Management Accounting Report: Tech (UK) Limited Analysis

This report delves into the realm of management accounting, focusing on its application within Tech (UK) Limited, a company specializing in mobile chargers and gadgets. The report begins by differentiating between management and financial accounting, highlighting their distinct objectives and methodologies. It then explores the significance of management accounting in decision-making, emphasizing the role of cost accounting and inventory management systems. Furthermore, the report presents various management accounting reports, including budget reports and job cost reports, while also discussing the importance of proper financial information presentation. The core of the report involves the preparation of income statements using both absorption and marginal costing methods, followed by an examination of different budgeting types, their advantages, and disadvantages. The budget preparation process and the importance of budgeting for planning and control are also detailed. Finally, the report briefly touches upon the Balanced Scorecard approach.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a) Explanation of management accounting system.....................................................................3
b) Presentation of financial information.....................................................................................5
TASK 2............................................................................................................................................6
Disclosure of income statement through different methods.......................................................6
.....................................................................................................................................................7
TASK 3............................................................................................................................................7
Different kinds of budget............................................................................................................7
Budget preparation process.........................................................................................................9
Importance of budget for planning and controlling..................................................................10
TASK 4..........................................................................................................................................11
Balanced Scorecard Approach..................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting (MA) is process of analysing accounting information of
business and interpret it in accurate manner so that correct business decision can be made
(Goddard and Simm, 2017). The main agenda of applying principles of management accounting
is to measure overall performance of entity and assessing risk so that management can make
effective strategies in order to resolve issues. Present study is based on Tech (UK) Limited that
produces mobile chargers and other carry-on gadgets. Current assignment will compare
management accounting and financial accounting system. Furthermore, it will discuss various
types of reports that are prepared by the organization. It will calculate absorption and marginal
costing methods in order to prepare income statement for the month of September as well. In
addition, study will explain various kinds of budgets and importance of budgetary system for
planning and controlling process.
TASK 1
a) Explanation of management accounting system
Difference between MA and financial accounting (FA)
Management accounting is process of measuring performance of company. It assists
manager in making sound decision so that entity can earn more profit. It helps in providing in-
depth detail about policies, plans and strategies of firm so that all records can be managed in an
appropriate manner (Jermias, 2017). On the other hand, financial accounting is another
conceptual framework that pays more attention on preparing financial statements. Furthermore,
another major difference in between MA and FA is that it is essential for companies to follow
principles of financial accounting whereas if entity is following standards of financial accounting
then there is no need to follow management accounting rule separately. Main objective of
management accounting is to assist managers in such a manner that individuals can plan
activities for the growth of business unit. Whereas, financial management aims to get all
financial details that are required to run business in a smooth manner (Chiwamit, Modell and
Scapens, 2017).
Time frame of preparing the reports is another major criteria that creates difference
between both these aspects. Financial statements are being prepared by Tech
(UK) limited at the end of year whereas, management reports are required to be prepared as per
the need of organization. These reports are being used for internal management of firm but
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financial reports are useful for internal and external management of business unit (Christ and
Burritt, 2017).
Importance of MA in decision making
Business decisions are the significant part of firm. Overall success of organisation highly
depends upon the decisions taken by managers. For making sound judgements, Tech (UK)
limited look at the financial information of firm. Manager of Tech limited always look at the
budget and accordingly, allocate resources to each department. This allocation decision help
company in raising its profit and controlling the cost as well (Wei and Xima, 2017). These
financial information support the manager in utilizing resources well and minimizing wastage so
that company can make sound decision for the progress of firm.
Cost accounting system
Cost accounting system is considered as the technique that supports in monitoring cost of
business. This helps the manager in identifying various expenditures and managing cost
appropriately. By this, entity becomes able to generate more profit and gain competitive
advantage. It tracks working of raw material and production phases. By this way, managers
identify the materials required to produce particular goods. By this way, estimation of cost can
be done properly ad entity can generate profit (Goddard and Simm, 2017).
Inventory management system
It is another important tool that is used by Tech (UK) limited that helps in keeping
records of inventories, sales and deliveries. This is used by firm in order to create work order and
billing system. This is a beneficial tool that assists in minimizing over stock issue and managing
inventory in the appropriate manner so that overall cost of company can be minimized. Tech
(UK) limited has retail stores where is it essential for company to make balance between demand
and supply (Jermias, 2017). It cannot hold excess products because it can enhance expenditures
due to overstock. Inventory management system is beneficial in keeping the records of inflow
and outflow of inventories. Main agenda of using this software is to reduce the cost and avoid
missing out sales because of over stock situations.
Job costing system
Job costing system is the process that aids in determining cost systematically. It looks at
the overhead, direct and indirect costs in order to perform a particular task. It is very important
for Tech (UK) limited to apply this method at the workplace in order to estimate actual value.
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Cost of production is measured by jobs involved in the manufacturing. It identifies that whether
production cost is exceeded to the decided cost or not. For measuring this cost, companies
prepare production order, cost sheet and other necessary documents (Christ and Burritt, 2017).
