Management Accounting Techniques and Systems: MVMT Watches Analysis

This report provides a comprehensive analysis of management accounting systems and techniques applied within MVMT Watches. It begins by defining management accounting and its importance in decision-making, then explores various management accounting systems such as cost accounting, inventory management, job costing, and price optimization, detailing their essential requirements and benefits. The report also examines different methods used for management accounting reporting, including inventory management reports, departmental reports, operating budget reports, and product profitability reports, highlighting their significance in providing insights for managers. Furthermore, it delves into the calculation of costs using techniques like marginal costing and absorption costing, illustrating their application with numerical examples and reconciliation statements. The analysis includes the calculation of break-even points and margin of safety, offering a detailed perspective on cost-volume-profit relationships. The report emphasizes the advantages and integration of these systems within organizational processes, ultimately providing a critical evaluation of their role in enhancing decision-making and financial performance at MVMT Watches. Desklib offers a platform to access similar solved assignments and study resources for students.

Management
Accounting

INTRODUCTION
Management Accounting refers to the use of different types of techniques to analyse and
interpret the financial data and information available in order to take the correct decisions
(Armitage, Webb and Glynn, 2016). If the managers use its provisions in the correct manner then
it can result in taking of such decisions which can likely create a strong impact on the working
pattern and the functioning of the company. For using it the managers are required to have sound
knowledge of the different types of financial concepts and must be able to perform a deep
analysis on the financial data of the company in an accurate manner to get the desired outcomes.
For this report MVMT Watches has been chosen. This company has headquarters in Los Angels,
United States. In this assignment, detailed focus will be made on demonstration of understanding
of management accounting systems, application of a range of its techniques. Additionally,
explanation of the use of planning tools and comparison of ways in which companies are using it
to respond to financial problems will be discussed as a part of this project.
TASK 1
P1: Management Accounting Systems
Management Accounting refers to making the use of different types of financial
provisions in an effective manner so that the managers are able to take the right decisions
effectively and efficiently without problems and issues. Therefore the managers of Innocent
Drinks should be able to make the correct use of it for taking of short-term and long-term
decisions. If they make the right use of its methods and techniques then they will be able to attain
the goals and objectives in the future time period.
There are different types of management accounting systems (Bui and De Villiers, 2017).
These are explained as follows-
Cost Accounting System- This system is basically meant to identify the various costs
which can be incurred within an organization. Using it, the companies like MVMT Watches can
make sure that they are able to identify and reduce the costs effectively and efficiently.
Essential requirements-
 In a Cost Accounting System there must be a methodology which can be used for
identifying and segregating the costs and overheads of different types of departments in
the company.
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 A Cost Accounting System must be able to make sure that the correct techniques can be
used by the companies so that they are able to reduce the costs and overheads to
maximize their level of profits.
Inventory Management System- In this system a company aims to properly manage the
level of stock. The firms like MVMT Watches can use this system so that they are able to
achieve the desired level of efficiency and effectiveness in the management of stock level in the
organization. If the company makes use of methods like LIFO, FIFO, Weighted Average Cost in
a correct manner then this will make sure that the company is able to properly track its level of
inventory.
Essential requirements-
 In a good Inventory Management System it is required that the right measures are used to
value the level of stock.
 In an Inventory Management System there should be proper maintenance of records of
inflows and outflows of the stock.
Job Costing System- In it, there is a particular system which is used in order to track the
different types of job orders (Cooper, Ezzamel and Qu, 2017). Using it, the managers of MVMT
Watches can track and manage their job orders. This will help not only in reducing the costs
incurred in these orders but also in maximizing the level of profits.
Essential requirements-
 A good Job Costing System is the one which is able to track the inwards and outwards
movement of job orders. In this way it makes sure that the company becomes efficient in
dealing with these orders.
 In a Job Costing System there must be a particular focus which must be put on
application of the techniques in order to reduce the overall level of costs.
Price Optimization System- In this system, there are various techniques which can be
used in order to forecast the overall demand of the products as well as services (Gibassier and
Alcouffe, 2018). The management of MVMT Watches can use it so that they are able to set a
right price which will enable the company to earn higher level of profits.
Essential requirements-
 In a Price Optimization System there are techniques which must be used in order to set
the right price in the organization.
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 A good Price Optimization System should be able to make sure that the company earns
higher level of profits in the future time period to get a strategic edge over the
competitors.
