Management of accounting system ensure proper management of business activities to fulfil aims and objectives of Nero ltd. There are different types of accounting systems such as inventory management system and cost accounting system.
- Underline requirements and management accounting systems.
- Identify various methods used in management accounting reporting.
- Determine numerous form of costing methods.
- State disadvantages and advantages of planning tools.
- Evaluate effective tools of planning to overcome financial issues.
Management of the company plays an essential role in managing the operations of the business activities so that the organizational goals are achieved in an effective and efficient manner. Role of management is very crucial in every organization irrespective of its size. For this, Management accounting system plays an important role by providing the internal managers with the essential information. The management accounting system summarizes the information of the financial statements of the company with the future economic and non economic conditions that may affect the business in the near future, and then passes on this information to the managers so that they can take suitable decisions and attain the organizational objectives.
In this research report we will discuss about ‘Nero ltd’ and the various accounting systems that should be implemented and their essential use in the workings of the organizations. We will discuss about the methods used in management accounting reporting, what are the appropriate techniques of cost analysis, advantages and disadvantages of planning tools in budgetary control and how companies respond to financial problems using accounting system.
TASK 1 P1: Define management accounting and requirements of management accounting systems
Meaning and Definitions:
The management accounting is the form of accounting which is done for providing the necessary information to the internal management of the company. The accountant collects the information from the financial statements of the company and studies other future economic and non economic condition and then presents all of that information in a report, and that report is given to the internal managers for taking suitable decisions for the company so that the company can take suitable decisions according to the market conditions. The information presented in this report is quantitative in nature as compared to the qualitative nature of financial accounting.
Management accounting is concerned with the preparation of financial reports and forecasts that are reliable, accurate and fair, the data contained in these reports should be helpful to the internal management for formulating the plan and policies for the organization that would help the company in attaining the determined objectives which may be short or long term.
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Types of accounting systems:
This is the accounting system which focuses on balancing between the value and profit of the product to maintain the customer satisfaction along with the profitability of the company. This accounting deals with determining the price of the product in such a manner so that the price of the product seems optimum to both the company and the targeted customers. The system of price optimization allows the companies determining the demand of their products in the market and accordingly setting the pricing strategies.
Cost accounting system:
The modern companies such as Nero. Ltd can only survive in this competitive environment only if they use such costing systems in managing their operations and determining their production cost to perform effectively and efficiently. Thus, the accountants of such companies need to ensure that there is no excessive cost involved in the business operations and if there is he need to cut it down. This helps in reducing the wastages of financial resources incurred in the activities of business.
Inventory management system:
This accounting system deals with managing the inventory levels of the organization. The companies like Nero ltd. Needs to maintain their stock levels by using this system for satisfying the demands of their customers as and when required. The managers of Nero Ltd should take the responsibilities of managing all the activities starting from the production level till the final sales of company. The inventory management system that companies follows are discussed as under:
This inventory system suggests that the goods that came first in the stock of the company are supposed to be sold first, which means that cost of goods sold represent goods that came earlier in the stock and the goods that came in later goes to the closing inventory.
This system of inventory management means last in first out and it suggests that the goods that came into stock later are supposed to be sold first and thus the cost of goods sold represents goods that came into inventory in the end and the earlier purchased goods goes into closing inventory.
Weighted average method:
This system of inventory management takes the weighted average of the total inventory of the company and then the stock is cleared for sale. In this inventory system the cost of goods sold and closing inventory have same prices of the product.
Job costing system:
This accounting system is helpful in tracking the labor cost manufacturing cost and other overheads cost that is related to specific product or a batches of different products. This costing system is applicable only in those industries where manufactured products differ from each other.
P2: Different methods used in management accounting reporting:
A management accounting report is summary of the financial statements of the company such as balance sheet, statement of profit and loss etc and other future economic and non economic factors that are taken into consideration and summarized by the accountant in order to help the internal management of the company in taking the decisions and formulating plan and policies for the companies. These reports can be more effective if they are prepared by using the accurate and reliable data available with the company without ant wrong entries in the financial accounts. This is observed in many organizations that companies can achieve the pre specified objectives only if they are using reliable and accurate information, this also impacts the goodwill of the company and its market image. In order to gain the market share and maintain the sustainability in the market, they need to do an effective reprting which reflects true and fair market information on which the management can rely and act. The various kinds of reporting systems that are discussed as under:
Performance reporting system:
This system of reporting ensures that accounting reports should be analyzed and interpreted in such a manner that it should represent the recent financial performance of the Nero ltd. The performance reporting system helps in analyzing both the individual and the performance of company as whole for an accounting year.
