Management Accounting: Sollatek Company Case Study

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Management Accounting

INTRODUCTION
In accordance with the present situation, it could have noticed those organisations are searching
for successful accounting techniques which can assist in keeping everyday business operation in
efficient and effective manner. Management is the process of planning, organising, direction and
controlling all the administrative functions that are done within an organisation. Similarly,
accounting is the organized analysis of recording, summarising, communicating as well as
evaluating the numerical information in a well organised manner (Agrawal and Cooper, 2017).
The main motive is to achieve long term objective which is set by organisation. Sollatek
Company is a leading voltage protection, power control and primarily protecting electronic
equipment produced. This project aimed at delivering specific information about the use of
various kinds of administration accounting and reporting systems that can be used within an
organisation. Further, computation of net income for the business is also being done through
using appropriate costing methods. Along with that utilisation of merit and demerit of planning
equipment which can assist in controlling budgets is also examined in this project.
Understanding of various financial tools that can assist in facing financial problems of an
organisation is done effectively in this report.
TASK 1
P1: Discussion about management accounting system and their crucial use
For an organisation, managing accounting transaction is utmost important activity which will
help in analysing the performance of the company. It is an necessary role of managers to take
correct decision by taking into account the effective accounting data that would be useful in
maintaining proper balance amount both internal and external department of the company.
Sollatek Company needs to have proper management accounting system so that they can
accurately record their daily business transaction into their respective format. It has been
observed that it is an essential process which will be used by the accountant for designing
administrative information and financial records that can be deliver accurate and on time data
about the statistical information to the managers to make short decision in near future (Budding,
Grossi and Tagesson, 2014). It is crucial to have analysed the business expenses and operations
to provide interior accounting report, record and analyse to achieve business goals. Estimation
helps the company to make reliable decision in accordance with the information composed by
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the accountant from various crucial sources. It would be identified that management accounting
is more useful in answering the more critical questions as well as estimate the upcoming trends
which are associated with the business. It is also seen that management accounting always uses
activity based costing to reach at the solution to produce total products on the given cost
information. The manager make use of specific provisions of those are related to financial data in
respect to deliver crucial information instead of deciding the matter within an administration. It
would aid their administration as well as performance of control operation in a well organised
process so that probability of growth and better sustainability could be attain in near future time.
In relation to IMA, it is professional which include of partnering in operational conclusion and
routine supervision system to assess concern department in developing any organisational
strategies in coming time. It is important for accountant to make use of accurate information in
their respective statement so that probability of errors can be determined in coming time. The
investors as well as other stakeholder tend to make use of this information before taking any kind
of investment decision in the company’s upcoming projects. It is happens to be reliable and
profitable opportunity for the managers to take care of their necessary data which has to be
present in front of various close investors (Burns, 2014).
Definition given by authors:
In the words of J. Batty: Management accounting is basically considered as accounting standard
and techniques which has been complied with a particular knowledge. It would have certain
ability to assist management in their overall task of increase profitability for an organisation in
coming period of time.
It has been examine that management accounting system that would be effectively useful for
Sollatek Company in their regular course of operation. Few of them are discussed below:
Price optimisation system: In an organisation, it is important decision for them to set the prices
of their product according to the range of customer requirements. In accounting term, it is use of
numerical evaluation which is done by Sollatek to examine how client would respond to various
prices for their goods and services. It would also analyse that prices that a company is setting
must fulfil the overall objective like to enhance functional earnings in near future.
Inventory management system: It is termed as the combination of various technology and
process that tends to see the monitoring and overall maintenances of stocked items which are
kept by the company in their internal decision making (Edwards, 2013). It would consist of
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various raw material, finished goods that are ready to be sent through different kind of vendors
or close customers. It is included the supervision of inventory as well as stock items of an
organisation. It is basically considered as close component of contribute sequence management
that tends to guide stream of goods from different producers to the point of sales.
Cost accounting system: In sollatek company cost is considered as a framework that can be
used by different firms that can help in estimating the overall cost of their goods in relation to
determine the profitability position and cost control. It is easily associated with crucial procedure
of recording, classifying and allocating cost those are associated with different course of action
in respect to deal with the extra cost which are used during manufacturing process. Before
making any kind of decision it is significant to the manager to create or use of effective costing
methods that can help in using right methods at the same time.
Job costing system: It is crucial system that can be observed for assigning as well as producing
costs of any single units produced of an organisation during the time. The job charge used to
record every item which is directly related with the material and labour that are actually taken
into account with manufacturing overhead. The most important part of this system is that every
product produced must have different number of size (Ismail, 2012).
P2: Explain different methods used for management accounting reporting
It has been very common in maximum number of organisation to have an effective or reliable
reporting method that can help accountant to record each information in systematic manner.
