Management Accounting Report: Analysis for Imda Tech (UK)

This report provides a comprehensive overview of management accounting principles and their application within the context of Imda Tech. It begins by highlighting the importance of management accounting, detailing its various functions such as planning, organizing, decision-making, and controlling, and differentiating it from financial accounting. The report then delves into different types of management accounting systems, including traditional, lean, and throughput accounting, and their specific applications. The core of the report explores costing methods, contrasting marginal and absorption costing, and explaining their implications through the income statement. Budgeting is another key area, with an examination of various budget types and the budget preparation process, along with pricing strategies. Finally, the report concludes by discussing the use of the balance scorecard approach in addressing financial problems and improving financial governance within an organization. The report offers insights into the practical application of accounting methods to enhance business operations and decision-making.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Importance of management accounting and its various functions....................................1
B2. Various kinds of management accounting systems and their use in Imda Tech.............3
TASK 2............................................................................................................................................5
A & B. Income statement and explanation of marginal and absorption costing....................5
TASK 3............................................................................................................................................8
A. Various types of budget and process of budget preparation..............................................8
B. Budget preparation process..............................................................................................10
C. Pricing Strategies.............................................................................................................11
TASK 4..........................................................................................................................................11
A. Use of balance scorecard approach in solving financial problems..................................11
Use of balance card approach in improving financial governance.......................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
With time, complexity in conducting a business is increasing. Companies want to expand
their area of operation so they can attain more profit and achieve their short and long term goals.
Globalisation made a huge impact on most of the organisations that are working in different
industries. Enterprises face various kinds of financial problems in the business environment.
Management accounting system helps a firm in resolving critical issues like correct field of
investment, proper sources of borrowings, etc. Some people think that it only assists the finance
department but this is a myth because other wings of a company also take their support. They ask
them for significant data which can be related to availability of cash or strategy of competitors.
Imda Tech (UK) is an enterprise that makes and sells extraordinary kind of mobile chargers and
different types of other gadgets for retail shop (HammadJusoh and Ghozali, 2013). This
assignment will focus on difference between management and financial accounting. It will also
discuss important method of costing like marginal and absorption. Types of budget and its
various merit and demerit will also become part of this report. Use of modern method of
accounting for solving financial problems will be explained at the end of this file.
TASK 1
A. Importance of management accounting and its various functions
Management accounting is a process which help an organisation in conducting their
business in an efficient manner. The process of decision making is getting complicated every day
because of involvement of various factors like government policies, change in taxations system
etc. Most of the companies are trying to find a way by which they can reduce their cost of
business operation as it is essential for getting some extra edge over their competitors.
Management accounting play crucial role in minimising wastage and enhancing sale of an
organisation. Its modern tool provide great assistance to the managers, it assist them in making
fast and accurate decision which is important for long term growth of a company (Agbejule,
2011). Below are some major function of management accounting:
Planning and forecasting – A firm cannot attaining their goals if they do not have an
effective plan. Decisions taken by manager decide whether a company will move forward or they
are going to face huge loss in upcoming time. Systems of management accounting play crucial
role in forecasting various activities like growth rate of enterprise and other competitors etc.
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They also predict market demand and change in different industrial policies. This function is
essential for reducing the risks which a firm can face in business environment.
Organising – A company who is operating in more than one country or states, have to
cope-up with severe challenges. Tools of management accounting play significant role in
allotting necessary resources to different departments. Most of the organisations face issues
relating to synchronisation which, by using modern techniques of accounts higher authority of a
firm can set clear goals to all divisions. This will reduce confusion among employees and
provide a charity to different manager about their responsibility.
Decision making – It is the function of management accounting system to assist a
company in making crucial decision. Plans cannot assure success to a firm because if correct
action is taken at the time of execution of strategy then organisation can attain their targets in an
effective manner. Tactics cannot be made without making right decisions, modern accounting
tools also help in day to day operation of an enterprise (Bebbington, Unerman and O'Dwyer,
2014). All the problems are need to be find and their appropriate solution should be decided
before taking a judgement on any major plan. Gathering quality information is significant in the
complete process.
Controlling – At the time of implementing various strategy, an organisation need to keep
an eye on work of every department so they can solve different problems at the point of their
generation. This function of management accounting keep a company on right track which is
important for reaching short and long term objectives.
Distinguishing management and financial accounting
Management accounting Financial accounting
There is no compulsion for adopting this form
of accounting.
