.
Inventory Reports
The inventory reports are prepared by Dell Inc to evaluate the information regarding the
inventory of company. It assesses all the stocks such as raw materials, consumption and the
finished goods produced. The information enables the managers in taking effective and
corrective decisions regarding the future inventory requirements. It ensures that the management
is available with required level of inventory stocks at all time so that it does not have to face
interruption in between the process. It identifies the frequency inventory movements to measure
the performance and to identify demands (Messner, 2016). On the basis of inventory reports it
carries out economic order quantity analysis and the safety stock to be kept with company.
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Different types of cost accounting techniques used by the Dell Inc
There are two types of costing techniques that are used by the organisations which are
absorption costing and marginal costing for preparing income statement.
Marginal Costing
Income statement as per Marginal Costing
Particulars January
Sales Revenue (800*1200) 960000
Marginal Cost of Sales
Computer parts (1000*200) 200000
Direct Labour (1000*150) 150000
Variable Production
Overheads (1000*60) 60000
410000
Add:
Opening Stock 0
Less:
Closing Stock (200/1000)*410000 82000
328000
Contribution 632000
Fixed production overheads (1000*50) 50000
Selling expenses 30000
Admin 40000
Distribution 25000
Net Income 487000
Absorption costing
Income statement as per Absorption Costing
Particulars January
Sales Revenue (800*1200) 960000
Absorption Cost of Sales
Computer parts (1000*200) 200000
Direct Labour (1000*150) 150000
Variable Production
Overheads (1000*60) 60000
Fixed production overheads 50000
460000
Add:
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Opening Stock 0
Less:
Closing Stock (200/1000)*460000 92000.00
368000.00
Gross profit 592000.00
Selling expenses 30000
Admin 40000
Distribution 25000
Net Income 497000.00
Reconciliation Statement
Reconciliation Statement
Amount
Profit as per absorption
costing 497000.00
add ; Op stock 0
Less ; Cl stock 10000
Profit as per marginal costing 487000.00
Break even analysis
Break even analysis
Break even Fixed cost
Contribution %
Fixed cost 50000
Contribution margin 632000/960000
66%
BEP 50000 / 66%
75757.58
BEP in units Fixed Cost
Selling price - Variable cost
Fixed Cost 50000
Selling price 1200
Variable cost 410
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BEP units 50000/(1200-410)
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CONCLUSION
It could be concluded that MA systems are important for the company to operate effectively
and smoothly. MA systems provide the management with accurate and reliable information
regarding the business processes. This enables the managers to take informed decisions to
improve the performance and effectiveness of the existing systems. MA reports provide all the
information that is required by the internal users for decision making and framing strategies.
There are different types of costing techniques that could be used for preparing income
statements.
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REFERENCES
Books and Journals
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research.31.pp.45-62.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner
Production.136.pp.237-248.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research, 31, pp.1-9.
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management
Accounting Research.31. pp.10-30.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems.29.pp.37-58.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
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