Management reporting is considered as crucial aspects for administration control system through
which it would provide accurate business data to different level of department. Basically it is a
formal system that has been designed to make sure that timely supply of consistent information
to top management can be delivering at the right time. The procedure of formulating reports
would provide timely statistical data which is required by the finance department to make daily
or short-term decisions. The reports are generally show the information related to the cash,
purchase, sales and the amount of order made by Sollatek during the period. It is accounting
body of data which is organised for presenting or communicating in front of internal as well as
external stakeholders. It is normally consists of analysis, suggestion and solution in context to the
evidence presented by the manager to the investors (JOSHI and et. al., 2011). There are various
effective sources through which crucial information can gathered. To have well organised
reporting system, it is necessary to have proper form which show a comprehensive aspects with
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suggestive title of number of notes on the financial strength of an organisation. A good report
must be simple in accordance to the content prepared by the accountant. However, the contents
must follow a logical pattern so that it is easy to analyse the potential aspects of the company.
Accuracy is another important factors which cannot be ignore because information can tends to
provide a reliable idea about the skilled or techniques followed by company in taking essential
decision in coming period of time. There are certain benefits of using management reporting like
it helps in improving the decisions that are made by company for increase profitability in future
point of view. Enhance confidence in quality of administrative decision through agency member
or other parties. Instance solution is available to modify the responsiveness to problems in case
they get arises within any point. In context to have comparable aspects there are various kind of
management reporting is being taken into account. Some of them are discussed underneath:
Performance report: It has been analysed that this report is based on the entire performance
which has been done by the company within an organisation. The manager are routinely
developed by government that are being financed through public income or needed to show that
amount was spend in efficient and accurate manner. For instant, an annual report would be
developing for every staff member of Sollatek. Such kind of report would assist administration to
assess the growth of a project in relation to the available budgets (Laine, Paranko and Suomala,
2012).
Inventory management report: In context to have a well effective position in the market for an
organisation, it is crucial to have a right kind of stock report. The inventories are basically
termed as products that are held for sales in regular course of business. It has been found that
stock is basically considered as large part of total current assets of Sollatek. It summary of goods
that is associated to a business and other sectors. It would provide a wide range of stock
information or supply of different items. A positive inventory reporting must be clear, simple and
attractive before presenting in front of the investors.
Variance report: It is an essential document that is used to compare effective planned financial
results with the actual outcome. Basically these kinds of reports are taken into account to
examine the variation among budget and actual strength of an organisation. It is used to
determine favourable outcome in case the actual profit is higher, whereas the real expense is
minimum other than budget.
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Job cost report: In an accounting point of view this report tends to track the cost and earning
through a job which enable a standardized reporting of revenue examine from a job (Moser,
2012). It can be more specific for one customer or unit of product produced or batch of similar
are recorded in effective manner. This report is more reliable because the products which are
manufactured are entirely different from one another.
Account receivable report: This particular report can prepared for the purpose of analysing the
total list of outstanding invoices from the customer. It is primary techniques that can be used for
collecting personnel to determine all those bills those are still remain pending for clearance from
the debtor’s side. These are considered as that amount which has been owed by client to other
parties for products delivering or can be utilised on credit but cannot be paid by the customer yet.
M1: Analysis of various benefits of using management accounting system
In has being analysed that all the above discussed different types of systems are having their own
sorts of advantage to the company. Such as:
Cost accounting system is used for the reason of control cost which is charged while producing
any product and services by Sollatek. Inventory supervision system is used to observe the supply
position which is reserved by the corporation. Likewise, cost optimisation is another important
system that can provide an idea for manager about the customer point of view regarding the
perception toward the price range. Job costing helps in providing information about the cost of
single products which has been manufactured during the time.
D1: Critical evaluation of both accounting system and reporting
In the words of Parker, 2012, to make an effective choice concerning the enlargement and
sustainability of the company in near future, it is imperative to have reliable accounting and
exposure system. Cost accounting and job costing both are directly related to each other because
they are responsible for controlling additional costs. Similarly, price optimisation and
performance report tends to identify overall stability of the company in term of price or product
durability. Inventory reports are made to analyse the current position or level of stocks that has
been kept by the company.
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TASK 2
P3: Computation of net income by the help of different costing techniques
In relation to generate maximum profitability in near future most of the companies always look
to have right kind of costing methods. It will assist them in taking correct decision in relation to
their dependency and growth changes in comparison to other companies in the market. Cost is
basically known as the value of amount which has been given for the purpose of attaining
something in return. It generally assesses the routine of an organisation, whether Sollatek are
able to use sufficient amount of capital in producing appropriate quantity with the available
resources. Some specific kinds of assessment methods which are helpful for the executive while
examining the net profit they are success during the time of manufacture process. Such as:
Absorption costing: It is a vital method of accounting cost that entail the entire cost of
production or delivering services. It consists of not only the cost of production but also
manufacturing overhead. It generally examine that every cost which have been allotted to the
concern units. It means that cost of finished product would consist of direct material as well as
labour at the same time (Sisaye and Birnberg, 2012).
