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Roles and Principles of Management Accounting

University: CECOS COLLEGE LONDON

  • Unit No: 5
  • Level: Undergraduate/College
  • Pages: 11 / Words 2771
  • Paper Type: Assignment
  • Course Code: R/508/0489
  • Downloads: 192
Question :

Learning Outcomes

  • Present an understanding of management accounting systems.
  • Explain management accounting?
  • What do you mean by management accounting system?
  • Why it is significant to integrate these within a prime Furniture organization.
  • Examine the origin, role and basic principles of management accounting.
  • Differentiate between the management and financial accounting.
  • Difference between types of management accounting system.
  • Use a range of management accounting techniques.
  • Define cost and its types?
  • Use absorption and marginal costing.
  • Explain meaning of inventory cost and different types of inventory cost.
  • Examine the use of planning tools used in management accounting.
  • Produce a budgeting and variety of budgets? What are the alternative methods of budgeting.
  • How competitors determine the price and how to implement pricing strategies.
  • Use SWOT and PEST analysis to determine the financial position of the organization.
  • Provide ways in which organizations could use management accounting to respond to financial problems.
  • Definition of financial governance and how it can be used to prevent financial problems.
  • What are the features of an effective management accountant?
  • How to develop strategies and system which requires for effective and timely reporting and full disclosure of financial position

Task 1

Scenarios cover (LO1)

Prime Furniture is a growing East London based company which is planning to begin training course for their new interns in November 2019. You have recently appointed as a role of “Junior Management accountant” of Prime Furniture. You need to give a presentation for the interns on management accounting. You have been requested to explain management accounting.

Also, identify different types of management accounting systems and demonstrate essential requirements of each type and examine different methods used for management accounting reporting.

LO1.Present an understanding of management accounting systems.

P1: Identify management accounting and provide the essential requirements of different types of management accounting systems.

M1: Analyse the benefits of management accounting systems and their application within an organizational context.

D1. Critically analyse how management accounting system and management accounting reporting are integrated within the organizational process.

P2: Examine different methods used for management accounting reporting.

 

Task 2

Scenarios covers LO2, LO3, LO4

 As a Junior Management Accountant of Prime Furniture, you line manager has asked you to design report to promote understanding between different departments in the organization and to show them the significance and application of management accounting. This report should cover a variety of techniques used by management accountant and to include supporting calculations. You need to apply the following on Prime Furniture or any other organization of your choice:

  • Overview of management accounting and its importance in the decision-making process for improving the performance of the company;

1. Examine the different types of management accounting techniques used in an organization provide appropriate example in context to Prime Furniture.

  • Compare & contrast three different planning tools which Prime Furniture applies to ensure financial stability and performance as well as ways in which management accounting has played a key role in preventing and solving financial problems;
  • Identify the advantages and disadvantages of different types of planning tools for Prime Furniture;
  • How does Prime Furniture use management accounting systems to respond to these risks and uncertainties and other financial issues? Compare it with some relevant organization;
  • Assess and analyses how management accounting planning tools would help Prime furniture to maintain a sustainable success;
  • With the help of case studies, compare ways in which management accounting is applied, the effectiveness of management accounting in dealing with financial problems and preventing financial problems in organizations.
  • With the help of Absorption and Variable Costing techniques, provide and produce and two separate Statements of Profit or loss (Income statements) based on the data given below for each of the two quarters.  You should clearly show how the costs were calculated under each of the costing technique. You also need to reconcile both the figures and interpret data. Explain with supportive calculations, why the profits under each technique are different.

The company’s budget for Quarters 1 and 2 are as follows:                 

Per Quarter:

Units

Production

80,000 units

Sales

80,000 units

Opening Stock

-

Closing Stock

-

Sales

£ 

£

Production Cost of Sales:

-

80,000

Variable

52,000

-

Fixed

16,000

(68,000)

 

-

12,000

Selling & Administration Costs(fixed)

-

(5,200)

Profit

 

6,800


 

Quarter 1

Quarter 2

Opening Stock

0

12,000

Production

78,000

66,000

Sales

66,000

74,000

Closing Stock

12,000

4,000

Actual production, sales and stock in units for quarters 1 and 2 are:

 

Pass

Merit

Distinction

LO2. Use a range of management accounting techniques.

