Management Accounting Report: Zylla Company Financial Strategies

This report delves into the realm of management accounting, providing a comprehensive analysis of its concepts, requirements, and various applied methods. Focusing on the Zylla company, the report examines different management accounting techniques used for decision-making, plannin...Read More

Management Accounting
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Table of Contents
INTRODUCTION..............................................................................................................................3
P1. Management accounting concept and its requirements...........................................................4
P2. Various methods applied for management accounting reporting............................................5
M1 Evaluate the benefits of management accounting systems.....................................................7
D1 Critical evaluation of how management accounting systems..................................................7
P3) Cost analysis to prepare an income statement using marginal and absorption cost ...............8
M2 Range of accounting techniques..............................................................................................9
M2 Preparing financial Report.....................................................................................................10
P4 Advantages and disadvantages of different types of planning tools used in budgetary control
......................................................................................................................................................10
M3 Use of different planning tools..............................................................................................12
P5 Adoption of management accounting system to solve problems...........................................12
M4 Management accounting can lead organisations to sustainable success...............................14
D3 Evaluation of planning tools for accounting respond appropriately to solving financial
problems ......................................................................................................................................14
CONCLUSION:...............................................................................................................................14
REFERENCES:................................................................................................................................15
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INTRODUCTION
Management accounting is a provision of accounting information which is used by
managers for better information for their firm so that decisions could be taken in a systematic
manner to assist performance and management of business. It requires accuracy and perfection in
internal activities of a firm. In this report, Zylla has shown different management accounting
techniques for deciding costs and ways to respond towards financial problems. Here, requirement
of management and its crucial evaluation is also done (Arkorful and Abaidoo, 2015). Zylla makes
use of management accounting in decision making, devising planning and giving expertise in
financial reporting. Its areas are extended to strategic management, risk pln and performance is
need to be measured. Its tools assist in improvement of better cost mechanism as well as in
operational ability. Current report will illustrate costing system, different budgetary techniques,
reporting methods and techniques of appraisal which help in internal administration. It focuses on
detailed information on operations, tasks and other divisions.
P1. Management accounting concept and its requirements
Management accounting is required to examine data collected so that its basic needs are
determined for business purpose. It is a type of mathematical tool which sets data in assistive
manner in terms of planning and decision making for managerial professionals to forecast budgets
for different operational departments. Such techniques target goals in a managerial form and with
effectiveness so that firm can achieve its objectives in a prominent way. It plays a crucial role in
delivering information to the people of management. It is an integration of non-financial and
financial statements to give information so that impressive decisions can be taken for organisation.
Proper techniques are used in the application of processing data and establishing plans so that
rational decisions will be taken with a view to move towards objectives (Ceulemans, Molderez and
Van Liedekerke, 2015). It underlines various phases of the management. Different accounting
techniques are as follows:
Job Costing: Costs incurred in every operational activity of business are determined by transaction
activities. Therefore, all types of satisfactory records are made in accounting systems like labour,
direct material and other relevant costs. Thus, these costs are required in every department to
illustrate cost requirement of it.
Management of inventory: It helps in keeping export-import record of business. This is dependent
on managing the level of inventories. So, production department should be cautious regarding
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business profitability and consumer demand. After analysing buyer's demand and seasonal
requirements, production of goods must be examined. Zylla keeps proper record of delivery of
goods and its production.
Price optimization: Different prices are set on services and products by improving operating profit
of the business. Therefore, at different locations, such variations are made by professionals as per
delivery of each and every product. Finally, profit is generated by putting forward the best or
profitable price and like this, the firm earns profit. Company is in profit if such tools and
techniques come into operations. It is quite important for Zylla as it is able to analyse whether
customer will be willing to pay for products or not. It helps to assess demand of commodity varies
with its price and hence, sales could be achieved.
Cost Accounting: Zylla uses this technique to illustrate cost incurred in every unit of business. So,
high amount of fund is required for the production of goods and services. Therefore, to determine
how much fund is needed or how much fund is invested in production costing technique is applied
to bring results. These results help management to find the actual costing incurred on each and
every product (Collier, 2015). Through this, firm confirms the optimization of business practices
which are based on capability and cost efficiency. It provides complete data related to cost
information which is controlled by management. Its primary function is to make decisions by
managers. Zylla uses this technique in the most efficient and technical way.
