This is the project about management accounting that includes the description of its importance to management and an organisation. Management accounting includes the analysis of internal departments of an organisation to provide assistance to managers in exercise of daily decision making.
- Explanation of the different management accounting systems?
- Explanation of he different management accounting reports?
- Preparation of the income statements by using absorption and marginal costing methods?
- What are the different kind of planning tools along with their advantages and disadvantages?
- What is the role of management accounting in responding the financial problems exist within an organisation?
INTRODUCTION
This is the device which is utilized amid the business activities with the goal that principal of the referred to organization could bring down the expenses by evacuating an additional cost. In spite of the fact that, this is rightly observed that the organization is unequivocally prescribed to work together activities in a viable way. notwithstanding, this can be said that there are such a large number of vital viewpoints those are shaping firm in an exceedingly gainful way. Despite the fact that, this can be said that by executing a successful management accounting systems for enhancing the execution of the firm. This would at last help with dispensing with consumption of association. Those brought about amid creation of time. Upgrading income and frame business choices for creating powerful comprehension of bookkeeping instruments.
TASK 1
(A): Management Accounting and the essential requirements of management accounting system
Management accounting is utilization of statistical tools and techniques to producing and illustrating the information in well- defined manner, which assists the management in its functioning of increasing the efficiency and in envisaging, preparing and maintain the plans for future and subsequently in calculating their execution. (Association of certified and corporate accountants)
In managerial or management accounting, accounting information after analysing and interpreting by objectives is presented to the management so as to help in the execution of determination of policies, planning, decision making and coordinating functions (Abdel-Kader, 2011).
The essential requirements of management accounting system:
. It assists the company to evaluate the performance of each department by comparing the actual performance with the planned performance.
It also helps in allocating the resources to various departments and utilizes the resources by the departments in most appropriate manner.
The management accounting provides accounting information to the management which helps them to prepare the financial statements of the company.
It also reduces the wastages and measures the external risk to the company.
While using the management accounting the manager prepare the plans and control them by using their tools and techniques.
Distinguish in between management and financial accounting
User of accounting: The users of the management accounting are mainly the managers and departments employees whereas the users of the financial accounting are external which includes stakeholders.
Transaction conducted by both the accounting: The management accounting focuses on the non-monetary and monetary transaction whereas the financial accounting focuses on the monetary transactions only.
Set of rules: The standards are not fixed for the management accounting they can prepare their information in any manner according to their company’s management needs whereas the standards are fixed for the financial accounting which should be followed by the organization.
Nature of information: The management accounting uses information is mainly related to the past, present, and future oriented whereas the financial accounting uses information which is past performance of the company (Callahan, Stetz and Brooks, 2011).
(II): Following are the importance of management accounting information as a decision making tool for department mangers
Management accounting helps the manager while preparing plans for each department so that each department can achieve their assigned targets on the prescribed time.
It also helps the manager of the company in buying or making decision related to the product while considering the relevant factors.
The manager can use the important tools and techniques while preparing the strategies for the company growth.
The manager also uses the management accounting information to assess the different risk to the business activities and manage it in proper way.
With the help of management accounting information, the managers take the corrective action to reduces and eliminate the deviation in the working processes.
(III): Cost accounting systems:
This system gives the various tools and techniques to the manager to estimate the cost of the product. It also helps the management to set the selling price of the product and they also decide which expenses to be involve it or not. It includes measuring and reporting the product costs. It system is basically used by the company to reduces their operating costs and wastage in the system. The manufacturing activities of the company depend upon this system.
Various types of costing system are:
Actual costing system: The actual costing system is used to record the costs of the product which are based on actual cost of raw material, labour, and overhead aroused on the goods which are apportioned on the ground of the actual quantity of the apportion basis seen during the reporting time. The actual costing is the easy costing system which does not need any pre- determined of the budgeted cost.
Normal costing system: Normal costing system utilized of the estimated amount of overhead for the measurement of the product cost. It uses the estimated overhead rate which ensures the measurement of cost where the suddenly rises in the cost which is not expected.
Standard costing system: The standard costing is the costing, where the forecasted cost is changed by the actual cost in the records of accounting and then the differences are identified periodically that represents the variances between the expected and actual cost. This system assists in measurement and evaluation of the performance of the department (Hopper and Bui, 2016).
(IV): Inventory management system
This system keeps track the inventory in the whole manufacturing process of the product.
