Analysis and Improvement of Zylla Company's Accounting System

This assignment focuses on improving the management accounting system of Zylla Company, addressing the benefits of management accounting, various costing techniques, and their impact on profitability. It covers management accounting reporting methods and evaluates the advantages and disadvantages of planning tools, particularly in budgetary control. The report includes applications for budget preparation and how management accounting systems respond to financial challenges. Furthermore, it integrates management accounting systems and reporting into Zylla Company's organizational context, including cost and sales reports, budget reports, investment appraisal reports, and divisional/segmental reports. Cost analysis is performed using marginal and absorption costing, and the implications of these methods are discussed. Inventory management and variance analysis are also examined as part of the budgetary control process.

Improving Zylla Company management accounting system
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Table of Contents
Introduction....................................................................................................................................3
LO1..................................................................................................................................................4
P1.................................................................................................................................................4
P2.................................................................................................................................................5
M1............................................................................................................................................7
D1............................................................................................................................................8
LO2..................................................................................................................................................9
P3.................................................................................................................................................9
LO3................................................................................................................................................11
P4...............................................................................................................................................11
M3..........................................................................................................................................13
LO4................................................................................................................................................14
P5...............................................................................................................................................14
M4..........................................................................................................................................15
D3..........................................................................................................................................16
Conclusion....................................................................................................................................17
References.....................................................................................................................................18
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Introduction
The assignment includes the Zylla Company which has gone through many changes and need to
review existing system. The assignment consists of the benefits that management accounting
have in the organization. There is the inclusion of the various costing techniques and effect of the
same on the profitability of the company. The various management accounting reporting
methods are also stated in the assignment of the company. The various advantages and
disadvantages that planning tools have in the organization are also stated related to the budgetary
control. The applications of the same for preparation of the budgets are also stated in the
assignment. The ways through which management accounting systems and planning tools are
able to respond to the financial problem and achieve the sustainable success is also stated. There
is also the inclusion of how the management accounting system and reporting are integrated into
an organizational context.
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LO1
P1. Explain management accounting and give the essential requirements for different types
of management accounting.
The management accounting is an internal function which is used by the managers to develop the
information for an effective and efficient decision making. The management accounting is a tool
to achieve the goals and objectives that are being established with the help of formulation of
reports, analysis of the data and the cost involved in the operation. The management accounting
is flexible and the use of same depends upon company to company as per the requirement.
Management Accounting is very useful for an organization because of the following reasons:-
Reduction in the Expenses – Management accounting helps in reducing the cost expenses that
are incurred by the organization. It is important that there is a regular improvement in reduction
of cost by the managers to sustain in the market and increase the profitability. The managers of
Zylla Company can analyze the cost that is being incurred during an operation and analyze the
reason for any deviations and take preventive steps to overcome them. The company can analyze
whether the resources available are utilized effectively and try to minimize any overhead cost of
the company.
Facilitates the decision making – The management accounting is essential in the decision
making of the company. The Zylla Company can take various decisions depending on the
quantitative data that are available to them. The company can analyze the data that is being
recorded and review the prospect of each available option and then take the decision accordingly.
Increase in financial returns – The financial returns can be increased by effective forecasting
of the factors that are surrounding the organization and take steps accordingly. Zylla Company
can analyze the market trends, demands and other factors to meet the demand of the customers.
The company can grab the available opportunities and safeguard from any threats that can affect
organization profitability resulting in an increase in the financial returns.
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P2. Explain different methods used for management accounting reporting.
The management accounting reporting is the presentation of the data available and recorded for
the internal management of the organization. It is used in the formulation of the reports with the
help of the data recorded facilitating the decision-making process.
Different methods of management accounting reporting include:-
Cost and Sales Reports – The cost and sales reports are being used to determine the
performance and variance between the actual and standards that are being set. In cost and sales
report the standards are set depending on the various factors and then compare with actual results
(Sullivan, 2017). The reason for variance achieved is analyzed and steps are taken to overcome
the same. The company can also use the same for the purpose of measuring the performance. To
get the best output through the method it is important that it is conducted regularly.