Management Accounting Financial Accounting
The information is purely for internal purpose
so that management could take better decisions.
The financial accounting is useful for external
stakeholders and they are able to analyse
financial statements for taking decisions.
No prescribed format for preparation of reports
are there and hence, it lies on management to
prepare the same.
Companies Act 2006 of UK provides format
which is mandatory to be followed by firms.
No statutory obligation is there for preparation
of management accounting reports
Statutory obligation prevails as financials are to
be prepared in according to law.
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Information is not circulated to external users of
accounting information as management only
analyses it.
It is circulated for judging performance of
company in the form of financial statements.
P2. Various methods applied for management accounting reporting
As per date and time, complete detailed information is listed in a report. It consists of cash
inflows from a particular activity and costs incurred in each and every activity. These records help
in determining profitability by managerial professionals as well as making effective decision
making that helps in reduction in costs. There are various reporting techniques used by Zylla:
Inventory management report: Inventory management requires all records related to quality,
quantity and cost of products that are firstly manufactured and then delivered in competitive
market. Effective analysis is made through such information which helps in examining demands of
products as well as capability of reordering the products. It is an assertive method because it links
with the development and efficiency of the firm. Usually, companies have to struggle to make
inventory at optimum level. There is always an issue of having satisfactory products to fulfil the
demand and avoid high price pitfalls so that there will be no overstocking (Cooper, Ezzamel and
Qu, 2017). This is usually seen in small businesses which try to organise it with advanced tools at
their disposal. Assessment of inventory reports at accurate real time can go to stock movement. It
initiates with underselling, creating custom reports, avoiding overselling and costs of goods
involved. There are various features involved in inventory management report which include
customizing report with proper dimensions, inventory stock on hand report, inventory detailed
report, inventory location report, stock recorder report, incoming of stock report and finally,
historic inventory report. Firstly, there is an easy identification of products. Then a list of all
products and variants a detailed overview of inventory is reported. After this, amount of stock
committed to sales order and available stock is on hand. Then, comparison is done at various
storage locations. After this, reorder report and management of report are done. Then filtration of
purchase order is made. Finally, average cost is moved for each variant and stock level is exported.
The inventory management methods such as JIT approach should be used in order to attain desired
level of inventory for accomplishing production. This leads to attainment of desired production
and no wastage of resources is made.
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Accounts receivable ageing report: It is a compulsory report to have control over extending credits
of firm. Thus, effective ideas are made to confirm company's completion procedure. All records
including debtors of business who have to make payments of goods and services received from the
entity are included in it. Hence, company can easily attain clarity about outstanding credit from
debtors and attain outstanding amount from them quite easily. Moreover, doubtful and bad debts
are also involved in it. Receivables are based on the length of invoices that are due and are useful
for the firm. An estimate of uncollected receivables provided by the aggregation of products from
each outstanding date range can come under doubtful accounts. It is useful when the company
experiences any problem in gathering data or specified customers expand their business on cash
only basis.
Budgetary Reports: A business uses it for measuring its performance to generates new ideas. Thus,
forecasting of required costs are done of each department so that expenses get controlled. It is very
useful in allocating resources. Zylla company makes use budgetary report to make profit and
management system more attainable and accurate so that business can reach desired goals. It
compares budgeted projections with real performance during period (Hald and Thrane, 2016). It
is actually prepared to show that how much actual budget is close to budgeted performance. For
Example. To make performance more inline with financial goals managers can correct difficulties.
Then they can measure how accurate and realistic their articulation were. If their predictions were
nearly close during period then adjustments can be made accordingly.
Cost accounting report: It computes with the delivery costs and manufacturing costs of goods.
Zylla company makes reports of all cost incurred in different activities of business operation and
thus effective controlling is there on the costs of products. It assures the costs of overheads,
production, labour cost which comes under inventory. Like this, managers are bound to create
fresh and innovative ideas and further alternative plans are also proposed that can deliberately
reduce manufacturing costs. This report provides information on revenues and expenses which are
debited or credited from cost centres. It helps in knowing the present cost of business. Overheads
which is one of the element of cost accounting includes works overhead including factory staff,
administration overhead, sales staff, cost of money, distribution overhead, supplies, repair and
maintenance including office equipment and factory machinery etc. costs can be classified into
direct or indirect costs. They also uncontrollable or controllable costs. Controllable costs are
affected by the action of management while opposite happens in uncontrollable costs.