Because of various rules and regulation,
adoption of this kind of accounting is
compulsory.
It consider monetary as well as non-monetary
data.
Only monetary data is used at the time
calculating different figures.
Pt is significant for making important decision
relation which is essential for success of a firm.
It main task is to make all the reports which is
needed for conducting a fair business.
It is used by internal parties of a company. The main reason of its utilisation is to depict
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present position of the enterprise to the
external parties.
Significance of management accounting in the process of decision making by managers of
different departments
Every firm face a situation where they get distracted by goals and success of other
players who are operating in same industry. Management accounting stop a company in moving
towards wrong direction by reminding them their strategies and set targets. It an enterprise get
assistance in forecasting then managers of various departments can make appropriate plans. It
can improve efficiency of workers which will result in better product and service (QianBurritt
and Monroe, 2011). Management accounting solve significant issues relating to investment and
proper source of borrowings, it provide correct direction to a division as well as to whole
organisation. Financial accounting only help finance department but this managerial accounts
help all the wings of an enterprise by giving necessary data and information.
Back up plans are sometime considered as the backbone of a firm, tool of management
accounting pour confidence in employees because at the time of execution of different thoughts,
they know that managers do not have to make any major call because they already made have a
program for coping up with these kind of issues. If various department of an organisation use
management accounting information then they can make quick and accurate decision. This is
essential for getting some extra edge over other players of the company.
B2. Various kinds of management accounting systems and their use in Imda Tech
Management accounting has mainly has three types, first is traditional, second is lean and
third is throughput. By utilising tools of these methods, Imda Tech can attain their objectives in
an effective manner:
Traditional accounting – It is an old approach which mainly focus on allocating direct as
well as indirect cost to the each unit of a product. It various tools assist in predicting profits but
its significant in present era is diminishing. It do not concentrate on various important
department of a firm which can be considered as the main reason of its reducing popularity. Job
order and process costing are its key methods, earlier one try to ascertain cost of each job while
later one focuses on the determining the expenses by analysing production process.
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Lean accounting – Its main area of focus is on reducing wastage in production process
which will ultimately make a positive impact on the profit earned by a firm (Weißenberger and
Angelkort, 2011). This method is significant in delivering various information in short period of
which is essential for making correct and fast decisions by managers of different department.
This form of accounting reveal the areas where company need to make necessary changes, it can
be related to monitoring or measuring.
Throughput accounting – Most of the modern methods focus on minimising cost but this
system concentrate of enhancing sale by increasing production capacity. It a company
manufacture more goods then they can meet demand of customers in less time, it play significant
role in increasing the wealth of an enterprise. Its benefits are not limited to only manufacturing
unit, other wings of an organisation like marketing, finance also get assistance from this type of
management accounting (Zoni, Dossi and Morelli, 2012).
Below are some other systems which can be adopted by various department in order to
improve their reports:
 Cost accounting system – It mainly concentrate on reducing production cost by using
different tools. Cited company can increase their profit by either minimising operation
expenses of business or enhance total sale of the firm. This system focuses on three type
of cost, first is actual costing. It can be ascertained by calculating the real expenses that
has incurred on production process. Expenditure on labour, material and other overheads
are significant part of this method. In normal costing, actual cost of material and labour is
taken but overheads are applied at a standard rate. Standard costing works on expected
expenditure, instead of reporting actual expenditure incurred on manufacturing process,
companies like to use standards rates (Tsamenyi, Sahadev and Qiao, 2011).
 Inventory management system – Managing stock in an effective manner can provide
extra edge to cited organisation on their competitors. Tool of this kind of accounting play
significant role in maintaining proper balance between demand and supply of goods. If
this system in used in Imda Tech by storage department then they can reduce their
carrying and ordering cost which will assist company in increasing their total revenue.
There are various software relating to inventory management that can tell exact amount
of stock that enterprise should keep in their storage units. It help in solving two crucial
problems, first is overstocking which raise carrying cost and other is fulfil demand of
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customers on right time. Sometime permanent buyer of a product switch to other brand
because they do not get their commodities in needed period.
 Job costing – This method focuses on each job that is performed in the production
process. The basic idea behind this concept is to shut the jobs which do not have
considerable amount of contribution in earning money (Uluyol and Akçi, 2014).
Profitability is ascertained according to each task that is performed at the time of
manufacturing a single unit. A job which is generating more revenue can be given more
support in order to increase the total profit of the company. Normally costing system
concentrate of processes but this form of costing deals with jobs performed by every
worker.