Marginal costing: In an accounting point of view, this costing method is basically considered as
that cost which is charged by the project manager with the production of one additional unit. All
the variable cost gets varied to cost units, but in case of fixed cost they are written off in full to
get contribution value. In order to get more reliable outcome or decision manager always used to
go with this particular costing method.
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M2: Analysis of wide range of management accounting techniques
In relation to get more reliable outcome in near future the company need to make use of right
kind of accounting techniques. The best part of this is that without having appropriate tools or
techniques a company could not be able to incurred maximum profit during the time. In
accordance to deal with critical kind of situation, it is important to have effective use of financial
techniques. Historical costing would be more accurately measure the value which has been used
in financial accounting under which the cost of an asset on the given balance sheet is shown on
their nominal cost. Marginal costing techniques must be other important aspects that can provide
appropriate decision to the investors before making any kind of investment planning.
D2: Interpretation of net profit which has been calculated by using costing method
According to the above computation of net income, it has been seen that company is using
absorption and marginal costing to evaluate the overall profit they are getting during the time.
With the absorption costing they are generating total net earnings for January and February is
about 8980 and 134210 respectively. Similarly, marginal costing used to provide a total profit of
7000 and 133500. The use of two methods is providing great chances of decision making with
the available resources. The differences are arises because of the fixed cost treatment that has
been done while calculating the contribution and gross profit.
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TASK 3
P4: Planning tools with merit and demerits to control budget
It has been identified that organisation would tends to control their extra cost and expenditure so
that they can increase chances of growth and sustainability for Sollatek. The basic reason for
using tools is to protect the business from any kind of risks that are going to be arising in near
future time. Planning is basically considered as initial step for any project, it would help the
accountant to manage and control their effects on the budgets that are prepared by the company.
It has been determine that manager always require to formulate a budget before making any kind
of financial decision. Budget is basically termed as an estimation of total cost and expenditure a
company is going to incurred in coming time (Tessier and Otley, 2012). This will provide a
complete shape for decision makers so that earning precautions can be made. Some of the crucial
planning tools which are taken into account to faced that risk. Such as:
Forecasting tools: In accordance to this specific planning tool, one can surely says that it would
help the managers to determine upcoming risks that are associated with the budget. It can be
done through taking into account the past and current information. The purpose of this is to
analyse or control the implication which is related with the budget.
Advantage: The basic benefits of using this tool are to examine the estimated cost that is going
to levired by Sollatek while producing any product or services.
Disadvantage: This happens to be more complex as it is very difficult to predict the future
because of uncertainty or having qualitative nature of business.
Contingency tools: It is other important planning tools which is useful for an organisation to
deal with business kind of risk those are un-predictable by anyone. The critical situation can
arises without giving any alarm within an organisation can impact drastically. These are
normally control and regulated by the local government.
Advantage: In context to this tool company can always recognised there total minimum point as
well as prepare a well organise deal that can help in facing any contingent situation. It works as
plan b for the company (Van der Stede, 2015).
Disadvantage: It is too costly for an organisation because it would require special training to the
team members to face any kind of critical situation which are arises within the business.
Zero based budget: This happens to be one of the best method of budgeting under which every
expenses would be acceptable for each new period of time. This particular process always start
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from a Zero-base and function within an organisation is being analyzed for their associated cost
and requirement.
Advantage: This budget is having efficient allocation of resources as because it is based on
requirement and benefits which are demanded by the company. It would help in detecting
inflated budgets.
Disadvantage: There are certain possibilities that are related with the resources that have being
manipulated by some person. The chances of getting short-term bias in planning are more.
M3: Critical analysis of the planning tools that has been used in management accounting
From the above discussed various types of planning tools which are used in budgetary control
are having effective impact on the performance of the company. With the proper use of them
company can easily able to resolve their mistakes or overcome risk. Forecasting tools helps in
estimating future risks those are related with budgets. Similarly, contingency tools would assist
in resolving all kind of critical situations that are always uncertain for the company.
TASK 4
P5: Comparison of organisation about the use of management accounting to resolve financial
issues
In the present situation, it has been found that there are various kind of financial or non-financial
problems are faced by the company in their regular course of operation. All of these can impact
drastically on the performance and stability position of the company at the same point of time.
These are additional pressure which occurs on certain situation in which amount worries are
causing maximum stress on the performance or sustainability at the same time. It has been found
that some of the problems are happens to impossible to overcome, but people can get assistance
and take step to improve such kind of situation in proper manner (Ward, 2012). Cutting out an
expense or changing nature is easier in case manager used to replace it with something other
aspects. There are certain financial problems which are required to be deal with in proper
manner. Some of them are mentioned underneath:
Cash flow problem: It is said to be one of the most crucial problem that can affect the internal
strength of the company. Such kind of problems are arises because of struggles to pay their debt
as they become due for more than a year. Generally, low profit or losses are considered as major
reason for cash related issues.
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