P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs.

M2: Use a range of management accounting techniques and produce appropriate financial reporting documents.

D2: Provide financial reports that accurately apply and interpret data for a range of business activities.

LO3. Examine the use of planning tools used in management accounting.

P4 Identify the advantages and disadvantages of different types of planning tools used for budgetary control.

M3 Assess the use of different planning tools and their application for preparing and forecasting budgets.

D3: Analyse how planning tools for accounting respond appropriately to solving financial problems to lead organisations to sustainable success

LO4.Provide ways in which organizations could use management accounting to respond to financial problems.

P5 Analyse how organisations are adapting management accounting systems to respond to financial problems.

M4 Evaluate how, in responding to financial problems, management accounting can lead organisations to sustainable success.

D4: Analyse how planning tools for accounting respond appropriately to solving financial problems to lead organisations to sustainable success

Answer :

INTRODUCTION

Management Accounting is the process in which manager uses the different provision of accounting information in organization in order to have better information about the current position of business and making different decision in an organization. Prime furniture is wholesale manufacturer of furniture in United Kingdom. This report highlights different microeconomics technique, product costing and cost of inventory. After that report highlights different planning tool in the organization. In the end the report highlights different way in which organization used to use different accounting system.

LO 1

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LO 2

Microeconomic techniques

Cost is the value of the money which is incurred by an organization to deliver or to produce something in an organization. There are many different type of cost incurred in the organization to produce something in the market (Goddard and Simm 2017).

Cost-volume Profit: Cost-volume profit is a method of cost accounting that looks at impact which used to be created by many different level of varying cost and volume on the operating profit for an organization. There are many different type of assumption are made under this regarding sales price, fixed cost and variable cost per unity are constant.

Flexible Budget: Flexible Budget is the type of budget that used to adjust or flexes with change in volume or activity in the organization. Flexible budget used to also shows the appropriate expenditure for different level of output.

Cost Variance: Cost Variance is define as a difference between actually cost incurred and planned amount of cost that organization has set up in the past (Bromwich and Scapens, 2016).

Absorption cost, is a managerial accounting method which used to looks at both variable as well as fixed overhead costs of producing a particular product in an organization. In simple words it not only includes the material or labour, it also used to includes the manufacturing overhead in the organization.

Marginal cost is the incremented cost which has been paid by prime furniture due to producing of one extra level of product in the organization.

Fixed cost is the cost which is fixed in nature and do not use to change with change in amount of production in the organization. Rent, insurance premium are some example of fixed cost.

Variable cost at the same time is the cost which used to change with change in the quantity of good and service produce in the organization. Raw material, packaging and labour cost are some example of variable cost.

Cost Allocation is the process in the organization in which different cost are being assigned to different cost object in an organization (Lada, Kozarkiewicz and Haslam, 2020).

Normal Costing is the method of costing, which is used by organization to derive cost of an organization. In Normal costing actual data is generally used by organization to derive the cost of product product with the exception of manufacturing overhead. Standard Costing on the other hand is the costing method in which predetermine cost of all the different aspect of product is generally consider by organization.

Activity Based Costing is the type of costing method in which organization used to identify different activity & Services in the organization on the basis of actual consumption by each in the organization.

Different type of costing in the organization used to provide a good hand of support in setting price in the organization. As after ascertaining different type of cost in the organization, Prime furniture used to plan different pricing strategy in the organization. Prime furniture generally used to add profit margin with the cost of company to ascertain price of company product (Al-Sayed and Dugdale, 2016).

Inventory cost are the different type of cost which is looks at procurement, storage and management of inventory in an organization. Different type of inventory cost are as follows:

Ordering Cost: It is the type of cost which is incurred by an organization at the time of ordering raw material or semi finished good. Cost of procurement and inbound logistic are two type of ordering cost.