The production processes in TECH (UK) LTD. can be consolidated with the inventory system to achieve the effectual and accurate inventory flow within the production system of the company.
This system gives information to the manager about the current status of the inventory, in how much time the next order can be placed by the company, supplier status, etc.
This system assists the company in prior planning and controlling of the purchasing cost of an inventory and carrying cost of the inventory and how to reduce the dead stock in the system.
(V) Job costing system:
A job costing system is a system of recording the cost and then accumulates it. The specific activity (job or group of tasks) are collected which is shown on job card.
The function of job costing system:
Helps in planning, control of cost and decision making by establishing cost (costs are recorded on job cards), measuring the sales price, finding profit/ loss on jobs.
The job costing system easily traced all stages of production within the factory.
TECH (UK) LTD. can use this system when they produce the product on the basis of customer specifications and order is of comparatively short duration (Leitner, 2013).
P2
b). Presenting financial information:
I. Different types managerial accounting reports:
Budgeting reports: The Budgetary reports lay out the plan to examine the department’s performance according to the pre decided by the manager. For the preparation of the budget reports the actual expenditure incurred in the past get utilized by the manager. This report helps the manager to prepare the budget for the future so that the company achieves their target on the time.
Job cost reports: The job cost reports record all the transaction related to the specific product which the company manufactured on the basis of customer specification. It records all the cost, expenses and profit margin of all specified job in this report. This report helps the customer to measure the cost of specified product and accordingly they placed an order to the company. This report assists the company to reduce the wastage of the time on the project which is in progress and also evaluate and maintain the cost of the project.
Performance reports: The performance reports show the overall performance of the company in all aspects. The differences are calculated by comparing the estimated performance with the actual results and denoted in this report. The performance reports help the investor to measures the achievement of the company and accordingly they invest their money in the company’s project. With the help of this report the company can take the loan from the financial institutions for their projects. This reports are prepared annually depends upon the company policies (Nielsen, Mitchell and Nørreklit, 2015).
Situation or opportunity reports: These reports are basically maintained by the management of the company so that everyone in the organization can be attentive of the happening of the specific event. The well-structured report assists the management to take the decision for the company’s business while considering the events which have adverse and favourable impact on the business.
II. Importance of implementing these reporting systems:
It is very essential that the management accounting information to be represented in manner that must be clear to each and every department of the company. This information helps the department to set out their targets and accordingly they achieved it in estimated time fix by the management. This information helps the management to prepare the strategies for the future. Well-defined information produced by the top management for whole organization should be in understandable format. TECH (UK) LTD. integrates the organizational processes with the management information system where they stored the information and user can use this information for their needs and also stored to this system.
M1
The management accounting system help the TECH (UK) LTD. in the finding the cost throughout the production process. By using the cost accounting system the manager of the company can evaluate the business efficiency and also improves efficiency in processes when it is requires. By applying management accounting system tools and techniques the TECH (UK) LTD. improve the accuracy in its inventory system and also saves the time and avoid unnecessary wastages in the business activities. The management accounting system is also assists the management to maximize their operating profits by maintaining the cost of the product. TECH (UK) LTD. can use the effective and useful management accounting system for their business activities and also for preparing the policies and strategies for their concern.
D1
The effective management accounting system assists the management of the TECH (UK) LTD. to make the reports for their departments and also for entire organization. Both the management accounting reporting and system integrates with the organizational processes of the TECH (UK) LTD. helps to prepare the plans for their business activities. Effective reporting system helps the company to achieve their targets which are prescribed for the future goals. The reporting system helps the management in all aspects like in inventory, job, performance, receivables etc.
TASK 2
P3 Calculation of net profits as per absorption costing and marginal costing:
In every business association, there is foremost part of cost in various method of association including assembling of services and products. This is basic for a business owner to make and embrace appropriate advancement of allotted cost in more satisfactory way keeping in mind the end goal to decrease the of cost of production. It is crucial for the administrator to learn the use of microeconomic parts on continuity in setting of creating more legitimate and solid outcomes. It is a proficient one that can help in setting whether the organization asset are utilized viably or not. In respect of getting more effective outcomes inside certain timeframe, firm may need to screen their weed costs and cost those which are bringing about on comprise creation cost.
