Management Accounting Report: Systems, Costing, and Budgeting

This management accounting report provides a comprehensive overview of the subject, focusing on its functions, importance, and various systems such as inventory management, cost accounting, job costing, and price optimization. The report delves into the differences between management and financial accounting, highlighting the significance of management accounting in strategic decision-making. It explores two key costing methods: marginal and absorption costing, including their application in financial reporting. Additionally, the report examines different types of budgets, their advantages, disadvantages, and the use of planning tools. The balance scorecard approach is discussed as a method to achieve sustainable success. The analysis is contextualized within the framework of Imda Tech, addressing its specific financial challenges and opportunities. The report emphasizes the role of data analysis and interpretation in evaluating accounting systems and formulating effective business strategies.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting, its functions and importance....................................................1
P2 Types of management accounting systems.......................................................................2
M1 Merits of using management accounting systems...........................................................4
D1 Evaluate the systems of accounting..................................................................................4
TASK 2............................................................................................................................................5
P3 Calculation of cost by using marginal and absorption costing..........................................5
M2 Application of techniques to produce appropriate financial reports................................8
D2 Application and interpretation of data..............................................................................8
TASK 3............................................................................................................................................8
P4 Different types of budgets with their advantages and disadvantages................................8
M3 Different planning tools.................................................................................................10
D3 Planning tools to solve problems....................................................................................11
TASK 4..........................................................................................................................................11
P5 Balance scorecard approach............................................................................................11
M4 Sustainable success by using management accounting.................................................12
CONCLUSION..............................................................................................................................12
REFERENCE.................................................................................................................................13

INTRODUCTION
In the global economy it is very important that all the financial aspects of the business
should be dealt with care (Kaplan and Atkinson, 2015). For this purpose the most important
technique that can be used is the management accounting. In this method there are various
processes that will be required to be taken into consideration and for that it will be needed that all
the relevant data should be collected, analysed and interpreted. In this various concept in this
relation will be discussed in context of Imda tech. It will include the meaning of management
accounting together with the various systems used in the business. In relation to cost there are
two methods which are absorption and marginal and they are also mentioned below. Lastly
balance scorecard approach will be used (Ward, 2012). This will be due to the various financial
problems that are present in the business which will be solved with the help of this approach. In a
business there are various types of budgets which are prepared and will be used and have some
advantages as well as disadvantages which will also be provided here under.
TASK 1
P1 Management accounting, its functions and importance.
In an organisation there are various methods and services that are used by the
management so that some addition can be made to the value of organisation. All of these in
combine will be be covered under management accounting (Bodie, 2013). With the help of
accounting all the relevant data will be recorder in the most appropriate manner and in this all the
policies and procedures that are present will be required to be complied with.
In the case of the changes it will be required that all the accounting is done by taking into
consideration the modification that are happening so that all the correct information and is
available and decisions can be made on the basis of that in the most appropriate manner.
Together with the management accounting there is other form of accounting also which includes
financial accounting and there are some differences that exist among them which are described in
the comparison table provided below:
Basis Management accounting Financial accounting
Information In this the information in relation
to both financial as well as non
In this only the financial data is
taken into account.
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financial transactions is included.
Purpose The main reason for this
accounting is to provide
information to the managers which
will help them in making decisions.
In this the main purpose is to prepare
the financial statements that will be
used by all.
Format There is no format that is specified
in this that will be used for the
accounting purpose.
In this format is specified that will be
used to make the financial
statements.
Time period They are made as per the wish and
requirement and no specified time
is mentioned.
Financial statements are prepared in
relation to a particular financial year.
Statutory
requirement
There is no such requirement
which is required to be followed.
It is required under law and is
compulsory to be carried out.
Significance of management accounting
Management accounting is such tool by which data is maintained in proper manner so
that all the decisions that are required to be taken will be made with the help of them in the most
perfect way (Burritt, Schaltegger and Zvezdov, 2011). Due to this the operations will be carried
out without any hindrance and the work will be performed in effective and efficient manner.
There are various benefits that are achieved due to this which are as follows:
 By using this the major decisions will be made in relation to various strategies that will
be used in the business.
 As by this it will be possible to determine which cost will be relevant and which will not
so this will help in reducing the expenses by eliminating such costs and also the resources
that are available will be utilised in the most judicious and effective manner.
 The business will be controlled in better manner as planning will be done by which
functioning will improve and this will lead to overall increase in the profitability of the
company.
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P2 Types of management accounting systems.
In the accounting there are various systems that will be used by the company by which all
the relevant information will be collected and then that will be used so that appropriate decisions
can be made (Parker, 2012). The objectives and targets that are set will be achieved with the help
of the plans that will be made by using and analysing the data that is collected. In this method the
information will inly be used by the management and it will not be provided to any outside party.
With the use of it the performance of the company will be evaluated and it will be found that
whether it will be satisfactory or not. Some of the important systems that are used are discussed
here under.
