Introduction
Management Accounting is as important in the business as food for the human body. Management accounting is comprised of two accounting which is financial accounting and cost accounting. Management accounting these days has become more famous and many organizations have adopted this technique in order to make things clear at the workplace and make decisions for future operations(Chiekezie, Egbunike and Odum, 2014). Management accounting is a vast subject in which various departments of organizations are studied and cost-related matters are studied in it which in turn makes the decision-making easier.
The present report is undertaken to make necessary understanding related to Management accounting concepts to the senior as well as departmental level and further decisions related to financial information can be made so that it will benefit the Imda Tech Limited to launch its new unique product of charger for mobile telephone and other gadgets(Ghasemi and et.al., 2016). Further, this report will discuss Imda tech Limited problem-solving capabilities with financial problems.
Task 1
P1 Management Accounting V/S Financial Accounting
Management Accounting is a concept which covers a wide area of business which in turn gives the managers a view at different prospects of carrying out the businesses thus involving this type of accounting in business is of utmost importance because it facilitates the decision-making process and decision making in every business is an essential part which in turn facilitates the existence of the organization. Management accounting is nothing it is the process of evaluation of operations of the business of different departments. Management accounting can be understood as measuring, preparing, accumulating, analyzing, preparing, communicating and interpreting the information related to financial or cost factors of the business(Luft, 2016). Thus by this report, an attempt has been made to understand the concepts and conventions of management accounting practices and go beyond the practicality of them, like how they are applied etc.
Management accounting is somewhat different from financial accounting. Management accounting deals with the financial aspect as well as cost aspect of the products and services thus it can be said that Management accounting is a broader concept than financial accounting. In financial accounting, the finance-related matters are been discussed among the finance professionals because they have the knowledge of the respective subject which in turn will help in making appropriate decisions and same is with management professionals also as they are more concerned with the vision of looking company at the upper positions they will make certain adjustments which will help in gaining competitive advantage(Myrelid and Olhager, 2015).
P2 Management Accounting Systems
In management accounting, there are the different set of systems which in turn will help in gaining the knowledge regarding the management accounting more and they are:
1. Cost Accounting System: Imda company follow this system continuously and keeps records of the cost incurred on goods and services of different departments which in turn is taken into consideration to know actually how much the expenses are(Du and Taylor, 2013). This system is a common system for many of the organizations and thus it meets the competition and also helps in analyzing the profitability.
2. Inventory Management System: Since Imda is a retail sector company and deals in supplying daily usage products it is important for Imda to make the inventory levels keep up to date in order to meet the demand of the customers who comes to buy the products(Orelli, Padovani and Katsikas, 2016). So managers of Imda also should as per the knowledge of the subject matter that they have to introduce the mobile charger in the market should keep a record of inventory time to time and makes them aware about the need of future.
3. Job-costing Systems: This method is used where the individual customer has different demands and has the desire of something unique. Which means for every customer there is a customized product which is likable by people and there is a different set of product which the customer likes. It is suitable where the work is done as per the customers requirement is.
4. Price-Optimizing Systems: It is a system which makes or allows Imda to know how sensitive its existing clients are to changes in product prices to enable it arrive at defined profitability levels.
M1 Benefits & Application of Management Accounting Systems in relation to Imda Tech Limited
Management accounting in Imda tech limited can results in upliftment of this retail company through the usage of different techniques which in turn will help in making the company work efficiently and draw decisions which favors the working of the company for long term purpose thus making certain adjustments and alterations are necessary as they will provide Imda Tech Limited the competitive edge(Smith, Brännström and Jansson, 2015). Through the application of management accounting company can know about the financial of the organization as a whole and makes them know whether the company is going in right direction or not for introduction of new charger and gadgets. By applications of management accounting the Imda tech Limited will endeavor these benefits:
- After the implementation, it will help in organizational planning and selection of best alternatives.
- Management Accounting will help the company in monitoring and evaluation of the activities that are being undertaken.
- Through M.A accounting manager is able to make sound strategies and decisions.
- Through the application of Management, accounting performance can be measured which results in achieving the vision and mission of the organizations(Ossadnik and Kaspar, 2013).
D1 Critical evaluation of Management Accounting Systems with organizational processes
Management accounting systems with in relation to the main purpose of the organization can be understood as in the broad manner through which we can find that where what impact the different systems have on the main purpose of the Imda Tech Ltd. and it is as follows:
Cost Accounting System: Here in the cost accounting system, Imda can undertake this system to introduce the new gadgets and mobile charger but the cost factors should be kept in mind to make afterward necessary adjustments(Zaleha Abdul Rasid and et.al., 2014). Since they are into the retail sector they have to carry out different cost related techniques ion order to attract the customers to buy there product.
Inventory Management System: In the management accounting system of inventory proper care of inventory should be taken care of because this will facilitate in making the people buy the product conveniently and smoothly as the demand of the product will only be met when the inventory management is up to the mark for Imda.
