Detailed Analysis of Management Accounting System for Zylla Company

This report, prepared for the General Manager of Zylla Company by the Management Accounting Officer, provides a comprehensive overview of the company's management accounting system. It begins with an introduction to management accounting and its importance in achieving business ...Read More

MANAGEMENT
ACCOUNTING

Table of Contents
FROM: MANAGEMENT ACCOUNTING OFFICER..................................................................1
TO,...................................................................................................................................................1
GENERAL MANAGER..................................................................................................................1
ZYLLA COMPANY.......................................................................................................................1
SUB: MANAGEMENT ACCOUNTING SYSTEM .....................................................................1
INTORODUCTION........................................................................................................................1
TASK 1............................................................................................................................................1
P1............................................................................................................................................1
P2............................................................................................................................................4
M1...........................................................................................................................................5
TASK 2............................................................................................................................................6
P3............................................................................................................................................6
M2:.........................................................................................................................................8
D2:..........................................................................................................................................8
TASK 3............................................................................................................................................8
P4............................................................................................................................................8
M3.........................................................................................................................................10
D3.........................................................................................................................................10
TASK 4..........................................................................................................................................10
P5..........................................................................................................................................10
M4.........................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

FROM: MANAGEMENT ACCOUNTING OFFICER
TO,
GENERAL MANAGER
ZYLLA COMPANY
SUB: MANAGEMENT ACCOUNTING SYSTEM
INTORODUCTION
Management accounting is the best tool which is used by each firm for making business
objectives achievable and obtainable. Management Accountant of Zylla Company uses various
techniques and concepts of management accounting, to make the accounting data more useful for
managerial decision-making. The technique of management accounting includes ratio analysis,
fund flow and cash flow statement, budgeting and forecasting etc. The main intent of
management accounting is to show the accounting information in such a manner as to help the
management of Zylla Company in planning and controlling the operations of a company’s
business in which Zylla Company is dealing with their customers (Renz, 2016). Under this
description various management accounting methods are used to make the accounting policies
for the company much stronger than their competitors who are available in the market. While
applying the management accounting methods & techniques in the company, the accountant of
Zylla Company need to know various advantages and disadvantages of Management
Accounting so that the firm can get the sustainability.
TASK 1
P1
Management Accounting is the presentation of accounting information in such a manner
as to help management of a company in the making of policy and day-to-day procedures of a
company. It covers all those services which the accountant of the company can assist top
management and other departments in the formulation of policy, the control of its execution and
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the appreciation of its effectiveness (Quinn, 2014). It emphasizes on future because decisions are
always take for future course of action. When this future turns into present, a critical
investigation is made and variances are ascertained to make corrective action. For this, budgetary
control, standard costing is the methods which highlights the future. The management accounting
is useful to improve the efficiency and also helpful to managers of different departments that
how much resources are available to them and according to these available resources they have
to accomplish their assign tasks.
The main difference between the Financial Accounting & Management Accounting is that
Financial Accounting in the sense that all the company transaction and events are expressed in
terms of money and management accepts them in the form of statements and reports.
Management accounting cannot replace financial accounting. It draws out a major
important part of the information from the financial accounting and changes the same for
managerial uses. Therefore, both the accounting is complementary to each other (Advanced
Management Accounting, 2017).
The scope of management accounting is most wide because financial accounting, cost
accounting and others techniques are used in it. Thus, financial accounting is part of management
accounting.
There are various techniques used in management accounting which are discussed below
 Cost Accounting: Cost accounting is used to ascertain the cost of a product or service. In
this accounting, present and past events are used (Parker, 2012). Cost control, cost
analysis for decision-making and price determination are also objectives of cost
accounting. Under cost accounting various techniques is used to estimate the cost of a
particular product. The techniques are standard costing, marginal costing, budgetary
control, etc. Standard Costing is an important technique for cost control, which is one
main objective of management accounting. This involves the technique of determination
of standard costs, their comparison with actual cost and the analysis of the differences i.e.
variances to their causes and points of incidence.