Carrying Cost: It is the type of cost which is incurred by organization for carrying or holding the inventory in an organization. This cost includes warehousing cost such as rent, utilities and financial cost.

All the organization used to perform variety of different activity in the organization to reduce inventory cost in the organization. As it used to bring variety of benefit for an organization. Some are as follows:

Strategic Management: Reducing inventory cost help organization in making different strategy in the organization which used to support decision making in the organization. As with the help of reducing inventory cost in the organization, organization is left with better resources to make different future strategy.

Profit Margin: Reducing inventory cost in the organization will help company in maximizing the profit margin in an organization (Leigh and Yazdifar, 2018).

Different type of valuation method:

Comparable valuation method: It is the type of valuation method in which the organization used to compare the current inventory of an organization with the inventory of different business organization.

Discount cash flow valuation method: It is the type of valuation method in which organization used to estimate value of different investment on the basis of different type of future cash flow.

Cost Variance and operating overhead

Cost variance is the mathematical difference between the budgeted cost of work perform in the organization and actual cost of work performed in an organization. Overhead cost are different type of overhead expenses in the organization which is related to the different ongoing expenses of operating in the business.

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Cost per unit

Quarter 2

Quarter 2.1

Interpretation: From the above calculation it has been interpreted that it will be better for the Prime furniture to use absorption costing as the costing tool. As the profit derived by applying absorption costing is 11100. Where as applying marginal costing has shown the profit of 4700. Reason behind the used to consider both variable and fixed cost as well.

LO 3

Budgets for planning and control

Budget is a financial plan for a defined period of time in the organization. It generally used to includes data about planned sales volume and revenues and resource quantities. Budget helps organization in forecasting different future activity which can take place in the market (Schaltegger, Burritt and Petersen, 2017). This eventually help manager at Prime Furniture in making different decision to plan different activity to overcome future uncertainty. Different type of budgets are as follows:

Capital Budget: Capital Budget is the type of budget which looks at allocating different sort of money in the organization for the purpose of acquisition and maintenance of fixed asset in organization.

Operating Budget: Operating budget at the same time is a budget which used to forecast revenue and expenditure expected for coming one or more future period (Different budgeting method, 2019)

Alternative budgeting method

Budgeting Method 

There are many different type of budgeting method, which is used by Prime furniture to carry out different operation of business. Some of the budgeting method are as follows:

Incremental Budgeting: It is the type of budgeting method in which organization used to take last year actual figure into consideration and used to make some fluctuation to obtain current year budget.

Activity-Based Budgeting:  Activity-Based Budgeting approach is the approach which used to determine the amount of inputs requires for organization to support the different output which is set up by the company (Shil, and Das, 2018).

Behavioural Implication of Budgeting 

Dysfunctional Behavioural: Any unrealistic management expectation or any negative reaction from subordinate manager in the organization can create the situation in the organization may have a negative impact on budget. This negative behaviour is known as Dysfunctional Behaviour of manager.

Participative budgeting: Participation by employees in the budget preparation can provide them the feeling that “this is our budget,” rather than the feeling generally noticed among employees that “this is the budget imposed by the top on us.

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Pricing strategy

Premium Pricing: Premium pricing is the pricing strategy in which organization used to keep the price of the product high in the market (ter Bogt and Scapens, 2019).

Penetration pricing strategy: It is the type of pricing strategy in the organization, in which organization used to keep the price of the product at lower rate for attracting the eye of different consumer. After certain period company used to increase the price of company product.

Generally competitor operating in retail or wholesale furniture industry used to use penetration pricing strategy as a pricing strategy in the organization. Reason behind the same is heavy competition in the organization.

Prime Furniture in the organization also used to consider supply and demand of the product in the market. As demand and supply of product will help company in knowing amount of profit margin which can be asked by the company from the consumer in the market. At the same time it will also help organization in having better idea about cost which can be incurred by organization in producing the product (Malina, 2018).