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Performance Reports: These reports are performed by professionals and managerial heads of the
business so that performance of the workforce and entity can be assessed (Hogarth, 2014). It is
meaningful in generating knowledge and sufficient profits from the market. Thus, operational
activities have positive impact and these reports funnel up managers to effective analysis and
process decision to drive work culture. Zylla company makes fruitful use performance reports and
empower employee's performance with bonuses, rewards and other benefits.
NPV:
It is the current value of future cash flow which determines accuracy in planning for
accountants or managerial professionals in related projects. Profitability of the plan is discussed
which is based on accumulated years. This bring perfect results to professionals and help them in
analysing results and decision making process (Otley, 2016).
IRR-
It is a useful planning tool which takes into account whether Zylla should invest in
particular project or not and provide way to assess potential return on investment. IRR is a
discounting rate making NPV of cash flows to zero. Thus, it can be said that IRR relies on same
formula of NPV and company can plan for investment. Furthermore, higher the IRR, better for
organisation to invest in it.
M1 Evaluate the benefits of management accounting systems
Management accounting simplifies financial statements and helps in decision making. It
helps in increasing efficiency of any organisation. Zylla company has increased its potential to
much extent. Cost transparency is there through management accounting. It moves leaders towards
completion of goals. Management accounting provided freedom and flexibility in company.
D1 Critical evaluation of how management accounting systems
Management accounting carries out different functions like organizing, staffing, planning,
leading and controlling (Silberschatz, Galvin and Gagne, 2014). It's most important role lies in
using information and determining plans in decision making process. Its information is used in
controlling performance and progress towards plans of organisation. It's motivation, guidance,
integration and supervising heads comprise firms and carry out operations in proper manner.
P3) Cost analysis to prepare an income statement using marginal and absorption cost
Marginal Costing Method:
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Absorption Costing Method :
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Interpretation : According to report it can be interpreted that absorption costing technique
is more reliable and helpful to the entity because there is consideration of all expenses and costs
incurred in business. In included all types of costs such as costs of direct labour, direct material,
purchases, variable sales overhead, fixed expenses and production overheads (Kotas, 2014). It is
an effective cost system which influence all types of costs. Thus, results arrived from this
technique is more accurate as compared to marginal cost system. It is a type of full costing or full
absorption method.
Zylla makes use of absorption costing for perfect results and net profit. It is more accurate because
it reflects fixed costs that are traceable to those items within ending inventory. Actual expenses are
decreased as expenses calculated for unsold products. The net profit is higher than variable costing
calculations (Suomala, et.al., 2017). All costs of production are accumulated and then finally
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positioned to particular costs. From this inventory valuation is done which is shown in balance
sheet. Absorption costing steps include assigning costs to cost pools which includes fixed set of
accounts that is not changed frequently. Then calculation of usage is done to measure overhead
costs like machine hours or direct labour. Finally, usage id divided into total costs so that
allocation rate per unit of activity can be derived. Marginal costing technique is used in decision
making and values inventory at total variable production cost of a unit of product. There is
bifurcation of variable cost and fixed cost. Here fixed costs are excluded from it and only variable
costs operated. Therefore, many companies prefer absorption costing system. In absorption
costing both variable cost and fixed cost are considered as product cost. Classification of
overheads are done on the basis of administration, selling & distribution. Profitability in the
business get affected due to engagement of fixed costs while in marginal cost profitability is
measured by profit volume ratio (Lew, Pacana and Kulpa, 2017). Here cost per unit is determined
by the net profit attained per unit. In absorption report data is represented in conventional way.
That's why this method is preferred by Zylla company. But marginal costing method presents cost
data to outline complete contribution of every production. Here cost per unit is affected by
variances in the closing and opening stock.
M2 Range of accounting techniques
Range of accounting techniques are Financial planning, analysis of financial statements,
historical cost accounting, standard costing, budgetary control, marginal costing, funds flow
statement, cash flow statement, decision making, revaluation accounting, statistical and graphical
techniques and finally communicating.