Marginal costing is a managerial technique that considers only variable cost in the
additional introduction of output decisions. Marginal costing is helpful for management of
profitability of different products, departments and divisions of a company.
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Budgetary control refers to a system of business control that uses budgets to control the
important activities of business. In this continuous comparison are made with actual figure with
budgeted figure.
 Inventory Management System: It is an inventory planning which covers the task of
development and administration of policies, systems and procedures which minimize
total costs relating to inventory decisions and related functions such as customer service
requirements, production programming, purchasing and so many things. A well-
developed inventory system precaution to provide the management detailed and up-to-
date information that helps in production planning and control. Inventory control signifies
a planned approach of ascertaining when to indent, what to indent, how much to
inventory so that costs involving purchasing and storing are optimally reduce without
interrupting production and also not affecting sales. To solve these problems of inventory
management various techniques have been evolved by company. These techniques are
EOQ (Economic Order Qty.), Re-Order Level, Fixing Stock Levels, Etc.
 Financial Analysis: Financial analysis is an attempt to determine the significance and
meaning of financial statement data so that a forecast for future may be made of the
prospects for earning in a future. The analysis and interpretation of financial statements
helps the manager to present the information to the business executives, investors and
creditors of a company (Papaspyropoulos and et. al., 2012).
The techniques of financial analysis include the following:
 Comparative statements and trend analysis
 Ratio analysis
 Funds flow analysis
 Cash flow analysis
Financial analysis helps the Accountant to analysis the performance of the company in all
aspects because he has techniques and with the help of these he can make future suggestions to
the top management. If the financial position of a company is good, the company makes payment
to debt and pay dividend to the shareholders.
P2
There are various methods or manners which are used by the company to raise the
lucrativeness. This can be done by healthy reporting system of a company in which a manger
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records each and every transaction related to the company with the fairness and without any
fraud in transactions. All these transactions are made by and getting helped by the financial
statement of a company, which present truthfulness about the company financial position. With
help to these financial reports a company manager makes strategies and business policy for a
company (Otley and Emmanuel, 2013). Past data also useful for the manger while making the
strategy. With the past mistake company in future cannot repeat this mistake. The investment
decisions are based on these reports and financial statement of a company. If a company have a
sufficient money, they invest this money in their projects and paying the debts and also to their
creditors and also helpful to declare the interim dividend to their shareholders.
Good financial strategy helps the company to survive in the highly competitive market
and compete with their competitors. Having good finance company can import the latest
technology machines and equipment’s.
There are many financial reporting systems which are used by a company and a some reporting
system are discussed below:
 Performance Reporting System: In this system past and present performance are
evaluated. If the present performance is better than the past, than there is no need to take
corrective measures and this performance is helpful for future, while making the report
for the future (Morales and Lambert, 2013). If there is any deviation occurs between
these performances the corrective action taken by the manager and this mistake cannot
repeat in the future and this mistake occurs when the past is better than the future.
Performance measures helpful to the manger in making the future report for the company.
 Operational Reporting: In this reporting system the operations related to a
manufacturing is reported. It is basically for the manufacturing industries because they do
operations on regular basis. In this reporting industry operations are evaluated and
overseen by the manager of the industry. The actual cost with the standard cost is
measured by the manager for the product which is manufactured.
 Job Costing Reporting: This is a competent technique used by the manager of a
manufacturing company to analyses the actual cost incurred on a particular job. Like how
much labor cost incurred, how much raw material used in a job and manufacturing
expenses related to the job are disclosed in a reporting to the senior manager of the
company.