Actual costing is the system that uses the actual cost and actual qualities used in the production to determine the cost of the specific product in the organization. This system generally traces the direct cost which is invested to a cost object in the organization. Normal costing is the costing system which also used to take actual cost into consideration to derive the cost of the product in the organization but at the same time used to not consider the manufacturing overhead in the organization. Standard costing at the same time used to look at the variance between actual cost and already set budgetary cost of the company.

Job costing system in the organization do not has a grater impact on the Actual or Normal costing, it used to has a impact on the standard costing as organization has to look at this cost at the time of setting standard. Batch costing is the costing which used to take homogeneous product as a cost unit. This costing has impact on Actual costing system more as compare to other two because Actual costing used to look at cost of material, labour actual overhead and cost of allocation (Schaltegger, Burritt and Petersen, 2017).

PEST

  • Political: It is favourable as there is good political stability.
  • Economic: It is also favourable as inflation and interest rate in UK is at good side.
  • Social: Changing trend and preference of company in the market used to has negative impact.
  • Technology: Organization has to adopt different technology to carry out operation of business in the market.

SWOT

Strength

Weakness

· Goodwill

· Financial Position

· Profit Margin

· Outdated technology

Opportunity

Threat

· Expansion

· Procurement of new technology

· Competition

· Law Policy

Porters Five

  • Threat of competitor is high in the market
  • Threat of new entrant is moderate in the market
  • Threat of Substitute product is Low in the market
  • Threat of Supplier is low in the market
  • Threat of Buyer is moderate in the market.

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LO 4

Compare ways in which organisations could use management accounting

Benchmarking is the process in the organization, in which organization used to compare own performance with other entities including competitor or industry practice in the organization. This tool help organization in overcoming different competition issue which is faced by company in the market. Also, help organization in identifying difference between competitor policy and company policy (Leigh and Yazdifar, 2018).

KPI at the same time help organization in comparing and measuring how well individual, business unit and company perform against their goal. This tool help organization in identifying different type of non financial problem such as performance gape of employee or used to promote key area to be focused by company.

Prime Furniture

Dream Furniture

Prime furniture used to use Benchmarking in the organization. In which they used to compare their performance with the other competitor in the market by seeing performance of other company with own company.

Dream Furniture used to use KPI as the system in the organization. In this system organization used to set KPI and used to follow the same to achieve goal of the business.

Financial Governance refers to different ways which is used by organization in to collect, monitor and control different type of financial information in market. This tool can be used as a monitoring system as it used to help organization in understanding the current position of the business. This will improve level of decision making in the organization (Lada, Kozarkiewicz and Haslam, 2020).

Management Skill

Some of the skill set which is require by management accountant in the organization are as follows:

Learner: Management accountant need to be good learner as they have to go through variety of report and has to learn best out of them to make decision.

Decision maker: Management accountant also need to have good decision making skill as they have to make different decision in the organization.

Importance of full Discloser of financial Position 

It is primary responsibility of all the organization to provide a full discloser of different financial position of the business to interested party and also providing the same to different department in the organization as well. This will eventually help company in improving level of efficiency in the organization (Al-Sayed and Dugdale, 2016).

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CONCLUSION

The above report summarized that there are many different type of cost and cost analysis tool which is used by organization. After that the report summarized that budget is a very important financial report of business which help company in forecasting future. After that the report summarized that there are many different type of planning tool which is used by organization in preparing budget. In the end the report summarized the different measuring tool and required skill by management accountant.

Other Related Samples:-

Budget and Process Involved in Preparing Budgets

REFERENCES

Books and Journal

  • Goddard, A. and Simm, A., 2017. Management accounting, performance measurement and strategy in English local authorities. Public Money & Management. 37(4). pp.261-268.
  • Bromwich, M. and Scapens, R. W., 2016. Management accounting research: 25 years on. Management Accounting Research. 31. pp.1-9.
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