Management Accounting Report: DIZED Ltd Financial Analysis

This report provides a comprehensive analysis of management accounting, focusing on its role, systems, and techniques within a business context. It begins with an introduction to management accounting, its objectives, and its significance for business success, using DIZED Ltd, a UK-based manufacturing company, as a case study. The report delves into the roles of management and financial accountants, highlighting the differences between them. It then explores various management accounting systems like price optimization, cost accounting, and inventory management, detailing their applications and benefits. The report also examines management accounting reports, including budget reports, account receivable reports, and performance reports, and their integration with business processes. Furthermore, it presents income statements using both absorption and marginal costing methods, discussing the advantages and disadvantages of marginal costing. Finally, the report covers the use of planning tools like budgeting for financial forecasting and interpretation of financial data.

Management
Accounting
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Section 1..........................................................................................................................................3
Section 2..........................................................................................................................................7
Section 3..........................................................................................................................................9
Section 4........................................................................................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting is a methodology used by administrators of corporate organizations
to calculate, monitor, evaluate, schedule and regulate their operations in order to achieve
sustained results (Biondi and Zambon, 2013). It is primarily for inner stakeholders as it helps
them in assessing the firm's results and in taking business decisions to enhance it. The main goal
is to establish awareness of management accounting and its relevance for business success. For
the better understanding of this concept, DIZED Ltd selected which is UK based manufacturing
company.
This report cover several topics such as demonstrate the understanding of management
accounting systems, evaluate the range of accounting techniques which are used by organizations
for reporting purpose. In addition, it include the use of planning tool with its advantages or
disadvantages and the ways which organizations used to resolve financial issues by using
management accounting.
MAIN BODY
Section 1
Role of management accountants:
Role of management accountants is to collect record and report financial data from
various divisions within an entity monitor and evaluate its spending and suggest funding and
delivery. This includes estimated costs of materials, labour, production, selling and marketing,
social media networking, advertising and the company’s corporate operating expenses (Boyns,
Edwards and Nikitin, 2013). Therefore, the CFO is a source of knowledge which the managers
and the CEO need to determine. In addition to have an accurate measure of the expected
expenditures for a year, the management accountant must study the historical data. DIZED Ltd's
management should be experts in all areas where they have to identify issues ahead to plan their
liquidity crisis organization or any other threat. , In preparation, they will advise business
owners, so they can make massive decision to available funds.
Role of financial accountants:
Financial accountants need to be highly structured and thorough, because they also
manage the good management and disclose the financial statements of a corporation. They could
also be liable to pay taxes, storing inventories and implementing programs. When updating and
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analyzing the company's books and records, accountant receives guidance and recommendations
from top management, in particular on creditworthiness, obligation status, cash flow protection
and cost issues. Trained financial accountants will provide guidance on the performance and use
of corporate resources, reporting on the expenditure and results of marketing plan projections
and the latest financial information that may affect the future's operations.
Difference between management and financial accountants:
Basis Management accounting Financial accounting
Meaning It is associated to internal activities which
provide managerial information to
managers for organizing, managing and
decision-making.
It relates to external practices in
which investors, suppliers and other
outside parties are provided with
consolidated financial statements.
Time focus This highlights actions which can impact
company's future (Goetsch and Davis,
2014).
Within financial accounting,
previous actions are focus that allows
taking steps accordingly.
Concentrate This focuses mainly on different parts of
the organisation.
This describes the organizational
operations as a whole.
Principles Management does not follow any
guidelines and standards when
conducting management accounting
Company have to follow GAAP
principles to produce financial
reports.
Management accounting systems:
Frameworks used to assess the firm's current position are defined as management
accounting systems. It leads internal stakeholders to assess organizational productivity that can
help boost company efficiency. In DIZED Ltd, managers using them to keeping track of every
company operation in order to minimize the risk of potential challenges (Bennett and James,
2017). There are several accounting systems which are used by the DIZED and all are as follow:
Price optimization system: Most businesses use this method to set reasonable prices for
certain goods in order to draw large numbers of consumers into the corporation. At DIZED
ltd, high level executives are using it to fulfil consumer needs by setting the most appropriate
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prices for the goods sold to them. It is essential for the organization, as it can allow managers to
evaluate consumer reaction to various prices charged by the company for their goods.