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 Inventory/ Stock Management Reporting: In this reporting, manager report that how
much inventories are there in a manufacturing unit and also state that how much closing
stock are available in the store (Lukka and Modell, 2010). In his report he also gives
information to the purchase department that how much stocks are needed in future and
how much are available in the present. Manager also sees that there is an effective
utilization of the stock in a proper way or not and also sees the working of the labor that
the labor misuses the raw material or wastes them. In this reporting manager tells
everything in a state manner to the concern departments.
 Account Receivable Report: This is receivable report tells about that how much
company have a debtors and in these debtors how much they are bad-debts. This
reporting helps the manager that how much money will come in future or not. And also
help to record that how much money comes from the bills which are drawn.
M1
Advantages Of Implementing The Management Accounting: Management accounting helps
the firm to gain the sustainability and also used in the firm for getting its pre-set targets.
1. It helps in proper planning for financial resources of a company.
2. The tools & techniques of management accounting are helpful to the management
in controlling the activities of the company (Luft and Shields, 2010).
3. It also increases the profitability to the company, while reducing the cost in
production and also eliminating the wastages.
4. The techniques of budgetary control & standard costing help management in
evaluating the performance of different departments, persons, machines etc. in the
company.
5. Better customer services given with the help of management accounting.
TASK 2
P3
Costing: This is a system which is assigned the cost on the every element of a business in which
a company dealing. Costing is generally used to develop costs for any or all the following:
- Customers
- Distribution Channels
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- Products
- Geographic regions where the company has a business or wants to establish their
business.
- Product lines offering by the company
- Manufacturing processes
Costing is also including the assignment of fixed costs, which are same, irrespective of the level
of production. This type of costing is called as absorption costing.
The costing helpful to the manger of a company to assign the cost on the
product while using the techniques of the costing.
Absorption Costing: It is a managerial accounting cost method of expensing under which all the
cost associated with manufacturing units are considered. Some of the direct costs are associated
with manufacturing a product include wages for labor , raw materials used in a product and other
overhead costs used in producing the goods. Absorption costing includes anything that is direct
cost in producing a good as the cost base.
Marginal Costing:Marginal cost is the up or down in the total production cost if output is
increased by one more unit. Marginal costs are variable costs including labor and material costs;
add an estimated portion of fixed costs such as administration expenses and selling expenses. It
helps profit planning through break-even point charts and profit which is plotted in the graph.
Comparative profitability can easily be assessed and brought to the notice of the management of
a company for decision- making.
Key difference Between marginal costing and absorption costing:
BASIS FOR
COMPARISON
MARGINAL COSTING ABSORPTION COSTING
Meaning A decision-making tool for
ascertaining the total cost of
production.
Apportionment of the total
costs to the cost centre in order
to determine the total cost of
the production.
Cost Recognition The variable cost is considered
as product cost while fixed
cost is considered as period
Both fixed and variable cost is
considered as product cost.
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costs.
Classification of Expenses Fixed and variable Production, administration and
selling & distribution
Profitability It’s measured by profit-
volume ratio.
Due to inclusion of fixed cost,
profitability gets affected.
Cost per unit Opening and closing stock
does not influence the cost per
unit of output.
The opening and closing stock
affects the cost per unit.
Calculation by using the Marginal Costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Computation through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500 8000 8000
Gross profit 9500
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Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
M2:
There are various factors which determine the profitability of the industry. Such kinds of
methods are interconnected with the internal and external factors of an environment. Managers
of the industry apply the different methods in order to reach the planned objectives of the
industry. Few of them are: microeconomic methods which are linked with the cost volume
profits, flexible budgeting and cost connected variances (Cuganesan, Dunford and Palmer,
2012). By applying these methods in industry operations at each and every issue could be
decided.
D2:
From the above-mentioned financial information is taken as on assumption basis. This is
necessary to identify net profits for the industry by applying different costing tools. The
mentioned industry is having two important techniques, like- absorption and marginal costing. If
they are applying absorption costing, then the profits will come to 7800, while on the other hand,
by using marginal costing, industry earns 7500, which is less than the profits which is calculated
by using absorption costing.