 Inventory management system: It is very important in any business that inventory
should be managed in the most appropriate manner so that the cost can be reduced and
the resources will be used effectively (Renz, 2016). In this there are various methods that
are used such as ABC method. Also by this the stock will be maintained at required level
and by this the problem of the shortage that arise will be solved. It will be identified that
how much of the quantity will be needed in the specified time and only that much of the
inventory will be ordered by which the storage cost will be reduced as the wastage will be
eliminated.
 Cost accounting systems: In any business there are many products that are manufactured
and various costs will be incurred in relation to them. By this system the company will be
able to determine the total cost that is incurred on the product (Weißenberger and
Angelkort, 2011). This is done in order to identify that whether the product will prove to
be profitable to the company or not. If there is any cost that is found to be irrelevant then
that will be eliminated so that the cost can be reduced and profits can be increased. There
are various cost that will be involved in this such as the actual cost that is incurred and
the comes the normal cost in which the material and the labour cost will be included and
cost in relation to overhead will be taken on the basis of estimation. Then comes the
standard costing in which expected cost is taken and then comparison is made in between
standard and actual so that variances can be identified and on the basis of that corrective
actions may be taken by Imda tech.
 Job costing system: in the production of any product there are various jobs that are
carried out and also the cost will be incurred in the completion of them. It is not possible
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to allocate the cost of each job to the product on the individual basis so for this the total
cost that is incurred in the specified production will all be accumulated (Qian, Burritt and
Monroe, 2011). Then it will divided among the different jobs that are undertaken. By this
the outcome that is desired by the company will be achieved in the most appropriate and
profitable manner. For this a job will be required to be completed in the specified period
of time and if not then it will be determined that what are the causes due to which it is
happening and neasuers will be taken in this respect.
 Price optimisation system: In the business the demand of the product will vary with the
change in the price (Nixon and Burns, 2012). This is because the relation between the
price and demand is inverse which means that if there will be increase in the price of the
product then the demand will automatically reduce and vice versa. Due to this reason it is
very important for the company to set the price at that level which will be affordable to
the customers and they will be ready to pay that amount. By this the profit level of the
company will be increased and this system is known as the price optimisation system as
in this most optimum price is chosen by which the company and the consumers both are
benefited.
M1 Merits of using management accounting systems.
With the use of these systems that are explained above there will be various advantages
that will be gained by Imda tech (Fullerton, Kennedy and Widener, 2014). It will be able for it to
make the best decisions and also the price that is incurred by it will be reduced by which the
profits will be increased which will help it to expand its business. All the data will be made
available with the use of them and the information that will be collected will be reliable and can
be used by the managers without any doubt. On the basis of all the data company will be able to
set the goals that will be required to be achieved by it in the future.
D1 Evaluate the systems of accounting.
In order to achieve the development it is highly required that company should formulate
the best plans that will help it in achieving the targets and objectives set by it (Christ and Burritt,
2013). Also the decisions that will be made will prove to be beneficial for it as they will be made
by using the most reliable data. Various reports will be prepared by which the performance of the
company can be evaluated and also the manner in which the advantage over the other
competitors can be gained will also be known.
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TASK 2
P3 Calculation of cost by using marginal and absorption costing.
In an organisation it is important that the cost is calculated and ten that will be used to
prepare the income statement . For this there are two methods of costing which can be used and
they are marginal costing and absorption costing. Both of them are explained below in detail.
Marginal costing: In the production process there are basically two types of cost that are
incurred which are fixed and variable (Dillard and Roslender, 2011). Variable is that which
changes with the change in the units of production and fixed is one in which there is no impact of
the production change. In this method the fixed cost will not be taken into consideration and will
not be allocated. In this only variable cost will be taken to calculate the contribution which will
determine the per unit gain that is made.
Absorption costing: In this all the cost that are incurred will be taken into consideration and the
fixed cost that is there will also be allocated among various units that are manufactured (Shah,
Malik and Malik, 2011). This method of costing is also called as the full costing as in this all the
expenses are included in the process of calculation of total cost in relation to certain product. In
this the profit that will be calculated will be after the allocation of fixed cost and if there is any
over or under absorption that is found then it will also be taken into account.
With the help of using these methods it will be possible for the company to know that
whether it is achieving the objectives or not and also the financial viability will be identified. As
the variable cost change continuously so the total cost of the product will also be changing due to
which the profitability of the company will be affected (Ahadiat, 2013). So it is very important
that it should be checked on the regular basis by which the useless cost will be eliminated. The
income statement will be prepared with the use of the cost that is calculated and the same are
provided below:
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 expenses 2
Total Variable production cost 15
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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
Less: Variable costs
Stock at the opening
Cost of production
Stock at the closing
Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(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 Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
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Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In 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 labour ￡5
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 expenses
Fixed selling expenses
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
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Net loss -375
M2 Application of techniques to produce appropriate financial reports.