Cost accounting system: This is the method the firm uses to document the cost incurred
in the production phase of products (Harrison and Lock, 2017). With the aid of it management
will assess the value of each and every product their organization makes. Within DIZED Ltd,
management uses it to calculate the costs associated with different enterprise-engineered
vehicles. Using this program is important for company managers because it helps them predict
real product costs and business profit-generating potential. It is essentially required for managers
to make their decisions regarding product cost and further monitor the performance.
Inventory management system: It's used mainly in production companies as it lets
executives keep a close eye on inventory that is used for business activities. In DIZED,
management uses it to monitor their stocks and decide whether there is adequate stock in the
company to perform functional and implementation activities in a suitable way. It directs
managers to evaluate the storage, warehouse or distribution of goods to customers. There are
three different types of inventory management systems such as LIFO, FIFO and Average cost.
Managers of DIZED ltd follow FIFO method and make sure that company does not face the
situations like shortage or wastage of raw material. This system essentially required by the
managers to keep track inventory level.
Above discussed systems are used by the DIZED’s managers to identify the performance
and further formulate strategies if improvement required. It is also beneficial to identify the
actual position of the company (Kambanei, 2014). It is useful for internal as well as external
parties to make their strategic decisions accordingly.
Management accounting reports:
It is the method of documenting all the financial data in opposition to the outside
stakeholders for the inner stakeholders. Under this system manager develops various report types
that help the company assess organizational or functional operations and establish strategy to
achieve company's priorities and objectives. Managers use various monitoring strategies in the
DIZED to evaluate the company's internal results. Through this aid, management decides
whether or not its workers required change. Some of them are as follow which adopted by
DIZED Ltd:
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Budget report: This report often called an official report that the senior management
uses to measure the organisation's income or expenditures. It also assists in evaluating the
administrative functions efficiency. Management contrasts the company's actual results with the
one expected in the financial year. DIZED Ltd's manager generates budget on preceding
financial data and then tests how practical and reliable forecast has been made. This also lets the
supervisor develop successful compensation programs by reducing costs in the different
activities.
Account receivable report: This report contains unpaid client invoices and it will be
organized according to year. It can be used for those companies that deal extensively with the
credit term and they have to establish account receivable document because all borrowers are
really hard to remember. Business can easily recognise the defaulters who have not yet paying
their receipts with the support of this report. Managers use this monitoring tool in the DIZED Ltd
to classify their creditors and overall defaulters. Maintaining proper records is helpful for the
manager as it also helps to establish strong credit policy that will the the defaulters.
Performance report: This document covers both individual performance as well as
organization. Here output will be measured on a yearly basis and it will enable the management
to make their future financial decision (Peterson, 2013). Manager analyzes the project's progress
and how to achieve their mission by implementing the budget. With the aid of this report,
managers develop different plans and make strategic decisions that help in achieving business
objectives and targets. The report contains the deep knowledge that if the performance of the
workers are not satisfactory then DIZED will have to implement the training course to increase
the productivity needed to complete the mission.
By using above discussed report, it will help the managers to evaluate business
performance and further actions done to improve productivity of their staff as well as increase
profitability or performance. Accounting reports help the manager’s of DIZED Ltd to achieve
business goals & objectives.
Benefits of management accounting systems:
Management accounting
system
Benefits and application
Price optimisation system The price management framework in DIZED used by
managers to set acceptable prices for goods so that consumer
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needs can be met.
Cost accounting system DIZED managers use the cost accounting system to measure
the expense of automotive research operations so that benefit
can be measured.
Inventory management
system
To control stock and keep their eyes by using inventory
management system helps to perform all of the functional
activities in DIZED Ltd.
Critically evaluate that how accounting systems and reports are integrated with business
process:
When managers implement accounting system, techniques are built for easy integration of
the entire accounting method or process (Schuster, 2015). Management uses integrated reports to
devise the company accounting and record the information inside it. Accounting integration
offers all relevant data at a convenient decision-making venue. In order to make any kind of
decisions, managers of the company required financial information and it will be recorded into
reports which collected through implementing accounting systems. Basically to run business
operation, company required accounting systems and reports to evaluate performance and
formulate strategies accordingly.