This is a beneficial tool that helps the organization in examining profitable and non-profitable
jobs in business and taking actions accordingly so that cost can be minimized and overall profit
of company can be increased.
b) Presentation of financial information
Management accounting reports
There are various kinds of reports that help in analysing performance of the firm and
taking action to improve performance (Goddard and Simm, 2017). Several kinds of management
accounting reports are given as below: Budget report: It is considered as the most important report that supports managers in
identifying cost of various activities and taking actions to minimize wastage. Managers
evaluate expenditures of previous years and estimate budget for the current period. It
helps in reducing the cost and improving profit of company (Christ and Burritt, 2017).
 Job cost report: It is another essential report that is required to be prepared by Tech (UK)
limited. It calculates all job costs that are incurred in the business. This report helps the
managers in evaluating profitability and optimising efficiency of operations.
Importance of presenting information appropriately
It is important that the information is presented in a well-defined manner so that adequate
amount of information can be generated by the stakeholders through the same. It helps in
providing better understanding regarding the subject matter in such a manner that maximum
output can be generated out of it. Authentic use of rules, policies and regulations being issued by
the government are required to be followed by each and every company in such a manner that
adequate amount of financial information can be presented to the readers. It helps the
stakeholders to understand financial condition of the organization on the basis of profitability,
revenue aspects, liquidity and efficiency as well. Hence, it can be stated that it is important that
Tech (UK) Ltd. is able to initiate adequate disclosure of financial statements which are
adequately influenced from all the accounting standards and rules and regulations being issued in
the form of IASB, GAAP and IFRS.
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TASK 2
Disclosure of income statement through different methods
Income statement can generally be presented though various methods in a manner that it
can be helpful in determining adequate amount of profits being generated out of the organization.
Hence, calculation of income statement for Tech (UK) Ltd has been initiated in both marginal
and absorption costing method in the following manner:
Income statement from Absorption costing
Income statement for marginal costing
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It can be interpreted form the above calculation where, income statement has been prepared
based on marginal costing and absorption costing that, Absorption costing is rather more
beneficial in comparison to that of marginal one as it helps in measuring variable cost before
profits. On the other hand, marginal cost has taken into consideration, the variable and fixed cost,
after assessing gross profits (Jermias, 2017). The amount of profit varies in both the situation,
where, net profit through absorption costing is 15625. However, it is only 13625 in case of
income statement being prepared through policies and procedures of marginal costing.
TASK 3
Different kinds of budget
There are various types of budgets. Some of them have been listed below with their
advantages and disadvantages in the following manner:
Master Budget
It is generally prepared when all the other budgets have already been prepared. In other
words, it is the total amount of allocation of resources. The budget is inclusive of sales and
operating expenditure.
Advantages:
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Master budget helps in giving overall overview of the requirements various departments,
which is ultimately compiled in a single budget. It helps in giving an overview that how much,
an organization is actually earning and profits being generated by it in a specific course of
duration. It can play an important role in planning for tech (UK) Ltd. so that maximum output
can be generated out of it (Narasimhan, 2017).
Disadvantages:
Master budget lacks in providing or giving a glimpse of specific requirements of each and
every department. Hence, it can be stated that it is less specific and generates difficulty for the
readers to read and understand the budget.
Operational budget
The budget helps in including budget that are related top operational activities. The cost
of budget can be inclusive of production, labour, etc.
Advantages
The budget is quite flexible in nature and spending can be analysed of different
departments based on it. It also helps in planning for future so that the available resources with
the organization can be optimally utilised. Hence, it can be stated that the budget is quite
essential for long term planning perspectives (Srinivasa, Kaura and Gilman, 2017).
Disadvantages
The main disadvantages related to operational budget is economic factors can lead to
bring various changes in overall budget aspects of the business which can ultimately lead to
bring adequate changes in the figures. The organization invest a lot and has to cope but with the
adequate time and investment in its preparation. There are higher chances that it may not prove
to be quite effective for the organization.
Zero based budget
This budget is generally prepared from scratch and no historical figures are generally
taken into consideration so as to prepare this budget.
Advantages:
The main advantage of this type of budget is that it is quite reliable and present condition
of the organization and economic condition of the country is taken in to consideration while
preparing the same. It helps in preparing appropriate allocation of funds for each department as
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well. Hence, a less amount of deviation is found in the figures which makes it quite authentic as
well as reliable as well.
Disadvantages
Since, no historical data is taken into consideration while initiating this type of budget
preparation, the preparation of zero based budgeting can be quite time consuming (Wachira,
2017). High man power with increased amount of cost and time is generally required so as to
initiate the preparation of this type of budget. It can add up to the overall cost of the business.
