As a trainee management Accountant, you have been asked to produce a well written report signifying the functions of management accounting systems for Tech (UK) Limited.
- Explanation of management accounting and highlighting essential requirements of management accounting systems.
- Preparation of income statement for Tech (UK) Limited with the use of absorption and marginal costing methods.
- Explanation of the use of budgets for planning and control purposes in Tech (UK) Limited.
- Determining how management accounting could be used to deal with financial problems ascertained by the company.
Management Accounting system is the best tool which can be used by the organisation in order to render an effective and efficient business strategy which would be used to gain the sustainable development in an effective manner. For survival in this world, this can be rightly said that the management of the cited organisation is required to gain the competitive advantages in an effective manner. now, the world is totally reliable upon the sustainability. In this report, this can be rightly said that various management accounting tools are mostly used to gain in an efficient manner (Wickramasinghe and Alawattage, 2012). Various tools are used by the Tech UK company for making the business sustainable and reliable. Various planning tools are used by the organisation for budgetary control in an effective manner. Diverse financial issues are used by the Tech UK organisation for making the business sustainable and reliable.
A). Management Accounting systems:
Management accounting is the procedures which identify, assess, and evaluate and analyse the non-financial statement in an effective manner. Now, this can be rightly said that the management of the cited organisation is required to adopt this by way of an efficient strategy which would ultimately assist the organisation to gain the sustainability in an effective manner. now, this can be rightly said that the cited organisation is required to make certain tools for making a certain tool that could help out to gain the sustainability.
1. Difference between management accounting and Financial Accounting
- This can be rightly said that management accounting consists whole of the information which are related to the financial and non-financial information.
- Financial Accounting only consists of financial information which can be used to make an effective and efficient financial statements.
- Management accounting is the vast term which consists financial accounting in itself.
- While financial accounting is a part of management accounting.
- Management accounting reports does not mandatorily required.
- This is required as per the law.
- This covers monetary and non-monetary information.
- Financial accounting comprises only monetary information.
- To helps management in planning and decision making procedure by rendering detailed information on the diverse matters.
- This render financial information to the various stakeholders.
- The reports are formed according to the need of the cited organisation.
- Financial statements are formed during accounting period which is normally one year.
- Detailed reports related diverse information.
- Summarised reports about financial position of the cited organisation (Lavia López and Hiebl, 2014).
2. Importance of management accounting information:
Management accounting is the process which is used by the organisation in an effective manner. management accounting assist in forecasting future: Future aids decision making and answering questions, like- should the organisation invest in higher equipment? Management accounting assist in answering these critical questions and forecasting future trends in organisation.
Assisting in make or buy decisions: This is clear that the management accounting helps to assist for knowing make or buy decisions in an effective manner. which ultimately help out to gain the sustainability in an effective manner (Christ, 2014).
Forecasting cash flows: Management accounting helps to forecast cash flow which would ultimately help out to gain the competitive advantages in an effective manner.
Assessing rate of return: Before marking on the project which needs heavy investments, organisation will have to assess forecasted rate of return.
These all will be assessed after analysing management accounting for freemaking decision in order to gain the competitive.
3. Cost accounting systems:
This is the cost accounting systems which are used by the manufacturing units in an effective manner. now, this can be rightly said that the cost accounting system helps out to remove sustainability in an effective manner. This capture organisation’s costs of production by analysing input costs of each stage of the production and fixed costs, like depreciation of the capital equipment. Cost accounting would first calculate and record these costs individually, henceforth, compare input results to the output results in order to assist organisation management for calculating financial performance in an effective manner (Moser, 2012).
Normal costing is implemented to value production with actual material costs, actual direct labour costs, and manufacturing overheads relied on forecasted production overhead rate. These three costs are referred to as manufactured costs which are assigned to goods, and overheads costs actually incurred, difference is known to the variance. If the amount of variance does not important, this would implemented be assigned to the cost of sales.
Standard values its production goods with the forecasting material cost, direct labour cost and forecasted production overhead costs. These standard costs would be implemented for valuing production’s cost of sales and stocks. If actual costs changes only slightly from standard costs, emergence variances would be assigned to the cost of sales. If variances are crucial, they must be prorated to the cost of sales and to stocks.
4. Inventory management systems:
This is the system under which working capital are optimised in an effective manner. This would ultimately help out to gain sustainable development in an effective manner (Hilton and Platt, 2013). Now, this can be rightly said that the inventory is effectively managed so that Tech UK could attain its pre-set targets in an effective manner.
5. Job costing system:
This is the tool which is used by the cited organisation for assigning production costs to an individual good or batches. Normally, job costing system is implemented only when goods produced are effectively different from each other. This also said that the job costing also helps to gain competitive advantage by slowing down the costs in an effective manner.
B). Presenting financial information:
Diverse kinds of managerial accounting reports:
Management accounting reports are made by way of management accounting systems. These reports help the organisation for making the business reliable and sustainable in an efficient manner. Now, this could be rightly said that the management would make various reports which are mentioned hereunder:
Budget report: This is the statement of the forecasting of revenues and expense for a certain period of time for a particular period of time in an effective manner. This will assist in making an efficient marketing strategy and also tries to assess budget report in an effective manner so that the actual and forecasted budgeted amount would be compared in an effective manner.
Account receivable aging report: This report consists all the debtors related information which would help out to know about the certain strategy for an organisation. This would list unpaid consumer invoices and unused credit memos by the date ranges (Becker, Ulrich and Staffel, 2011). This report is the key tool which are used collections personnel to identify that invoices are overdue for the payment.
Job costing report: This is the report which starts from the data captured in other reports. This report lists each job which each member is working on and lists of the entire cost captured on the job in earlier period. This job costs also categorised in Labour cost, Material cost, subcontractor cost, field overhead, liquidated damages and others.
Importance of structure of using reporting system:
The format of reporting system is most crucial as there are so many aspects of the cited organisation.
A). Diverse kind of costing method:
Absorption costing: This is the costing method which consists of all the costs which are totally linked to the production of the goods. Under this all the costs whether it is variable or fixed, considered. Here, are certain tools which can be used by the organisation for making the business objectives in an effective manner.
Marginal costing: This totally consist of the tools which are marginal cost. Now, this can be relied that the management of cited organisation would make an efficient strategy that are going to consider all the variable costs for calculating the contribution per unit.
Income statement on the basis of Marginal costing method:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
A). Diverse kinds of budgets and their advantages and disadvantages:
Budget is the tool which can be used by the organisation for forecasting of the revenues and expenses for a particular period of time. Now, this can be rightly said that the management of the cited organisation would get to know about actual and forecasted figure in an effective manner which would help out to gain sustainable development in an effective manner. Now, this can be rightly said that that management of the cited organisation would make variance analysis if the budget is not favourable.
Operational budget – it is a type of budget that includes the details of different operations cost and incomes that are earned in a time duration. It is required that this limit is set well as the effectiveness of business depends much on this. Through this tool enterprise can successfully lead towards growth as appropriate control over the cost of organisation is maintained which helps in raising the profit margins of the commercial institution. it includes the details of cost that will be incurred towards completion of the allotted projects (Weygandt, Kimmel and Kieso, 2015). This way the overall cost of the proposed activity is ascertained well in advance which helps in making the arrangements accordingly so that the targets are maintained.