Section 2
Income statement by using absorption costing method:
Particulars 2016 2017 2018
Sales (A) (580 52,20,000 63,80,000 55,10,000
Cost of Goods Sold:
Direct Material (8) 800,000 880,000 720,000
Direct Labour (4) 400,000 440,000 360,000
Variable Production
cost (8)
800,000 880,000 720,000
20,00,000 22,00,000 18,00,000
Fixed cost:
Production overheads 90,000 90,000 90,000
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Administration cost 80,000 80,000 80,000
Total (B) 21,70,000 23,70,000 19,70,000
Profit of the year (A-
B)
30,50,000 40,10,000 35,40,000
Income statement by using marginal costing method:
Particulars 2016 2017 2018
Sales (58) 52,20,000 63,80,000 55,10,000
Less: Variable Cost
Direct labour 400,000 440,000 360,000
Direct material 800,000 880,000 720,000
Overheads 800,000 880,000 720,000
Contribution 32,20,000 41,80,000 37,10,000
Less: Fixed cost:
Production overheads 90,000 90,000 90,000
Administration cost 80,000 80,000 80,000
Income for the period 30,50,000 40,10,000 35,40,000
Marginal Costing:
It is an approach where variable costs are paid to cost unit and fixed costs are written off
in complete for gross expenditure of that time. This strategy takes on variable costs as fixed costs
only (Sisaye and Birnberg, 2012). This method's principal aim is to manage the firm's expense.
This analysis of this method summarizes the overall contribution. This is used to set the price of
product and to pick the best combination of sales. To measure costs of DIZED Ltd they should
use marginal costing approach.
Advantages of marginal costing:
 Identification of expenditures is very useful in budgeting and it helps in making plans for
each activity and further managers able to formulate strategic decisions.
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 Most business organizations must engage in offering the lowest possible price in the
marketplace. If measured separately, gross variable cost is the 'floor price.' The overall
contribution can be measured at any price beyond this floor level.
Disadvantages of marginal costing:
 Marginal costing needs to overcome the over and under-absorption issue of fixed
overhead costs. But in the context of adjustable overheads, the question arises.
 Based on such a valuation, insurance payout for loss or loss of stock would be
unfavourable to company.
Usage of different planning tool and application for forecasting budgets:
Planning techniques play a major role in financial planning and prediction. Forecasting
includes projected sales and cost estimates, planned cash inflow, outflow quantities and other
possible future adjustments. The use of various budgets is made within planning methods to
display future projections in a more stylish and easier way. The knowledge that these resources
provide is used to make successful and appropriate decisions on several activities. DIZED
Ltd uses various budgets such as zero base budget, flexible budget, master budget etc. to predict
consolidation of the financial statements.
Produce financial reports and interpret data for the range of business activities:
According to financial report, income from both method such as marginal or absorption
costing method is same. It is not necessary to have similar results all the time and difference is
occur due to fixed costs. Net income from both methods is same that is 3050,000 for 2016, 2017
it was 4010,000 and 3540,000 for 2018. This data represent that, from 2016 to 2017 company
face the growth and in 2018 their profit margin again reduces, it means Company does not
perform well and not implement their strategies properly.
Section 3
Advantages and disadvantages of different planning tools:
Master budget: A budget focused on the combination of various budgets produced by
different functional divisions. Cooperation with various activities can be formed with the aid of it
(Songini, Pistoni and Herzig, 2013). These are manufacturing, purchases, sell and other
activities. For DIZED Ltd, the master budget is designed by managers to provide the
stakeholders with concise financial details so they can make important decisions. Some benefits
and drawbacks are as follow:
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Advantages:
 This advises managers at the top level to collaborate with all divisions by reviewing their
budgets.
 This is known as the strong networking device that can be used by different
company's departments.
Disadvantages:
 Improvements in a master budget are hard to produce. Just a minor change involves a
great deal of phase including long explanations.
 At the time of planning, managers make some assumptions that may prove to be
inaccurate or insignificant over time and a typical layman often finds it hard to
understand.
Zero base budgets: It is a budget that administrators use to assign funds to specific
business units based on their needs and criteria instead of the budget history of the previous year.