 Price optimisation system – Most of the enterprise face problems relating to deciding
price of a product which is acceptable by significant number of consumers (Ezzamel and
et.al., 2003). If marketing and production department of cited company use this system
then they can decide a value is not more, in the view of customers, and not less,
according to the management of organisation.
If Imda Tech adopt use these accounting system then they can minimise wastage of
resources and increase total sale by an impressive rate (Ward, 2012). They should select correct
approach according to their size and long term targets.
TASK 2
A & B. Income statement and explanation of marginal and absorption costing
An organisation can adopt any method of costing according to their suitable. Marginal
and absorption has their own advantages, below is explanation of both terms:
Marginal costing – It is the extra cost which is incurred in the production of an additional
unit. It is basically a technique which assist in the process of decision making, two type of cost in
considered in this process first is fixed and second is variable. Closing stock is considered at the
time of using this method which is the prime reason for getting less profit if the volume of sale is
low. Whether volume of production go up or down, fixed cost remain same in this approach.
Marginal costing help manager in selecting correct choices, it only deals with various cost which
is a right method because involving fixed expenditure in decision making process will show
wrong results (Naidu and Chand, 2013).
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Absorption costing – It focuses on both variable as well as fixed cost. It main area of
focus in to reduce the cost of production, it does not provide any major help to manager but in
term of delivering results, it is better option than marginal costing. Both direct and indirect a
methods are taken in account at the time of following this method. Absorption provide accurate
and comprehensive data which is essential for making decisions relating to manufacturing
process.
Direct labour £5
Direct material £8
Variable production overhead £2
Fixed production overhead £5
Standard production cost £20
Budget £36,000/year
Actual overhead £15,000/each month
Selling, distribution and administration expenses are:
Fixed £10,000/month
Variable 15% of the sales value
Selling price £35/unit
Production 2,000/units in September
Sales 1,500/units in September
Income statement using Absorption costing
Sales ( 35*1500 ) £52,500
Less COS
Opening inventory 0
Variable cost of production ( 15*2000 ) £ 30,000
Fixed overhead absorbed ( 5*2000 ) £10,000
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Closing inventory ( 500*20 ) £10,000
Cost of goods sold (30,000-10,000+10,000) £30,000
Under/over absorption (1000*5) £5000
Gross profit (52,500-30,000-5000) £17,500
Less non production cost (selling and distribution) (10,000+(15%*52,500) £17,875
Profit/loss (17,500-17,875) -£375
Income statement using Marginal costing
Sales (35*1500) £52,500
Less COS
Opening inventory
Variable cost of production (15*2000) £30,000
Closing inventory (500*15) £7,500
Cost for sale (52,500-30,000) £22,500
Less other variable cost (15%*52,500) £7,875
Contribution (52,500-22,500-7875) £22,125
Less fixed cost/actually incurred £15,000
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Less non production cost (selling, distribution and administration) £10,000
Profit/loss (22,125-15,000-10,000) -£2,875
Reconciliation
Absorption profit - £375
Less fixed overhead on inventory (500-0*5) £2,500
(closing inventory(production –sales2000-1500=500) -opening inventory*fixed overhead)
Marginal profit - £2,875
By analysing above income statement it can be concluded that absorption costing would
be appropriate method for cited company because they will face a loss of £375 which is less than
the figure determined by marginal approach. This difference in amount occur due to different
treatment of closing stock. Fixed cost is considered in both methods but in marginal costing, it is
subtracted in one shot which put a heavy burden on profit. The variation between both
approaches could be less it this figure is treated in same way (Ngoc Phi Anh Nguyen and Mia,
2011). In absorption costing, fixed cost is allotted with the production of each unit which reduces
the overall burden on net profit. Marginal approach focuses on variable expenses in starting but
in the end, fixed expenditure is included which is the main reason behind the major difference.
£2,875 is the loss which is ascertained by using this method. At the time of reporting, absorption
costing would be perfect option but marginal is considered as a more realistic concept as there is
no point of including fixed cost in each unit that is produced by the production department.
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Marginal costing basically focus on additional expenses, but absorption deals with all the
expenses that has happened in production process.