P2: Methods used for Management Accounting Reporting
Management Accounting Reports are useful for the managers to get insights in their
business operations. Some of these reports are as follows-
 Inventory Management Report- In this report, a focus is made on the detailed aspects
of the level of inventory (Hall, 2016). The managers of MVMT Watches can use these
reports so that they are able to bring the required level of efficiency as well as
effectiveness in their inventory management. With it, they can make specific analysis and
give their detailed viewpoints on the improvements which can be done to rectify the
different types of deviations and variances which can occur so that desired outcomes can
be achieved. For using them correctly proper cooperation and coordination is required
within the company.
 Departmental Report- There can be different types of departments in an organization
(Honggowati and et.al., 2017). These are Production, Finance, HR, Marketing and Sales.
There are reports which are prepared on them so that specific analysis on each one of
them can be made by the departmental managers. This helps in promoting the
specialization within the organizational processes and its way of functioning. In the
context of MVMT Watches it can be crucial for the managers to identify the problems
and issues facing the departments so that the rectifying measures are taken to sort them
out. If this report has to be used to provide the required results then the managers should
be able to rightly make use of the available data.
 Operating Budget Report- In this report, focus is made particularly on operating budget
of the organization (Hopper and Bui, 2016). Thus once it has been made then this report
is prepared so that the correct viewpoints of the managers can be recorded for taking
crucial decisions in the future time period. For the managers of MVMT Watches, use of
these reports becomes quite crucial so that they are able to make the necessary
judgements. Using it, the managers can make detailed plans of the procedures to be
undertaken to improve the operating profit of the organization so that an overall level of
efficiency and effectiveness may be raised.
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 Product Profitability Report- In this report, the profitability of a particular product in a
market can be determined (Kastberg and Siverbo, 2016). In the context of the managers
of MVMT Watches, preparation of these reports is quite crucial because using it they will
be able to determine the products which will provide them with maximum profits. Thus
specific attention can be given to them and the right plan can be made for the purpose of
their marketing and promotion. The products of the company must be segregated and
detailed analysis should be made on the profits which have been earned due to them in
the last 5 years. Thereafter, the products with maximum profitability must be selected and
plans must be made so that some improvements can be made in them so that they can
satisfy the customers and continue to be profitable for the organization.
M1: Benefits of Management Accounting Systems
Cost Accounting System can help the organizations like MVMT Watches so that they are
able to identify and segregate their various costs and can make use of rectifying techniques to
reduce them. Inventory Management Systems offers the benefits of better tracking and better
usage of the stock. Job Costing System helps the companies so that they are able to identify the
job orders and also allows it to track these job orders. Price Optimization System can be used to
forecast the prices and optimize them to suit the needs and requirements of the companies.
D1: Critical evaluation of Management Accounting Systems and their Integration within
Organizational Processes
Cost Accounting System can be integrated within the organizational processes of MVMT
Watches by identifying and segregating the costs. Inventory Management System can be
integrated by identification and management of the stock levels. Job Costing System can be
integrated by actively tracking the inwards and outwards movement of the job orders. Price
Optimization System can be integrated by forecasting the demand data of the products and
services and setting the price accordingly. Thus in this way all of them can be successfully
integrated within the organizational processes. This will ensure that the correct decisions can be
taken within the context of the organization without problems and issues.
TASK 2
P3: Calculation of costs using appropriate techniques
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Marginal costing
April (£) May (£)
Sales 56000 70000
Less: Marginal cost of sales
Variable manufacturing cost 30000 30000
Closing stock 10000 15000
Opening stock 10000
Total marginal cost of sales 20000 25000
Contribution 36000 45000
Less: Fixed cost
Fixed manufacturing cost 18000 18000
Fixed non manufacturing cost 5000 5000
Net profit 13000 22000
Absorption costing
April (£) May (£)
Sales 56000 70000
Less: Cost of sales
Variable manufacturing cost 30000 30000
Fixed manufacturing cost 18000 18000
Closing stock 16000 24000
Opening stock 16000
Total cost of sales 32000 40000
Gross profit 24000 30000
Less: Fixed non manufacturing cost 5000 5000
Net profit 19000 25000
Reconcilation statement
April (£) May (£)
Profit/loss under marginal cost 13000 22000
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Add/Less: Closing stock 6000 3000
Profit/loss 19000 25000
Profit/loss under absorption cost 19000 25000
Working note:
Calculation of closting stock under marginal costing
April (£) May (£)
Total variable manufacturing cost 30000 30000
Total produced units 6000 6000