Budget report – There are various types of budgets which are prepared for a long-term objective
and goals of the organization. The budget can be long-term- short-term or annually as per the
needs of the organization. The Zylla Company can use this method of reporting to analyze how
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M a n a g e m e n t a c c o u n ti n g
r e p o r ti n g
Cost and Sales reports
Budget reports
Investment appraisal
report
Divisional, segment and
departmental reports

effective the company is able to achieve the goals and objectives that are being set (Henttu-Aho,
and Järvinen, 2013).
Investment appraisal report – The long-term investment projects requires a lot of funds and
inefficiency while taking the decision can result in heavy losses. The Investment appraisal report
can be helpful for the Zylla Company in selecting the best alternative that is most profitable for
the company (Sartori, et. al., 2014).
Divisional, Segment and Departmental reports – The other methods used for the management
reporting are the reports on the basis of the division, segment, and department in the
organization. The Zylla Company can use this method to check the efficiency and effectiveness
of each of the operations that are being carried out by the company (Ingram, 2017).
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M1. Evaluate the benefits of management accounting systems and their application within
an organizational context.
The management accounting systems are used to record the data and presentation of the same for
the managerial decision making. The benefits of the Management accounting systems are as
follows:-
Quicker and Cheaper – The application of the management accounting system in an
organization leads to quicker completion of the work and also is cheaper than other resources or
manual work. The data can be recorded more quickly due to ease in the process.
Facilitate production process – The management accounting systems helps in the production
process. It helps in determining the process which is best suitable for the organization and also
with respect to the cost involved. The reporting helps the managers in the decision making of the
company (Guinea, 2016).
Processing and recording in real time – The processing and recording is done in the real time
in management accounting system thus helping the managers to be up to date with the data that
is recording. The availability of the data helps in various decision making related to the
operational process (Leitner, and Wall, 2015).
Increase in efficiency, productivity and effectiveness – The application of the management
accounting system results in an increase in the efficiency, productivity, and effectiveness as it
eases the process. The management can analyze the report in the real-time and take advantage of
it. It is lot quicker which increases the productivity and efficiency of the company as the
resources available are used to the fullest (Guinea, 2016).
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D1. Provide a critical evaluation of how management accounting systems and management
accounting reporting are integrated into organizational processes.
The management accounting system and reporting go hand in hand in an organization. They are
integrated into the organizational process as they are supportive of each other. It can be
understood as follows:-
Recording of the Data – The management accounting system is a tool to record all the
transaction that is carried out. There is a recording of the data in the real-time which is important
for the formulation of the data. The data recorded is important for the reporting of it.
Formulation of reports – The formulation of the report is done by the management accounting
reporting which can be used only if the data recorded is true and actual which is only possible
with the help of error-free recording that can be executed in the management accounting
systems.
Analysis of data – The analysis of the data is possible for the managers if there is the proper
formulation of the reports. It is not enough to just record the data. It is important that the
information is readable, understandable and can be analyzed which is possible only through the
management accounting reporting.
Presentation of the work – The presentation of work is important as the decision making is
dependent upon the reports that are being finalized. The system and reporting help in providing a
complete presentation of the data which can be analyzed and the decision can be taken by the
management.
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LO2
P3. Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costing. [M2, D2]
Cost accounting can be defined as the determining the expenses that are incurred for the
production of the single unit of product. Cost accounting considers various costs for the
calculation of the total expenses that are being incurred by the organization for the production of
the unit. The costing techniques that can be used for the cost accounting are:-
Marginal Costing – The marginal costing considers only the variable cost of the company that
is incurred in the production of the unit. There is the inclusion of the direct labor, direct material
and all other variable cost incurred for the production process (Simpson, et. al. 2013). The fixed
cost incurred is not absorbed instead they are charged as period cost and written off in full. It is
useful for the managerial internal purpose and decision making.
Absorption costing – The absorption costing considers the various production overhead cost for
the preparation of the cost incurred for the production of per unit cost. The costs which are not
attributable to a single product are also included such as the expenses of the electricity,
depreciation etc. (Simpson, et. al. 2013). It is useful for the external stakeholders of the company
and helps in pricing decision of the company.