Budget preparation process
Preparation or planning of budget process starts when all receipts of income as well asd
expenses are submitted by the department heads to finance department. The budget
preparation procedure is considered to be as lengthy as well as time consuming activity. This
procedure consist of several phases such as:
Setting of target or aims-At the initial stage, the finance manager in a Tech UK company sets
the specific objectives on the basis of which budget is designed. In this stage, it is very much
essential for leader to provide employees an information about the preparation of budget. As this
strategy will help employees in identifying the way or method which are required to be adopted
by them to complete specific task in an effective as well as efficient manner. It will also assist an
employee in making their important contribution in accomplishment of desired outcome.
Determining the income or expenses-In this stage,finance manager is needed to overview and
determine the several expenses which has been incurred by an enterprise during past financial
year. As this will assist finance manager in computing the fixed as well as variable expenses
and making proper projections. It will management in recognising the income earned and money
spend by an enterprise during specific financial year.
Setting Priorities – It is very much important for finance manager in an organisation to allocate
funds by analysing the needs of each functional unit. Finance manager can use several methods
such as ranking technique for setting the priorities of demand of each functional unit within an
organisation. As these strategies will help financial manager in ensuring the effective as well as
efficient utilisation of funds. It will allow management to make suitable decision and formulate
effective business plan. When prioritising the need of different departments, finance manager
should also consider the other factors such as nature and types of operational activities,
requirement of resources to facilitate specific task in particular business field , etc.
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Formulation of budget- It is necessary for finance manager to ensure that all the expenditure
incurred does not overlap income. Manager should be more conscious and alert when balancing
the budget. As this factor can have unfavourable impact on financial performance as well as
stability of an enterprise.
enforcement - It is compulsory for finance manager in an organisation to compare expenditure
with the income earned by an enterprise during particular financial year. As this strategy or
activity will help management in analysing the variances or deviation (Ionescu,2014)
Importance of budget for planning and controlling
Budget is a strategic planning method which helps an organisation in managing the cash
flow and reducing cost or expenses. It is also considered to be as a long or short term financial
plan which assist manager in identifying the suitable method for increasing profitability.
Importance of budget :
 Budged are important for improving the financial performance and maintaining economic
stability.
 Preparation of budget is crucial for highlighting financial implication of plans as well
other issues.
 Formulating budget is important in order to identify inputs needed to achieve desired
output.
 Budgeting, as a part of the planning procedures, coordinates the details of the several
business operations or activities which are required to be implement the programmes in
order meet the organisational goals.
 Budget is considered to be as essential in terms of controlling the costs or expenditure by
making comparison of actual performance with the budgeted.
 It also played important role in driving firm towards accomplishment of objectives.
 Budget also supports management in making suitable business decisions.
 It allows manager to ensure effective as well as efficient utilisation of financial resources.
 Budget encourages management to plan for the future and develop a complete direction
for business in order to identify financial issues , and develop future policies.
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 It also promotes coordination because different areas and activities of the organisation
must all work together for accomplishing the desired target (Otley and Emmanuel,
2013)
TASK 4
Balanced Scorecard Approach
It is considered to be as an effective approach will help finance manager in monitoring
or analysing the organisational performance from different point of view. Balanced Scorecard
Approach is suitable as links different performance measures which are adopted by management
team in an organisation for improving financial performance. The balanced scorecard forces
managers to focus on the handful of measures that are most critical. It brings together all
financial information in one management report. This approach have focus on critical measures
or techniques which can be adopted by company for increasing the profitability as well as
maintaining financial stability. Balanced scorecard mainly have focus on promoting team
working and encouraging company to become more customer oriented. It helps management in
analysing the improvement which has been made in particular business field. It allows manager
to consider all the crucial operational measures together (Suomala, Lyly-Yrjänäinen and Lukka,
2014)
In addition to the balance card approach , Cost allocation is another formulation which
has been adopted by the digital software limited. This approach has assisted Tech company in
reducing the fixed as well as variable expenditure which are associated with manufacturing or
production of specific products or services. It has helped management team in identifying the
most profitable operation and eliminating unnecessary activities.
Capital budgeting is another appropriate strategies which can be utilised by management
in Tech UK for proving the appropriate response to the several financial issues. It is also
recognised as decision making tool as well method for evaluating a project. Capital budgeting
assist financial manager in identifying as well as selecting most profitable projects.
Cost – Benefit analysis is another techniques which will help manager in evaluating a
planned action (Williams, 2014)
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CONCLUSION
From the above report, it can be concluded that, management accounting is able to provide
adequate information to the stakeholders in such a manner that the decision regarding investment
can be made by them. It also helps in disclosing true and fair view of the financial reports of
business in a well-defined manner. The report outlined regarding various types of budgeting
methods, such as zero budget, master budget and operating budget. It helps in jotting down all
the advantages and disadvantages regarding them. Further, importance of adoption of balanced
scorecard can also be helpful whose adoption can initiate profits in the organization. It is
important that the information is presented in a well-defined manner so that adequate amount of
information can be generated by the stakeholders through the same. It helps the stakeholders to
understand financial condition of the organization on the basis of profitability, revenue aspects,
liquidity and efficiency as well.
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