TASK 3
P4
A budget is an accounting plan. It is formal plan of action expressed in terms of money. It
is also forecast the expenses and income for a particular future period of time. It is a pre-set
action to accomplish pre-set objectives which are based on pre-determined assumptions. It is a
prediction and controlling device for a firm (Cinquini and Tenucci, 2010). In a firm, this is
highly influencing tools implementing by the management in internally and it is optional to
report the external parties of the firm. It is likewise demonstrates capital to be employed during
the period. Managers of a company prepared in advance before the actual operation of the
company.
Classification of budget:
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 Production Budget: This budget is made by estimated production for budget period.
normally, the production budget is totally depends on the sales budget. During
incorporating budget, the production manager will believe the physical availability like
plant, power, raw materials and labor. Production budget of a company for attaining the
sales target.
 Purchase Budget: This includes direct and indirect material while preparing this. The
purchasing budget might be expressed in monetary or quantity term. It enables
purchasing division to plan its operations with in a time frame in repeat of purchases so
that long-term forward contracts can be configured (Cadez and Guilding, 2012).
 Cash budget: This is the estimated cash inflow and outflow over a specific period of
time. It is crucial and one of the last to be made. This is detailed projection and the
resultants cash balance while preparing the budget. This helps the management for
identify the future liquidity needs of the firm, estimation for business of those
requirement, exercising control over cash. So, cash budget could play a vast role in the
firm.
There are so many forecasting tools that can be help for the firm for budgetary control: some of
them are discussed hereunder:
Forecasting Tool: This tool is used by the management of company to forecast about the
internal and external factors which affects the business activities to make effective strategies and
plans which enhance the ability of company to perform their functions. By using such tools and
techniques, manager of company can easily prepare different reports and budgets which are
working as standards which guides different activities of employees. This enables them to
perform their activities with the help of such standards and achieve their targets effectively. Such
forecasting about future actions helps in preparation of different budgets which helps in
allocation of resources according to that and control the budgets of company efficiently. This can
also be called as planning tool which helps in plan about future actions. This includes the
forecast about cash flow, industry association, production chart etc. This can be defined below:
 Cash flow statements: This is the important forecasting tool which is used by the
management of company to planning about cash needs of the different departments of
company in effectively operate their functions (Burritt and Schaltegger, 2010). This helps
in identification of the need of cash in payment of their bills when there is chance
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regrading arrival of receivables. This helps in preparation of entire annual budget by
expecting income from the sales activities of business. This contributes in effective
performance of their function and timely make payment to their suppliers and ensure that
can pay the bills on time.
Situational Tool: This includes such tools and techniques which is used by the management of
company to understand about the situations which are present and going to happen in future. This
helps in preparation of different plans which provides strength to deal with such situations
effectively and achieve their desired results. This is the planning tool which is used to make
future actions and provides the solutions regarding problems faced by employees during
performance of their work. It includes many tools which are used for situational analysis like
SWOT analysis, PESTLE analysis etc. This helps in identification of their strength and
weaknesses control use of different resources which increase their cost of production. Such
analysis helps in effective allocation and optimum utilisation of their available resources to
achieve desired result at minimum cost. So, this analysis work as budgetary control tool which
helps the manager to control their cost and expenses by plan their future actions (Boyns and
Edwards, 2013).
M3
From this report, this has been examined that the company needs to follow different
planning methods, so that it can achieve its pre-set objectives and goals. However, this is the
most important method for taking advantage in the uninterrupted development of a company
financial position. With the help of different planning methods, company can measure their
financial strength and weakness by forecasting budget in an efficient and effective way.
D3
With the help of planning methods, a company could decide the financial related troubles
in a competent manner. The above referred planning methods are helpful to solve the financial
troubles, so that the Zylla Company could get uninterrupted development.