Financial reports are to be made in every business and for that various costing methods
will be used so that cost that are made will be identified. It has been found that marginal and
absorption costing will be used for that purpose and then income statement has been prepared by
which Imda tech is able to know the amount of profit that has been made by it. With the help of
the information that is collected with the use of these techniques company will be able to make
the efficient utilisation of its resources. The financial aspect of the company will be affected by
various factors and they will be identified with its use.
D2 Application and interpretation of data.
After the cost and the profits have been calculated in the above mentioned report it will
be required that proper evaluation should be done so that outcomes can be checked (van der
Steen, 2011). It has been found that the loss that is made by the company is arrived at different
value in both marginal and absorption costing. In case of marginal the loss is 2875 and in
absorption costing it is identified at 375. The difference that has been identified is due to the
allocation of the fixed overheads. It can be seen that loss is more in case of marginal and this is
because in that the over and under absorption is not considered and whole cost is charged due to
which profit decreases and the loss is increased.
TASK 3
P4 Different types of budgets with their advantages and disadvantages.
Budget is the technique that is used by the company for various purposes. In this the cost
and other incomes and all will be estimated on the basis of the previous informations and also in
this the future prospectives will also be taken into consideration (Strumickas and Valanciene,
2015). They are prepared for the specified period of time on the basis of which the work for that
period will be managed and it will be noticed that all the expenses should be made according to
the limit that has been specified in the report. By this comparison will be made possible between
the actual and budgeted figures and the variance will be identified. The variance that will be
identified will be due to the various reasons which will be required to identified. By this the
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measures will be taken in order to remove them so that the efficiency of the work will be
increased. There are various types of budget which are made and some of them are explained
here under together with the advantages and disadvantages.
Operating budget: In any business there are many operations which are carried out and in
relation to them various expenses and incomes will be made. In this budget all those will be
required to be reported for a certain period of time. In this all the cost such as material cost,
labour cost and others will be included.
 Advantages: There are various advantages that are associated with it. The main benefit is
that all the current expenses will be managed in the most proper manner. Also the future
expenses and incomes will be predicted with the help of it (Kotas, 2014). The expenses
will be known so it will be possible for the company to maintain the cash on that basis.
 Disadvantages: The main demerit of this budget is that expenses keep on changing in
day to day life so it will be difficult for the company to update this budget regularly and
by this there will be chances that the company may be following some wrong estimates.
Master budget: This budget is prepared when in a business all the activities that are performed
will be required to evaluated by management on combine basis. As in this budget all the
information in relation to various budgets will be included (Tucker and D. Lowe, 2014). This
will prove as a summary budget. The managers will be able to have the complete knowledge
regarding all the operations that are performed.
 Advantages: The main advantage of it is that by this the requirement to use various
budgets for different aspects will be removed as all the information needed will be
obtained from the single place. It will also be useful in the preparation of plan which can
be helpful for the future growth.
 Disadvantages: As this budget contains various functions so there will nothing that will
be specific in that. Also it will be very difficult to keep the check on all the functions at
same time due to which it will not be updated on regular basis.
Cash flow budget: This is the budget in which all the transactions that have been carried out in
relation to cash will be recorded (Quinn, 2014). All the activities whether they are related to
production, administration or for the investment purpose and if cash is involved in their
operation the they will be included in this.
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 Advantages: The advantage of using this budget is that by this the cash will be managed
in the proper manner as the company will have all the information in relation to it. They
will know how much cash will be required and it will be arranged in advance so there
will be no problem of shortage of cash that will have to be faced by the company.
 Disadvantages: Cash is the aspect which fluctuates greatly and is needed in all
operations so it will not be easy for the company to identify it in exact manner and there
will be some amount of risk which will be included and will have to be faced.
Process of preparation of budget:
For the preparation of budget it will be required that various tools and techniques will be
used. It will be needed that the cost that is involved will have to be aggregated and then by this
cost will be calculated in respect of each item (Arroyo, 2012). The project that are undertaken
and the plan that are made will be analysed by the management and then the findings from it will
be used in the preparation of budget. In this the risk factor will also be taken which means that
the estimates that will be made will include some portion for the risk so that if it arises in future
then the company will have the scope for the consideration of it. Sometimes it is needed that the
advice will have to be taken from the experts and this is done in some extreme situation. Also the
past years information will be used for the creation of the budget.
In the whole process firstly the estimates will be obtained that will be used to make it. In
relation to future estimation about cost and incomes that will have to be made by the managers.
All the various plans that will be submitted by different departments will be evaluated and then
the available resources will be allocated among all in best manner. Then the budget will be made
and will be communicated to the responsible persons so that it can be implemented in proper
manner. Then finally it will be required that progress of the budget will be evaluated and it will
be identified that whether objectives are achieved or not.
Pricing strategy:
Pricing strategies are the policies that are used to ascertain the price of the product. In this
there are various strategies that can be used which will include penetration method in which the
price is set at that level at which the market share can be increased (Hiebl, 2014). Economy
pricing is the method in which the price is kept at the lower level. It is important the the price
should be set at optimum level then only the company will be able to increase its profitability.
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