Cost can be named as the value or sum that is charged in respect of accomplishing or getting certain administration or item. These are indirectly and straightforwardly connected with services and foods created by organization, it can focus the efficiency of labourer to convey their services that helps to expand the gainfulness of big business organisation. This is rightly seen that without completing appropriate financial management and flow of cash, organization can't empower profitable choice so as to execute additionally projects. Here are talked about few of them as underneath:
Cost volume profit (CVP): This is the central methods that is being used so as to gauge various adjustment or changes in respect of entire volume and cost which can impact association's general profit alongside net adaptable parts or perspectives.
Cost variance: This is fundamental, powerful and straightforward systems to make a pertinent correlation between the planned sum and also real estimation of cost. It will help association to build up an assessment of whole those variations which acquire amid the procedure of generation of goods and services.
(I): Absorption Costing:
Income statement on the basis of Absorption 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 £78
M1
Here are various kinds of techniques which are required to be used by the organisation for measuring net profits in properly way. However, various kinds of methods can be used by the company for optimising the profits in an effective manner. Cost volume profits analysis, absorption costing, and marginal costing methods and so on that can be utilized by the cited company for optimising the profits in an effectual manner.
D1
Absorption costing and marginal costing methods are used by the organisation for calculating the net profits. Although, this can be concluded that the management of the Tech (UK) use the absorption costing method to measure the net operating profits. Here, the net operating loss as per the marginal costing is -2875 while, net operating profits as per the absorption costing is calculated which is also in the loss but better than the loss calculated as per the marginal costing. As there is only is -375.
TASK 3
a). Budgets and its advantages and disadvantages:
A budget is a layout of plan of action to be followed during a defined period of time for the purpose of achieving a given set of objectives of the company. The budget sets the company’s goals in clear state format to avoid confusion and gives a specified plan of action for attaining the goals. It also coordinates various business activities of the company in such a way that the resources are used in maximum manner (Soin and Collier, 2013).
Following are the types of budgets and its advantages and disadvantages:
Sales budget: This budget is the main starting point for the preparation of the functional budgets. This budget presents the values and quantities of sales to be achieved in a budgeted period.
Advantages:
It helps the management to achieve their prescribed target of the sales in assigned time period.
It gives support to all the budgets which are depend upon the sales budget.
Disadvantages:
Consumes good deal of time.
The budget may become out dated with changes to the market trends.
Cash budget: It is statement form which shows estimated uses of cash and sources. It also compares the cash payments and cash receipts of the company which are estimated. This budget is prepared after all the functional budgets are prepared.
Advantages:
With help of the cash budget the company can identify any future cash shortages before they happen.
It also presents the availability of excess funds for short or long- term investments.
Disadvantages:
It does not provides the useful details to the management in their decision making process related to the cash availability (Hilton and Platt, 2013).
This budget is rigid and does not reflect accurate cash inflow and outflow from the company.
Operating budget: The operating budget is the budgeted income statement. It is made up of the with the help of revenue budget and the production, purchasing and marketing budgets.
Advantages:
It supports budgeting schedules.
It also controls the operating expenses in accurately manner and also enhances the operating profits of the business activities.
Disadvantages:
This budget does not produce the accurate outcomes for the business concern.
Sometimes the mangers overestimate the expenses which affect the outcome of the business.
(B): While preparing the budgets it includes different costing system like actual costing, normal costing and standard costing. Uses of the system in budgetary control are:
The costs which are estimated on the basis of actual costing system helps the manager of the organization to make the budgets and set the objectives. (Wickramasinghe and Alawattage, 2012).
In the normal costing system the production overhead estimation helps the manager to calculate the cost for the long-term aspects for the company.
Standards costs assigned to the production units which helps the manager in controlling the cost of related operations and also helps in preparing the budgets.
The budget is also includes the determination of pricing of the product which includes all the costs related to the manufacturing and all other relevant costs. The price determination is according to the market survey in which the company considers what the customer wants to pay for it and what are the pricing policies of the other companies which are produced same kind of product. It is necessary to have a good pricing policy of the company to capture the market share and also lead in the industry where the company is belonging to.
(c): Importance of the budget as a tool for planning and control purpose:
A budget is the important technique for preparing the plans and controls the unnecessary wastages in the business activities of the company. The effective budget assists the manager to prepare the strategy for the company’s. A budget is a planning tool which plans for the future and helps the company to achieve their targets on pre decided time and in an effective manner. The budget also control when there is any deviation is arises in between the planned and actual performance done by the departments. The mangers use the corrective action to rectify the deviations and put the plan again in the processing. Both the planning and control tools of the budget help the departments to achieve their given targets on the time which is prescribed by the management (Modell, 2014).