TASK 4
P5
In a Zylla Company, this is determined that profitability could increase by applying a
sufficient tools and techniques. There are many tools and techniques which can be used by the
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company in order to increase the profitability of the company. While, income could be
determined by financial issues relating to the company. There are several examples which have
been cited that are: deficiency of cash availability in order to fulfil the short term debts. The
financial difference is necessary to be resolute by the management accountant, before the
company business operations are executed, so that the company business operations cannot be
affected by these differences. This is rightly said that such kind of deviation arises due to not
rightly utilizing the available resources, which creates a big effect over the company financial
performance. This is the most important responsibility of both managers and company to reduce
the financial deviation as soon as possible so that it does not impact on the performance related
to the present (Bodie, 2013). There are various methods which can be used by the company in
order to maximize the company performance level. Some of them are follows as:
 Key performance indicators: This is an important method which is used by the
company in order to develop the employees and company performance level at the all-
time. This can be stated that the company can change these financial differences by using
key performance level indicators and also available essential indicators by which
company can achieve the pre-determined tasks and goals. An effective KPI’s is resulted
on the company’s processes and functions which top level management oversees as the
most important for estimating the progress towards to achieve the strategic targets and
performance goals and objectives which are planned previously.
Some of the importance of KPIs, are as follows:
Key performance indicators reflects light on how effectively a firm is doing. Without
KPIs, this is not easy for the firm's leaders to assess that in a meaningful manner, and then
incorporate operational changes in order to resolve the financial problems.
 Controlling budget: It will helps business in gathering with financial problems such as
over cash expenditure on unneeded events which not have different values of goods.
Zylla Company could use such techniques and tools in regards to monitor discrepancy
between its actual and estimated sales (Bennett, Schaltegger and Zvezdov, 2013).
 Benchmarking: It is a business procedures as well as performance metrics which is
essential for the company in respect to decrease all issues in an essential manner. In the
organisation, it will support the delivery, planning and selection of goods. Here, business
entity can evaluate its yearly performance by examination it with past years. For instance:
11

let's assume, business challengers which into in this company size that has large sales
than firm can reduce all issues. Therefore, mentioned organisation could take its sales and
revenues as a term of benchmarking.
Benchmarking is a five-step process which are as follows:
 Select a good, service, or inner division to benchmark.
 Identify which best-in-class firms company is required to benchmark against which firms
mangers compare their business to.
 Accumulate information on their inner performance, or metrics.
 Compare information from both firms to determines gaps in firm's performance.
 Consider the processes and policies in place under the best in class performers.
Financial governance: This is the stringent set of rules which are issued by the regulators in
order to ensure that financial processes are well, governed. A huge part of financial governance
is firm's reporting capabilities that cover each aspects from the internal controls, to audits, to
process workflows, to financial controls, data tracking and security and others. Most importantly,
anything which plays into a firm's ability to be compliment with regulatory direction (Arroyo,
2012). The financial governance practises are done in a better manner by way of:
 Keep up to date on entire compliance regulations.
 Automated controls.
 Conduct frequent risk assessment.
 Conduct internal and external audits
These are the above-mentioned ways by which the financial governance can effectively be run so
that the management can attain the sustainability.
M4
With the help of financial solving tools, firm can get the sustainable development. However,
this can be said that the company can lead to get the sustainable development in an effective
manner. If the financial related problems will resolve then Zylla company would easily get the
sustainable development.
CONCLUSION
From the above mentioned report, this can be said that the Zylla company uses various
management accounting tools which ultimately helps the company to gain the sustainability.
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According to this report, It is rightly stated that the Zylla Company would incorporate effective
reports by taking help of management accounting tools for optimising operations of the cited
Company. Absorption costing and marginal costing are used by the firm in order to maximise the
profits of the firm. Various budgetary tools are used by the firm, their advantages and
disadvantages are elaborated. The financial problems occurred in the firm are overcomes by
using benchmarking, Key performance indicators, financial governance and others.
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