Job-costing Systems: Job costing will not be used in this organization because here the company is focusing on the making of the charger and if a charger is prepared as per customer's preferences than this act will not drive the profitability rather it will make more mistakes from then or now.
Price-Optimizing Systems: This particular system is kind of strategy where the firm implements in order to make the clients of the products deliver good value to the product. Optimizing the price levels at regular intervals will not fetch the customer's attractions rather making it smooth and offering the deal will(Zaleha Abdul Rasid and et.al., 2014).
TASK 2
P3 Absorption and Marginal Costing
Calculation of cost and profit is an important element in managing the business plus in management accounting determination of cost and profit is important because in a business incurred cost is seen as a tool for decision making(Hopper, 2013). Decision making can be done at various levels but to finalize the budgets for the coming year cost plays a major role as the current or actual cost incurred will give an idea to the management about the future costs which cab be incurred buy the company so it helps in making sound decisions and strategies. There are two methods of costing which can be adopted by Imda Tech Ltd. and they are: Marginal Costing: In Marginal costing, only variable manufacturing is considered at the time of calculation because product costs and the fixed ones are treated as period costs. and for the computation For computation purpose contribution and then fixed cost are charged as full and gets subtracted from the contribution to get the profits that are being earned(Bryer, 2013). Marginal costing has always been concerned with one additional unit of production.
Income Statement As per Marginal Costing
|
Sales revenue |
52500 |
|
Less: Cost of goods sold |
|
|
Direct labor |
7500 |
|
Direct material |
12000 |
|
Variable production overheads |
3000 |
|
Cost of goods sold |
22500 |
|
Gross profit |
30000 |
|
Less: variable expenses |
|
|
Variable selling expenses |
7875 |
|
Total variable expenses |
7875 |
|
Contribution |
22125 |
|
less:Fixed expenses |
|
|
Fixed selling expenses |
10000 |
|
Fixed production overhead |
15000 |
|
Total fixed expenses |
25000 |
|
Net profit/Loss |
-2875 |
Absorption Costing: In this type of costing costs is absorbed which in turn here fixed cost as per the production process is taken into calculation part also. Under absorption costing all the expenditures are used whether it is fixed or variable or semi-variable(Tucker and Parker, 2014). Absorption costing under this cost is charged in an efficient manner to the product. Here cost apportionment is not easy to implement.
M2 Application of Techniques and Reconciliation of Profits
Imda Tech limited in order to make sound decisions related to its product launch should make a necessary evaluation of the techniques and understand their impact on cost scenarios of profits such that they will make necessary inclusions and exclusions further on to achieve the desired objectives and goals. As Imda needs to launch the various products which are charger and mobile gadgets they nee dot make sure before that whether they want to implement which type of system whether the absorption or marginal(Tucker and Parker, 2014). Since both methods of costing have its own advantages and disadvantages thus making a suitable choice for the organization is the key. Profit reconciliation is an important concept as the company will take care of the cost first then only the appropriate measures will be achieved and thus making the product cost is important for the company.
D2 Interpretation of Data
As per the calculation, it can be said that both the methods have their own implications on the working of the organization and costs as well thus making the most out of the products is important in making the change. As per the above calculation it has been seen that the only change between marginal and absorption costing is about the absorption of fixed overheads thus because of that the cost of goods sold is marginal is 22,500 & 37,500. Contribution calculated in marginal costing is 22,125 and absorption costing 15,000. Also, fixed expenses under marginal costing and absorption costing are shown which has quite achieved a great difference which is due to the absorption of fixed overhead in absorption costing thus the figures are 25,000 & 17,875.
TASK 3
P4 Advantages and Disadvantages of Budgets
Budgets have been catering to the needs of businesses from a long time and make their managers know about the actual deviations from the main budget or expected outcome. So that effective strategies can be developed by them in order to make necessary amendments in the process to achieve growth.
Incremental Budgeting: Herein the budget is prepared as per the ascending order, wherein the first-year budget will be low then in second it will be incremented thus it follows a certain pattern int it(Wickramasinghe, 2015). It is considered as a very simple way of making a budget because in this previous year's budget is added to ensure that funds should not be lower when needed.
Zero-based Budgeting: In Zero base budgeting every year the budget is prepared considering the expenses cost to be zero for the year and then budget for the year is made as per month wise which helps in making. As per this technique, the budget of the company is prepared to take into account previous balance as zero and everything starts from zero.
Fixed Budgeting: Fixed budgeting is also known as the financial plan which cannot be changed. It does not vary as per the actual volume of Imda production, it always remain fixed(Wickramasinghe, 2015). Under Fixed Budgeting, under this budget, the plan does not vary as per the level of activity of the.
