You are working as management accountant of Zylla which has undergone changes as result of expansion into new market area thus the existing management accounting system need to be changed.
- Briefly explain management accounting and difference between financial and management accounting
- Provide income statement including absorption and marginal costing methods
- Analyze various budget system, budgetary process and importance of budget as important tool for planning by Zylla.
- Provide financial position of Zylla. and different method by which balance score card can be used for responding to financial problems.
Management accounting is the process which help to know the actual performance of the company. It help to make better decision and control the cost of product . This entire report is based on management accounting and help to know the financial and statistical information required by the mangers. This report show that Zylla is a company who use this accounting system and compares its past and present performance. This report shows the essential requirement of various types of management accounting tools and also show different types of management account report which help to know the actual performance of the organisation and this also shows tools which help to know the status of every department. There are various management accounting tools which help to sort the problem related with financial. This report also depicts the relationship between marginal costing and absorption costing and shows which is better for reducing the cost .
P1 Management accounting and essential requirements of various types of management accounting in organisation
Accounting plays crucial role in the business as it various transactions can be recorded and overall picture of organisation can be carried out with the help of preparation of financials. This method of recording business transactions and extracting financial statements is known as financial accounting. From this, management accounting information is taken out which is beneficial for top managerial personnels so that they may analyse performance of organisation and take structured decisions thereof (Management accounting, 2018). In simpler words, such accounting information serves as a guide for management by which it can strengthen internal operations in that way by which customers may be provided with better and good quality goods. The management accounting is required because company operates in an dynamic environment where frequent changes occur and as such, it increases costs to carry on business activities. In relation to this, one of the fundamental concept of management accounting is to control costs so that more production can take place and revenue may be increased up to a high extent (Suomala, Lyly-Yrjänäinen and Lukka, 2014).
Zylla Company also effectively uses management accounting by which it is able to get clarity about manufacturing expenditures and thus, control can be initiated with much ease. When costs are controlled, then eventually revenue maximises which is the ultimate objective of firm. Thus, by taking into account, such information management can easily take well-structured decisions which will be helpful in increasing profits in effective manner. In relation to this, there are various types of management accounting that are essentially required in the business. They are listed below-
1. Cost accounting-
It is one of the important type of management accounting as it help to effectively initiate control upon expenditures in the best possible manner. It is required in Zylla Company so that it can easily control costs in effective way (Ueno and Scarbrough, 2016). It helps organisation to reduce amount on unnecessary expenditures and as such, manufacturing can be injected in a better way. Management of firm can analyse cost reports and thus, measures to reduce the same can be done. Cost accounting is vital for firm so that profits may not be affected by increased expenses and thus, production costs are easily eradicated and higher production is achieved. Usually expenditures are fixed, semi-variable, direct, indirect and variable which forms total part of manufacturing cost of company. Thus, it can be said that with the help of cost accounting, higher production may be accomplished by reducing overall cost in the best possible manner.
2. Inventory management-
Inventory is an important part of production process as without stock in hand, desired production cannot be achieved by the company (Malmi, 2016). For carrying out customer's demand, manufacturing is done so that timely delivery of goods can be provided which fulfils their requirement. Thus, for accomplishing production, inventory is needed in adequate manner so that no wastage may occur and company can achieve the level with much ease. Stock is required in optimum manner so that no spoilage may prevail. It is essentially required as it increases additional handling costs in the warehouse and as such, firm will face difficulty accomplishing production because expenditures would increase. On the other hand, if stock is not available in desired quantity, then also desired production cannot be achieved. Thus, inventory is purchased as per the reports prepared by production department and imparted to management to assess the same and inventory is managed in effective way.
3. Job costing-
It is defined as the process which involves certain activities such as collecting the cost related to materials, workers and certain overheads for the specific task. This is the most effective approach that helps to trace all the cost which related to individual task and evaluating them to see if that cost can be reduced further. This concept is used at a small level. It requires some considerable quantity of precision in costing (Otley, 2016).
The activities which are involved in job casting are discussed below:
Material: It evaluates the cost of every component and further assign it for a project
Labour: Every worker contribute time for those task which are included in the cost related.
Overhead: It includes those cost which are involved in pooling various cost.
4. Price optimisation technique-
Price Optimisation in a company involves the specific usage of mathematical analysis for determining the response of the customers on the pricers of their various products and services with the help of various channels. It facilitates the process of deciding the perfect price which is appropriate for accomplishing the objectives like maximisation of profit related to several operations. The data which is used for this process are inventories, operating cost and past data of prices and sales. Big data is utilized in this concept for predicting behaviour of consumers for different pricing. Organisation uses various models for optimising the prices of their offerings and the related structures for promotional pricing, initial pricing and further discount pricing. For this concept segmentation of the customers are done and each segment is analysed.
P2 Discussing methods of management accounting reporting
As management accounting help in making decision better and used to controlling cost, planning. Cash flow statement, balance sheets these all financial statement are depend on management accounting only and apart from this it is used in making reports which are mention below:
- Cost Reports : This report help the management accountant to evaluate price of the item. As it is calculated by labor, overhead, and any other extra expenses incurred during manufacturing. In cost reports, data are presented in brief form but after calculating everything the actual cost is determine of the product and then they allot selling price . This report is used in planning and also manages product income too.
- Budget report : This report help in small business. Budget report help to see the performance of the employee and also provide incentives too for complete the financial goals of the company as they convert bonus form into their incentives (Jermias, 2017) . If the budget is not fulfil or it may be overcome then company has to adjust it according the allotted budget. Company's estimated budget is based on prior budget as if the budget is overcome then owners and managers has to find different cost to trim it and may increased the level of budget.
- Performance Report : This report help to see the performance of every employee and when the new budget is determined, there is need to change or alter in previous data,and the entire data are listed on performance report. Performance report is calculated by Zylla company too and make them monthly, quarterly and yearly based on what is the strength of the company. This report also help to warn the directors to meet the upcoming future goals.
- Inventory and manufacturing reports : This report maintain the stock of every item as it checks the in and out of product and this also shows the shortage of item too. For running a business must follow the inventory format because this is the only method by which once can determine the availability and shortage of the item (Mättö, T. and et.al., 2017). By maintaing the stock, managers can also determine which product is used in daily basis and consumption of this product is more than others.