Applying Financial planning:
It helps in attaining both short term and long term financial goals of enterprise and also formulates
its policies and develops a financial procedure (Uhde, et.al., 2015). It determines range of capital,
funding process, distribution of income, equity capital and optimum level of investment.
M2 Preparing financial Report
There are important steps required to prepare a financial report:
1. Income statement: here expenses, revenues are reported for net income.
2. Retained Earnings Statements: It is required at starting and end of accounting period. In
this, dividends are paid in middle of accounting period. Income statement provides net
income.
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3. Balance sheet: Assets, liabilities and shareholders combines balance sheet of company.
4. Cash flow Statement: If there are changes in cash balance, financing and investing then
cash flow statement is required. It is done from two methods i.e. direct method and indirect
method.
P4 Advantages and disadvantages of different types of planning tools used in budgetary control
Activity based costing:
This is very meaningful and easy technique which provides forecasting of budgets to
managers on the basis of practices done in the firm. Therefore, the are requirements in business
which are mainly affected by marketing, distributing, production etc. however. There are various
advantages and disadvantages of this budgetary system too:
Advantages:
This is the most appropriate and accurate costing technique as it provide better calculation
and understanding for the expenses which are considered overhead. Total costs are not considered
for examining all costs incurred in operational activities (Libby, 2017). Only unit cost is subjected
to calculation. It focuses on balance scorecards and performance chart which is more beneficial in
terms of supply chain as well as value stream.
Disadvantages:
It requires huge number of sustainable resources and higher attention because it emphasis
on gathering information whose outcomes is high costs of such activities. Current costing system
focuses on profit margin while traditional one emphasize more on business efficiency. It has
possibility of publishing wrong outcomes.
Zero based Budgeting:
It does not consider past data set and performance of business so it is dynamic and flexible.
In this type of budgeting development of plans are focussed which will determine current and
future needs (Lichfield, Kettle. and Whitbread, 2016). They mainly initiate from nil balance and
costs are added as per industrial requirements and its activities. Zylla company have suitable
budget planning for future because they follow such techniques.
Advantages:
As time changes according to business requirements so this technique is very helpful and
satisfying. Here all budget starts from zero balance and includes lower costs. It does not require
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operations which are already focussed and these budgets are comparatively helpful to lower costs.
It also requires less time in planning different activities and decision making process.
Disadvantages:
Main disadvantage of this budgeting system is that there is no guarantee of accurate analysis over
real costs of any activity. Managers can do manipulation in funds so that heir personal needs can
be met easily through business purpose.
Incremental budgeting:
It is based on assumptions with some changes in budgeting process. It focuses on real
expenditure incurred and over previous period budgets on which additional budgeting costs are
proposed. Thus demands of services and products increase every day to reach requirements and
accurate funds are available for business activities (Loughran. and McDonald, 2016). Zylla
company has examined various advantages and disadvantages related to this system:
Advantages:
Managerial professional finds it the most simple and easiest method to develop fine
decisions so that they can surplus their budgetary amount by looking up for their actual needs.
Stability in funds is created by sustaining effective results which brings quality time to the entity.
It balances operational work and ensures stability and consistency in the department for longer
period.
Disadvantages:
Only minor changes are brought up due to incremental nature of technique. Clear and
transparent examination of business requirements and demands are not done. Therefore,
managerial staff spends extra on activities which are non profitable. Managers try to take variance
advantage by reducing revenue growth and extending higher expenses.
But various advantages and disadvantages are included with this technique:
M3 Use of different planning tools
There are different types of planning tools are financial budget, operating budget and non-
monetary budgets. Main use of budget is to coordinate manager's resources. Standards are properly
defined in all control systems. Regarding organization's resources and expectations there clear and
unambiguous guidelines provided by these tools and techniques. Performance of each department
and managers are facilitated.