Per unit cost 5 5
Closing stock 10000 15000
April (£) May (£)
Calculation of opening stock under marginal costing
Opening stock units 0 2000
Per unit cost 5 5
Opening stock 0 10000
April (£) May (£)
Calculation of closting stock under absorption costing
Variable manufacturing cost 5 5
Fixed manufacturing cost (per unit) 3 3
Total absorption cost per unit 8 8
Closing stock 16000 24000
April (£) May (£)
Calculation of opening stock under absorption costing
Opening stock units 0 2000
Per unit cost 8 8
Closing stock 0 16000
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Calculation of Break even point
Solution:
Variable cost 49
Fixed cost 140000
Selling price 60
Contribution: Selling price-variable cost per unit
Contribution 11
Break even point (In units): Fixed cost/contribution
BEP (In units) 12727.27
Break even point (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/sales*100
PV ratio 18.33
BEP (In revenues) 763636.36
Margin of safety (In units): Budgeted saels (In units)-
BEP (In units)
Budgeted sales 20000
BEP 12727.27
Margin of safety (In units) 7272.73
Margin of safety (In revenues): Budgeted sales (In
revenues)-BEP (In revenues)
Budgeted sales (In revenues) 1200000
BEP (In revenues) 763636.36
Margin of safety (In revenues) 436363.64
Marginal costing-
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It is a technique which is used to find out the profitability level (Kostyukova and et.al.,
2018). In it the variable cost is charged to the units while the fixed cost is written off against the
contribution. Using it, the managers of Innocent Drinks can take the required decisions easily.
Thus it is a very valuable technique for the management. It helps a lot in the determination of
Break-Even Point which is where the companies neither earn profit nor incur losses.
Advantages-
 The technique of Marginal Costing is very simple to use as well as understand. This
creates an advantage for the managers of Innocent Drinks as it can be applied effectively
in the processes of the organization without issues and problems.
 The Marginal Costing Technique helps a lot to the organizations so that they are able to
maintain cost control. For Innocent Drinks, this creates an advantage.
Disadvantages-
 It makes use of certain types of assumptions. If these assumptions are wrong then this can
create problems as it will lead to inaccuracy. For Innocent Drinks this creates a
disadvantage.
 All costs cannot be divided into fixed and variable costs. Therefore some of the costs are
semi-variable in nature. If all the costs are segregated into fixed and variable then this can
give inaccurate results leading to disadvantage for Innocent Drinks.
Absorption Costing-
It is a method in which the costs are calculated by identifying the details of full cost of
manufacturing the product (Kumarasiri and Jubb, 2016). Using it the managers of Innocent
Drinks can make sure that they are able to make use of its correct techniques to find out the
profits. Thus in this way the managers will be able to make sure that they can find out the profits
and can perform the required analysis and interpretation using different methods.
Advantages-
 Absorption Costing technique helps a lot in identifying the full cost which is associated
with the production. The management of Innocent Drinks can use it so that they are able
to get details on their overall costs.
 This technique is helpful for the management as it Cadburyshows less fluctuation in
profits in the case of constant production but fluctuating sales. In the context of Innocent
Drinks, this can help the managers a lot.
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Disadvantages-
 Absorption Costing technique does not helps the managers to take decisions. For the
managers of Innocent Drinks this can create a disadvantage.
 It ignores the CVP analysis which helps in the calculation of Break-Even Point which is
the point at which a company does not earns profits but neither incurs a loss. In the
context of Innocent Drinks this is a disadvantage.
Justification- Both Marginal Costing and Absorption Costing Technique can be used by
the organizations so that they are able to find out the profitability. Companies like Innocent
Drinks can make sure that they can use both these techniques to achieve the desired results.
M2: Accurate application of the techniques
The techniques of marginal and absorption costing can be used by the organizations like
Innocent Drinks to get an overview of their financial position. By applying them in the correct
manner the management is able to make sure that it will raise the standards for the achievement
of aims and targets in the future time period. If the company has to get a strategic edge over its
competitors then it will certainly target the areas where it requires improvement and will use
rectifying techniques for improving. This will increase the chances of attaining the level of
sustainable success which is desired.
D2: Producing of financial reports for accurate application and interpretation of data
The financial reports are useful for the management because they help them a lot. These
are Cash Flow Statement, Income Statement and Balance Sheet. If the managers of the company
use them in the right manner they will be able to draw the right conclusions and
recommendations. This will help in taking the right decisions for growth in the future time
period. Thus the managers of Innocent Drinks should make sure that they are able to achieve the
goals and objectives through analysing and interpreting them.
TASK 3
P3: Advantages and Disadvantages of Planning Tools for Budgetary Control
Cash Budget-
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