Under DIZED, management develop a new zero-based budget for every year to explain the
expenditures for same time in order to track company's performance. Managers eventually make
strategic decision to strengthen it if the company is unable to execute the operating activities
adequately.
Advantages:
 Through evaluating costs and difficult assumptions, the efficiency and effectiveness of
performing functional operations can be enhanced with the aid of a zero-based budget.
 It supports all the forecasted expenditures because it begins with a base zero in which all
previous estimates are ignored.
Disadvantages:
 The implementation phase is very complicated because it needs highly qualified staff and
it is not feasible to bear the expense of hiring experienced individuals for all businesses.
 Zero-based budget execution process is costly which resulted in delayed outcomes.
Flexible budget: It is a schedule that can be easily adjusted to some level of shift in
organizational output or operation and also recognized as variable budget (Ward, 2012). It
utilizes present-period revenues and expenditures as a framework and projections depend on
production change. DIZED LTD can use this budget for certain situations and its advantages or
disadvantages are as follow:
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Advantages:
 This is easy to change the existing or projected conditions for adjustments in revenue and
expenses.
 Represents more rapidly the effects of difficult circumstances, which helps to measure
administrative which organizational efficiency efficiently and reliably
Disadvantages:
 This assumed that fixed costs remain the same at all rates but that fixed costs are set just
up to a specific production amount.
 It is more complicated, because more preparation is needed to track costs and change the
discrepancy among two phases.
From the above discussion of planning tools, DIZED Ltd should adopt Zero based budgeting
because it help the organization as well as managers to estimate accurate income or expenses for
every year. This method ignores past projection and done fresh projections regarding each
functional activity. With the help of Zero Base Budgeting, managers of DIZED Ltd formulate
their budget from the zero bases and estimate each and every activity cost from starting and try
to evaluate accurate expenses and income, and also ensure that staff members completed their
task into projected amount. Because if it is not happen, company will face several financial
issues which directly affect the production as well as profitability.
Section 4
Financial Problems: These are the financial dilemmas which almost every organization
faces and it further general the financial issues for the organizations. Manager need to improve
their financial condition through improving company’s operational performances. The business
has numerous financial problems which will have a negative effect on its operations. In context
of DIZED, there are several issues that exist in the company's financial statements those factors.
There are some financial issues which organizations currently faces and these are as follows:
Uneven Cash flow: This problem arises if there is not enough money to cover their
obligations and liabilities and when the company's expenditures are higher than revenues
(Weygandt, Kimmel and Kieso, 2019).
Risk management: It is also another issue that exists mainly in organizations because it is
necessary to assess the risk associated with operations, resulting in successful decision-making.
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There are various management accounting techniques which is used to resolve the financial
issues and all are discussed below:
KPI (Key Performance Indicator): It is a method used to calculate output based on
standard performance and to make comparisons as well as evaluate data. Provide reliable proof
of the development to a desired outcome. Assess what interventions are meant to help encourage
better decision making. Give a contrast deep thread the degree of improvement in the results over
time.
Benchmarking: It is a method of comparing the efficiency of a products or services
against another company that is perceived to become the best in the business, or "best in class."
Benchmarking is about finding internal opportunities for change.
Financial governance: This technique ensures that government acts in the fields of public
finances both in terms of income and spending which are not only effective but also transparent,
legal and development-focused.
Basis DIZED Ltd Unilever
Problem The company is facing the risk
management issue because the
company is unable to predict the
exact amount of risk associated with
a specific investment and risk
estimation and management is
necessary to make decisions about
any project that includes risk, but the
company is unable to implement any
successful risk management strategy
of any form.
This business is experiencing the
cash flow-related issue and the
organization is unable to sustain
its cash flow because they
produce luxury product that
requires high cost therefore cash
outflow and inflow management
is required to provide correct
margin profit and it becomes a
barrier to improve their
profitability.
Approach Risk reduction issue can be overcome
by using Key Performance Indicator
(KPI) methodology which is a
method used to assess employee
efficiency and this inspires workers
Financial governance is the
mechanism that can be used as
the firm's successful strategy that
can help to manage the
company's cash flow as it
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