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P5 Adoption of management accounting system to solve problems
There are some tools and techniques which have positive impact over productivity and are
applied by Zylla Company for improvement of operational department of organisation (Sebti,
Gérard and Perray-Redslob, 2015). Proper execution and administration is required to maintain
financial stability in the business. Zylla company makes use of various appraisals and execute
them to get fruitful results.It uses different performance appraisals like:
Key Performance indicators:
This is special technique used by staff to encourage them so that more efforts are made
towards productivity in business. Managers fix objectives and targets for organisation so that
professionals get motivated for better performance. Therefore, it is quality proven technique which
determines performance of employees as well as of firm. Performance of firm can be judged on the
basis of activities in which they get engaged. In order to improve financial performance of the
entities these techniques are needed to be applied with proper certainty and techniques. Zylla
company makes use of various appraisals and execute them to get fruitful results, thereby
responding to financial problems.
Variance Analysis:
This technique helps in controlling costs incurred in business activities. It is the balance
between actual costs and budgeted costs. But in calculation actual costs are higher than the
budgeted costs and that extra resulted mount is known is as variance. Zylla company make use of
this technique for the utilization of funds and does variance analysis which helps in business
analysis appropriately. Variances can be analysed and corrective action can be taken in that
manner by which improvement could be done leading to respond to organisation's financial issues.
Bench Marking:
This technique helps in examining owns performance with other firm's performance. It can
be a true motivator and signifies competitive nature in the work (Suomala, et.al., 2017). To
overtake performance and reach performance of different other countries new and innovative ideas
are planned and implemented which in turn results in more profitable business. So this technique is
suitable for Zylla company to gain revenue and furthermore, financial soundness of benchmark
company can be adopted to respond to financial problems.
Balance Scorecard :
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This executing tool analyses strategic performance and consists of correct administration
and controlling of work performed in the company. Here efforts made by professionals as well as
in business are managed in proper manner in the needed state (Uhde, et.al., 2015). This technique
is beneficial and helpful for the development and proper growth of organisation. Zylla company
should have appropriate utilize such techniques to improve their performances.
Financial Governance:
This is the most beneficial and effective techniques which is implemented by managerial
professionals. Financial transactions are executed during financial period. It mainly focuses on
dealing with financial transactions only. Thus, auditors apply these tactics and administer them
properly. This work is properly governed by auditors, accountants, owners and different other
managers in the business. They properly emphasize on building operational efficiency and capital
stability of the organisation (Veal, 2017). Zylla company implements these types of techniques and
make use of such techniques which in turn help them in generating sufficient profitability and
growth of the firm. Financial governance allows them in development and planning practices. This
helps to adapt to financial problems quite effectively.
M4 Management accounting can lead organisations to sustainable success.
Management accounting carries principles with it. It assists firm in planning and provides
information needed for generating strategy and tactics. It manages trust and relationship and
resources are processed actively so that non-financial and financial assets, value and reputation of
company are protected. Sustainable success of organisation is maintained by effective functioning
of management accounting (Veal, 2017). It helps in exploiting opportunities so that value for
stakeholder is generated. It determines and sets up risk appetite and thus lead organisation to
sustainable success.
D3 Evaluation of planning tools for accounting respond appropriately to solving financial
problems
Planning tools of accounting are financial planning, financial statement analysis, cash flow
analysis, fund flow analysis, budgetary control, marginal costing and standard costing. If, financial
planning is evaluated then it's main objective lies in maximization of profits. This can be achieved
through sound and proper financial planning. While, balance sheet and profit and loss are most
important financial statements.
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CONCLUSION:
Thus, it is concluded that an organisation needs various tools and techniques to analyse its
financial reports. Zylla company uses these techniques only to bring out meaningful results and
achieve its goals in decided time period. Among all the techniques Absorption Costing system is
very helpful and worthy as in that system all types of costs are absorbed. This report also described
various advantages and disadvantages of tools and techniques so that it becomes easy for any kind
of firm that which technique is more preferable and suitable to it (Walker, 2017). A chart is also
there to illustrate which costing system is giving high net profit. Marginal Costing System is not so
effective and so Zylla company adopts Absorption Costing System. Thus, management accounting
helps to control functions and manage performance of the business in very effective manner. It is
now considered as an innovative skill for accountants and managerial professionals. Major
techniques used by companies are variance analysis, balance scoreboard and financial governance.
Variance analysis is considered as a systematic approach in which comparison of budgeted and
actual costs of raw material is done. But nowadays it has been observed that activity based
accounting is used in most of the organisation. It doesn't focus on direct labour and forces on
activities which drives costs.
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