Flexible Budgeting: Flexible Budgeting is that budgeting technique in which, this budgeting plan lays more emphasis on attention to more than one production unit and this budget can be easily adjustable as per the output of Imda. By introducing the flexible budget companies are more flexible because they are more concerned with the comfortable type of budget which in turn gives them a positive inclination.
Activity-Based Budgeting: In this type of budgeting, the Budget is prepared as per the particular activity demands thus making the most out of that activity is what management strives for. As budget is prepared concerning different activity thus it helps in making different conclusions and decision making for the people.
M3 Preparation and Forecasting of Budgets
Preparation of budget is an important factor in driving the change since at the time of preparation only managers get to know that whether the operations conducted are up to the mark or not further making the decision process efficient and effective and easy to use(Ahmad and Leftesi, 2014). After preparation of budgets forecasting the budgets is important because that shows how much knowledge the particular manager has. Different planning tools which helps in preparation of budgets and forecasting of budgets are:
1. Budgetary Control: Under the budgetary control technique, the actual are compared with budgets thus this gives the managers to have a look at the organization with a different mindset and make decisions in order to lower the deviations of the various budgets. This particular tool is understood with the help of making certain things common which is actual results are met with the standards will help in making sound strategies for Imda.
2. Zero-base Budgeting: The zero-base budgeting technique is that technique where previous budgets or research related to the budgets is of no use because herein the budgets for the year is prepared to take the base month as zero and as per the knowledge desire and wants figures are added into the budget.
3. Forecasting: Through the help of forecasting technique various budgets are prepared thus by forecasting only managers make use of different tools which eventually helps in making different set of actions which deals with decision making(Aouni, McGillis and Abdulkarim, 2015). By applying the forecasting technique many firms have achieved the objectives set by proper and appropriate decision making.
4. Capital Acquisition Budgets: Through the application of these set of budgets a company is able to make different set of prioritizes over the others in order to gain the competitive advantage over the others. As per this budget a company acquires the assets by keeping in mind the future needs and wants.
5.Cash Budgets: Cash budgets have always been catering the needs of objectives of organization because the main budget of organization is cash budget only because here only managers have been known that how much funds the operations of business has generated and how much is taken in conduct of the operations. Through the help of cash budget managers can make decisions in relation to the liquidity position of the firm.
Task 4
P5 Balance Scorecard Approach
Balance Scorecard Approach is the approach under which the management of the firm used majorly the government, non-profit organization, industry, and business. It is said that balance card approach effectively aligns the all activities firm presents in making the business grow. Imda tech company adopts balance scorecard approach which is a framework of financial and non-financial. Under this approach in the firms who adopt the financial measures, it includes the investment in suppliers, process, technology, innovation and employees, etc(Ahmad and Leftesi, 2014). The balance scorecard approach also includes different perspectives which is financial and non-financial perspective and learning and growth perspective is also included in it.
M4 Response to Financial Problems
There are different ways through which the application of management accounting can bring in the methods which can help in solving of the problem up to a level. Through the management practices managers will be able to gain the issues the businesses are facing and in order to remove them further, the managers take necessary steps. There are three different indicators ofr tools through which managers can respond to the problems prevailing at the workplace and those are:
Key Performance Indicators: These indicators are used as those indicators which help in making things more clear and more futuristic which in turn helps in showing the performance levels. Key Performance Indicators (KPI) are measurable indicators that are used to report progress that is chosen to reflect the success benchmark set by a firm(Adrian, 2014). Key performance indicators are those measures that an orgnizati8on uses to define success and track progress in meeting its goals.
Bench Marking: Benchmarking is the process through which performance is improved by having an understanding and adapting practices and processes found inside and outside an organization to meet best practices within the industry(A. Hammad, Jusoh and Ghozali, 2013). Benchmarking focuses on the improvement of any given business process by exploiting best practices which are the causes of the best performance
Financial Governance: Financial governance is important in making the firm build important decisions that can cause the company to work under pressure and build a different set of traits that help in making different traits. It helps in evaluating the financial data and then make decisions regarding the problems prevailing.
Conclusion
From this report it has been concluded that, management accounting is the key in developing the business overall also through management accounting managers tends to have different prospects which in turn will make them help in making sound decisions for the future operations. Through management accounting every information whether it is cost related or related to financial of the company all can be obtained as it is a combination of both financial and cost accounting.
References
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- Adrian, T., 2014. Directions for improving management accounting in the textile industry enterprises/Directil de erfecQui3 a contabiliatii de gatittu in pitDAej.ile din industria textila. Industria Textila.
- ma,d, N. S. M. and Leftesi, A., 2014. An exploratory. study of the level of sophistication management accounting practices in Libyan manufacturing companies. International Journal of Business ond Management.
- uni, B., McGill's, S. and Abdulkarirn, M. E., 2015. Goat programming model for management accounting and auditing: a new typology.lAnnals of Operations Research.
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