Income Statement as per Marginal costing
Income statement as per Marginal Costing 2017
£ £
Sales Revenue (30 x 500) 15000
Cost of Sales :
Opening Stock 0
Production cost (10 x 600) 600
0
Variable Production Overhead (1 x 600) 600
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Cost of Goods Sold 660
0
Less Closing Stock (11x 100) 110
0
5500
Contribution 9500
Less Fixed Cost
Marketing and administration cost 100
0
Production overhead cost 180
0
2800
Operating Profit 6700
Income Statement as per absorption costing
Income statement as per Absorption Costing 2016
£ £
Sales Revenue (30 x 500) 15000
Cost of Sales :
Opening Stock 0
Production cost (10 x 600) 600
0
Fixed production overhead 180
0
Variable Production Overhead (1 x 600) 600
Add Closing Stock (14 x 100) 140
0
Gross Profit 8000
Less Fixed Cost
Marketing and administration cost 100
0
1000
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Operating Profit 7000
Reconciliation of Profit
Reconciliation of Profit £
Absorption costing profit 7000
The fixed cost of closing inventory (3 x 100) 300
Marginal Costing Profit 6700
The profit that occurred after the calculation through Marginal costing is £6700 whereas it is
£7000 while calculating it through the Absorption costing. It is due to the effect of the absorption
of fixed cost in the closing stock of the company. The profit will be same in case of long-run
irrespective of the method used by the organization but for the short term, it differs due to fixed
cost effect in the inventory. The profits calculated from both the costing methods are correct and
acceptable it is the purpose that leads the managers to use different techniques.
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LO3
P4. Explain the advantages and disadvantages of different types of planning tools used in
the budgetary control.
The different types of planning tools for budgetary control are as follows:-
Inventory management – The inventory management is an important planning tool that is used
by the budgetary control. The Inventory attracts variable cost which needs to minimize to
increase the profitability of the company.
Advantages
It is helpful in minimizing the variable cost of inventory as well as the ABC analysis helps in
effective management of the inventory in case there is more than one product.
Disadvantage
It can lead to a position of the stock out and delay in the production process if there is not
effective management of the inventory.
Variance analysis – The variance analysis refers to the analysis of the variance which leads to
differentiation in the actual and budgeted results (Lajevardi, 2017).
Advantage
The Variance analysis helps to overcome the reason for the deviation and also in increasing the
efficiency and productivity of the company.
Disadvantage
The variance analysis needs to be done at a regular interval for effectiveness which leads to
wastage of money and time.
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Budget analysis – The budget analysis is analyzing of factors that are surrounding the
organization for the preparation of an effective budget helps in setting up of strategic planning
and objectives of the company.
Advantages
The budget analysis facilitates the formulation of plans and objectives of the company. It is
useful in setting up of the standards for better control over the process of the organization.
Disadvantages
The budget analysis is based on the various factors and it is difficult to estimate them sometimes
that can lead to inefficiency of the budget.
Benchmarking – The benchmarking can be defined as the analysis of the internal performance
with that of the best practices and industry in the market (Lajevardi, 2017).
Advantages
The benchmarking helps in strengthening the process that helps in making the performance and
productivity of the organization effective and efficient (Ordelman, 2016).
Disadvantages
It might be possible that the process and other organization are not adequate for the similar
organization thus resulting in the inefficiency.
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M3. Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
The budgets are the objectives and goals that an organization looks forward to achieving. The
forecasting can be defined as the analysis of the factors that are surrounding the organization. To
have an effective and efficient budget which is achievable it is important that the factors must be
analyzed properly (Zhu, 2014). There are various factors such as the demand for the product,
changes in the market trend, implication of any laws etc. which affects the preparation of the
budget. The planning tools are helpful in preparation and forecasting of budgets as the factors
can be better analyzed with the help of planning tools. The planning tools help to determine the
effect of these factors and to plan accordingly. The planning tools help in the formulation of the
budget and also in revising it in case there are some factors remained unnoticed at the time of the
formulation of the budget. The production budget can be effectively made through the planning
tools depending on the demand for the product. The sales budget can be determined with the help
of competitor and market trend of the product sold by the organization.
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LO4
P5. Compare how organizations are adapting management accounting systems to respond
to financial problems.