TASK 3
A. Various types of budget and process of budget preparation
Budget is basically a record of planned expenditure and expect income. It provide a
pathway to various department of an organisation which save them for facing different kind of
confusions. It also reduce conflict between two divisions that can derail all the major business
operation of cited organisation. An effective plan give confidence to the managers because they
have basic idea activity next step which they have to follow for completing a task (Otley and
Emmanuel, 2013). Some people raise question on accuracy of budget but in reality every
organisation has to do some planning as it is essential for moving on a same path. Following are
some popular kind of budgets:
Master budget – Normally plans are made for one of two department of an enterprise
but this type of budget is made for all the divisions of a company. It include all the operational
area which has direct or indirect role in attaining set objectives. Every wing of the firm get their
targets and essential funds.
Advantages – One of the most important merit of this budget it that it synchronise all the
task that would be performed in the organisation (Kotas, 2014). This will help cited company in
advancing on correct path. It also reduce the number of conflicts which can happen between two
divisions of an enterprise. Sometime plans made by various department work against each other,
this create major confusion in the firm and it has many negative impact on the image of
company. By making a master budget, cited organisation can remove these kind of major
problems. Most of the managers get distracted by strategy of their competitors, they forget their
actual plan which can assure them success in long run (Hoque, 2012). This type of planning will
help them in focusing on their own goals and reduce different type of noises which they hear
from outer world.
Disadvantages – Master budget cannot be made by small firms because it is one of the
most expensive planning which is currently present in business environment. Most of the
manager raise question regarding its accuracy (Macintosh. and Quattrone, 2010). One this budget
is made by company, they cannot do any major changes in set program because if one part get
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affected then other will also face its heat. Process of this kind of planning is very lengthy,
managers do not like spend hours of efforts on formation of plans as their main focus is on
execution of various tactics. Companies do not like to make this budget because they believe in
making short term plans because they can easily execute them.
Cash budget – Liquid asset are considered as backbone of an organisation. This budget
is prepared for determining the amount of cash that should be kept in business. Estimation is
done relating to expected cash inflow and outflow. Collection of revenue, payment of expenses
are some of the major areas which are focused at the time of forming this budget.
Advantages – It help in ascertaining the right amount of cash that should be kept by
accountant. It support time payment to different creditors and suppliers who are significant part
of stakeholders (Horngren. and et.al., 2005). Firm can make a record of various debtors who are
not paying their dues on right time. This will reduce the amount of bad debts by figuring out
defaulters.
Disadvantages – There is a big question make on its accuracy, managers often argue that
company can never determine the exact amount of cash that they should keep in their
organisation. It is do not have direct relation to profit so its formation is considered as wastage of
time by many accountants.
Operating budget – This type of planning is done for manufacturing and administrative
work. All the income from operational activities is estimated along with the expenditure that
company is going to do in upcoming time.
Advantages – This budget play crucial role in minimising the wastage of resources. If
manager know the actual amount which they can spend then they use it in an effective manner
(Baldvinsdottir, Mitchell and Nørreklit, 2010). It play crucial role in expansion of business
because planning for new area of operation can reduce various risks that an organisation can face
at the time of entering new market.
Disadvantages – Formation of this budget put an extra pressure on financial position of a
firm. This type of planning is done for short time period, changes can be done in these plans on
continuous basis. It create confusion among manager because they fail to decide correct program
which they have to follow. This type of budget focuses on a single year, long term plans ar3e
generally ignored at the of its formation.
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B. Budget preparation process
The process of budget formation start with taking estimation of various figures from
different departments. Some companies like to do it in a formal way while other follow informal
approach which take less time (Strumickas and Valanciene, 2015). These figures are analysed in
order to determine make strong coordination between various demands. It help in trying overall
interest of the organisation which is more important than individual success. The budget is then
communicated to all the responsible managers so they get information about necessary changes
which are made in the planning. The last step is implementation of budget which can be done by
providing essential resources to various departments.
C. Pricing Strategies
Penetration pricing – In this method, an organisation launch their product at a very low
price in order to capture high amount of market share in less time period. By adopting this
method, company have to face severe loss in starting but in long run, they will earn its benefits.
Skimming pricing – This is a unique strategy where an enterprise charge high product for
a product in initial stage so they can earn huge amount of profit (Garrison, and et. al., 2010). This
tactic is made for targeting rich segment who can pay high value for a commodity. Companies
can bring down their product price once they feel the an item has achieved its optimum level.
Economy pricing – The prices of goods are kept low so every consumer can afford it. By
following this strategy, an enterprise can attain decent amount of market share and profit in short
period of time. It is generally adopted by retail and pharma companies.