M3
Here are various kinds of budgets are used by the budgetary tools which can be utilized by the organisation for sustainability in an efficacious way. Now, this can be rightly said that the management of the mentioned organisation (TECH (UK) LTD.) would able to achieve its prearranged objectives in a well- timed manner. Budget shows all planned income which to be generated in the future and also shows the expenditure to be incurred.
D3
By using various planning tools such as the budgetary methods assist to overcome various financial problems in an effectual way. With the support of the budgetary tools, TECH (UK) LTD. would able to compare actual figure with the budgeted figure which would ultimately assist to attain the pre-set objectives in an effective manner.
TASK 4
P5
Balance Scorecard Approach
The balanced scorecard approach is an important technique for preparing strategies and objectives for the management of the organization. It is applied by the management of the organization to coordinate all business operations and monitor the performance against the strategic goals.
This approach provides the balance in the financial perspective.
Why use a Balanced Scorecard Approach?
It improves the organizational performance by measuring all the matters.
It increases the focus on strategy and also the results.
It also aligns the organization strategy with works on a daily basis.
It focuses on the major keys for the future performance.
Improves the communication of the organization’s strategy and vision.
Balanced Scorecard Measurements
ViewpointsMeasurements of it
Commercial Returns of investment, sales turnover, funds flow.
ConsumerConsumer detainment, satisfaction, market share, and profits generation.
Interior business activities: Involves measurement of the business operations along with the internal valuation for:-
Business innovation i.e. measures the customer’s future desires and wants.
Business operations i.e. measures of product quality, time, and the costs of product.
After sales service i.e. Product warranty, repairing of the product, and treatment of returns, and defects items.
Studying and expansion:
It includes:
Working people i.e. employee’s detainment, training and development, advancement in the skills and knowledge, and their motivation factors.
Management information system which provides the right time information to the workers when they want.
The role of managerial accounting in sustainable success of an organization which are summarized below:-
. The organizations can achieve their future forecasting goals with the help well- defined strategies and policies which are prepared effectively by the manager.
. Various management accounting methods are used in decision- making processes which affects the sustainable success of the company.
. In preparing the reports, the management accounting helps the management by providing the information in accurate way which will help the company for their sustainable development (Lavia López and Hiebl, 2014).
The planning tools help the manager of the company to solve the financial problems which lead organization to sustainable success which are discussed below:
. With the help of various management accounting tools and techniques the management of the company identify the problems and solve it in most accurately manner.
. The information which is obtained from these planning tools assists in preparing the strategic decisions that helps the company to achieve their goals on a time.
. This tool also helps the management to control the decisions on the investment and also helps in the external reporting to the investors.
M4
In order to respond the financial problems, cited organisation would adopt diverse kinds of the management accounting tools that can be help out to make certain tools which will make organisation in a well- defined manner. Now, this can be concluded that the balance score card approach is used by the management for operate their business operations in smoothly way. By using balance scorecard approach, the company could attain their goals in attentive ways.
CONCLUSION
From this report the conclusion is made that, the management accounting is very vital for the organization. TECH (UK) Ltd. adopts the diverse kinds of tools of the management accounting in making certain objectives in an effective manner. By using these management accounting systems, various kinds of reports are made in an effectual manner. In this report the net operating profits as per the marginal costing and absorption costing is measured. Diverse kinds of budgetary tools are used for achieving the business objectives in sustainable and properly manner. Now, this can be rightly said that financial problems are used by implementing diverse kinds of accounting tools.
INTRODUCTION
This is the device which is utilized amid the business activities with the goal that principal of the referred to organization could bring down the expenses by evacuating an additional cost. In spite of the fact that, this is rightly observed that the organization is unequivocally prescribed to work together activities in a viable way. notwithstanding, this can be said that there are such a large number of vital viewpoints those are shaping firm in an exceedingly gainful way. Despite the fact that, this can be said that by executing a successful management accounting systems for enhancing the execution of the firm. This would at last help with dispensing with consumption of association. Those brought about amid creation of time. Upgrading income and frame business choices for creating powerful comprehension of bookkeeping instruments.
TASK 1
(A): Management Accounting and the essential requirements of management accounting system
Management accounting is utilization of statistical tools and techniques to producing and illustrating the information in well- defined manner, which assists the management in its functioning of increasing the efficiency and in envisaging, preparing and maintain the plans for future and subsequently in calculating their execution. (Association of certified and corporate ac
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