Benchmarks – The benchmark is the techniques used for the analysis of the process and strategy
in comparison to the market leaders in that particular industry. Benchmarking helps to solve the
financial problems by making the procedure involved in the operations strong and effective. It
will help to reduce the leakages in the process thus helping in reducing the wastage and overhead
cost. The reduction in the cost results in an increase in the profitability of the company.
KPIs – The KPI’s are the key performance indicators financial as well as non-financial. The
non-financial KPI’s are also as important as the financial KPI’s (Eklof, et. al., 2017). These are
helpful in solving the financial problem as the company can make the changes as per the needs
of the customers and increase the demand for the product. The Non-financial KPI’s helps to
retain the customers for the long term which is important for a business to grow and expand
(Muriana et. al., 2016).
Financial Governance – The financial governance can be understood as the proper authority
and responsibility of the managers. The financial decisions are very important for the
organization and can lead to disaster if not taken appropriately. The financial governance is
about providing proper responsibility for the financing decision so that in case of any
unfavorable decision manager can be accounted for (Zou, et. al., 2015). It strengthens the
decision making of the financial decision to be taken by the managers.
Budgetary Target – The budgetary targets are helpful in solving the financial problems related
to the performance of the organization. The companies’ goals and objectives are based on the
budgetary targets sets and non-achievement of the same show the inefficiency of the problems.
The budgetary targets help to determine the area which needs to be taken care to improve the
performance of the company. There is effective and better allocation of the funds through
budgetary targets.
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M4. Analyse how, in responding to financial problems, management accounting can lead
organizations to sustainable success.
Reduction in cost – To achieve the sustainable success it is important that the managers must try
to take steps for reducing the cost that is involved in the company to attain sustainable success. It
is possible with the management accounting through effective process management and reducing
of the wastages involved in the production process.
Better allocation of funds – The resources are always scarce in relation to the wants or
requirements, therefore, it is important that there is a better allocation of the funds by the
management. The management accounting helps them to focus on the areas which are not
performing effectively. Through effective investing decisions, the company can grow and attain
the sustainable success (Osadchy, and Akhmetshin, 2015).
Effective control and coordination – The effective control and coordination help in better
understanding of the goals and objective that the company is looking forward to achieving.
Management accounting can help to establish an effective and efficient control and coordination
thus resulting in improved efficiency of the process and targets.
Increase in the productivity – There is an increase in the productivity through management
accounting which further helps in increasing the profitability of the company. For the long run, it
is important that the company is able to earn profit which is possible with increased productivity
and efficiency through management accounting.
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D3. Critically evaluate how planning tools for accounting respond appropriately to solving
financial problems to lead organizations to sustainable success.
Effective planning – It is important for the organization to effectively plan for the sustainable
success. The planning tools help in strategic planning which helps in solving the financial
problems and gain the success. The planning process helps in attainment of the goals and
objectives that are desired by the organization (De Montis, 2014).
Preparation of budgets – The effective budget is the blueprint for achieving the goals and
objectives. The planning tools are helpful in overcoming the financial problems and results in
sustainable success and growth. The budgets lead to management of the inflow and outflow of
the cash through planning leading to sustainable success (De Baerdemaeker, and Bruggeman,
2015).
Setting up of standards – The standards are important to set not only to measure the
performance but also to analyze the flaw. The standards can be set with the help of the planning
tools. The improvement in the performance with the help of the planning tools helps in solving
the financial problem resulting in long-term success and growth.
Overcome the variances - It is important to analyze the variances and to overcome them.
Planning tools helps in taking the preventive steps that restrict the underutilization of the
resources in an effective way. The variances are overcome making the process smooth and better
resulting in the long-term success and growth.
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Conclusion
It can be concluded with the help of the assignment that the Zylla Company can be benefitted
with the management accounting techniques. Management accounting is helpful for better
management and reduction of cost. The management accounting reporting includes various
methods which facilitate the presentation and reporting of the data. It can be stated that there is
the difference between the profits of costing technique in short run but for the long run, it
remains same. Their planning tools are very much beneficial for the organization in terms of
analysis of variance, preparation of budget but sometimes become expensive and ineffective. It
can also be concluded that the management accounting system helps in solving the financial
problems through better allocation and management of the funds resulting in sustainable growth
and success. The conclusion can be done that management accounting, management accounting
system and reporting are important tools of organization.
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