TASK 4
A. Use of balance scorecard approach in solving financial problems
Balance scorecard is a management tool which play crucial role in an organisation for
attaining their mission. It has four legs finance, learning, business process and customer. First
one focus on issues relating to cash flows, financial data etc. important figures relating to sale
and revenue become its significant part. Business process focuses on finding the gaps between
actual and expected return (Burritt, and et. al., 2011). Various waste and shortages of resources
can be resolved by using this management system. Knowledge present in to the organisation can
provide extra edge to a firm over their competitors. Customers are main focus of every business,
by taking feedback from consumer firm can make effective plans in order to assure decent level
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of buyer’s satisfaction. Utilisation of balance score card approach for solving various financial
problems:
This is one of the best approach that is present in current business environment. It is easy
to make plans or set financial goals but most of the problems arises at the time of execution of
planning (Bodie, 2013). This approach play significant role in balance between cash inflow and
outflow. Without soling problems relating to this issue, an organisation cannot run their business
in a smooth manner. This approach assist is selecting right data which should be measured for
ascertaining results or making long term plans. It provide power to managers for taking correct
action in the process of executing an idea. They can use various type management tool for
finding and solving different type of financial problems. By using this system, an organisation
can focus on underperforming departments who are becoming the main reason for lowering
down the revenue of the enterprise. It can also assist in finding the correct source of long term
loan, this can reduce the burden of cost of capital on an organisation.
Use of balance card approach in improving financial governance
The reason behind facing sever loss of £1.5 million is poor financial governance that is
present in Imda Tech (Vakalfotis, Ballantine. and Wall, 2013). Balance scorecard approach play
crucial role in monitoring the work of staff member. By using its various tools, cited company
can solve the problems like investing funds in wrong directions, or confiscation of money by an
employee etc. Imda Tech can find the appropriate source of borrowings which can reduce their
burden of debt. In order to avoid this kind of loss in upcoming time, they should monitor
performance of every employee so their efficiency can be enhanced without getting delayed.
They can also tighten control on various activities which organisation is performing for attaining
their goals so different problems can be solved at the point of their generation. Cited organisation
should also focus on significant areas like customers satisfaction. If they focus on their internal
functions, like manage liquid assets in effective manner and follow all the regulations made by
government then they can easily attain a sound financial position.
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Illustration 1: Balance scorecard Frame work
It is an effective tool that consist of four different measurements that are used for
strategic perspective. Explanation of each is given below:
Respective Generic Measurement
Financial Return on investments
Costumer Clients satisfaction level
Inside procedure of business It involves calculations of all the inside value
chains.
Learning and development Under this measurement in the growth of
employees and systems is done in respect to
their efficiency.
CONCLUSION
It can be concluded from the above report that there is a huge difference in between
management and financial accounting. First one focuses on solving various problems of an
organisation while later one's main objective is reporting of financial reports. Earlier a company
concentrate on basically two areas, first is finding right field of investment and second is
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exploring efficient source of debt. Different tools of management accounting like inventory
management and job costing system can minimise the wastage of available resources. They can
increase the revenue of a firm within short period of time which can provide some extra edge to
company over their competitors. An enterprise should make a choice between marginal and
absorption costing according to their suitability. Different types of budgets can reduce the
uncertainties which a firm face in their business operations. This can reduce the confusion
between various departments of an enterprise. It has also been assessed that balanced scorecard
approach helps an organisation in making a proper system of monitoring and controlling. Its
different tools like automation can improve the financial health of an enterprise.
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REFERENCES
Books and Journals
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and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Bodie, Z., 2013. Investments. McGraw-Hill.
Burritt, R.L., and et. al., 2011. Environmental management accounting and supply chain
management (Vol. 27). Springer Science & Business Media.
Ezzamel and et.al. 2003. The future direction of UK management accounting practice. Cima
Publishing.
Garrison, R.H., and et. al., 2011. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Hammad, S., Jusoh, R. and Ghozali, I., 2013. Decentralization, perceived environmental
uncertainty, managerial performance and management accounting system information in
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Hoque, Z., 2002. Strategic management accounting. Spiro Press.
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Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Macintosh, N. B and Quattrone, P., 2011. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Naidu, S. and Chand, A., 2013. Financial problems faced by micro, small and medium
enterprises in the small island states: a case study of the manufacturing sector of the Fiji
Islands. International Journal of Business Excellence. 6(1). pp.1-21.
Ngoc Phi Anh, D., Nguyen, D.T. and Mia, L., 2011. Western management accounting practices
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