Inventory management report:
This report helps managers in maintaining the stock levels in the company and helps in analyzing the stock positions of the company at different times of accounting year. This report works as an effective tool for the purpose of managing the levels of inventory in the Nero ltd. The tools that help in maintaining these reports are Economic order quantity (EOQ), inventory turnover ratio and ABC costing. Economic order quantity is the optimum level of stock that should be ordered timely in order to maintain the stock levels in the company.
Accounts receivable report:
This report is also known as debtors report. According to this report the managers estimated the amount of debtors that company currently have and analyzing how much amount is to be received from them, and at what date the amount is to be received. This report also tells about the debtors of the company that are not making the payments at the right time which in turn helps the companies in formulating stricter debtor collection periods to collect the amount as early as possible.
Job costing report:
This reporting system takes into account the costs that are related to the production of specific product or batches of products and services during an accounting year. It takes into account the detailed information about the direct material, labor and other overheads that are used by the Nero ltd in production of certain goods and services.
Operating budget report:
This report takes into account the expenses and costs that are incurred in the operations or the regular activities of the business, basically production related expenses. It determines the actual costs that are incurred in the production of total units. These reports often consider the operations cost of entire business or sometimes of individual projects. By gathering all the operation budget into a report the total expenses are identified which are then used in the income statement for finding the profitability or the net earnings of the company.
M1: Benefits of using management accounting system
From the above discussed various accounting systems, it has been determining that they all are having equal benefits that are vital for the company in future planning. Some of them are:
Cost accounting system
: By the help of this, Nero ltd can easily be able to control and identified their overall cost incurred on the production process.
Inventory management system
: one of the biggest advantage of using this system is to determine opening and closing availability of stock with the company.
Price optimization system
: With this system, manager of Nero ltd can easily analyses the perception of the customers regarding product those are offered in front of time by the Nero ltd company.
Job cost system
As per this system, owner of the company or production manager can examine individual cost of products that are manufactured during the period of time.
D1: Analysis of the various reporting methods and accounting system integration
It has been analyzing that accounting system and reporting both are valuable parts of the company. Manager of Nero ltd can make sure that all the information regarding the present position can easily be determining by these tools. It can assist them to reduce all the financial issues those are arises within an organization. There is different reporting system such as performance report, account receivable, inventory report and so on. These are interlinked with the each other to directly so that further decision can be made in near future time.
TASK 2 P3: Different kinds of costing methods
Cost is referred as the total amount of expenses that are incurred in the operations of the Nero ltd. Costing in an easy way is method of determining the projected expenses that are involved in manufacturing something. These costing methods used by the companies help them in improving the overall production process by estimating the costs involved in advance and helps in reducing the cost involved in production process by reducing wastages. These cost analyzing techniques helps the Nero ltd in determining the profitability from the produced goods. These are discussed as under:
This costing process determines the cost that is incurred in the production of additional units of products by the company. It is the additional cost per unit of product produced. The marginal cost of production involves only variable cost such as material labor etc and do not consist fixed cost. This costing helps in analyzing the profitability that the company made from producing those additional units.
This type of costing method considers the total cost that is incurred in the process of manufacturing. The absorption costs are inclusive of both the variable and fixed cost that incurs in production. Because of this, the method is used from a long time. Variable costs of production are changed with every unit produced whereas apportionments of fixed costs are done according to other aspects of product.
Marginal costing method:
M2: Various types of accounting tools and techniques
From the above analysis, it has been determining that company can use various types of accounting tools and techniques in their operation planning. These are effectively helpful for them in attaining future targets for the company. Some of them are:
Marginal costing tools
It is known as the one of the best techniques that can assist in proper evaluation of net profitability of the company. In this, company can change their variable units but cannot change the fixed cost.
It is another important tools that can create value to the company by measuring the prices of an assets on the given balance sheet on their nominal cost instead of original cost.
D2: Analysis of data collected through income statement
In accordance to different kind of issues those are occurs within an organization in coming period of time. They required to make use of different costing method. It would make better reliability to the company so that future decision can be made. The two important methods used to calculate the net income is marginal cost and absorption. By the use of absorption costing, they are getting total profit of 3100, whereas with the use of marginal costing 4700.
TASK 3 P4 Advantages and disadvantages of using planning tools:
This is the process of preparing budgets for the future period and then these are compared with the actual performances that occur at the time and then finding out the variances, if any and taking corrective actions. These budgets can be related to costs, sales, production etc. the management compares these budgets with the actual performances and then find the problems and accordingly takes action to correct them without any delay.
Every organization does planning by using administrative tools for deciding the plan and policies and for the attainment of pre specified objectives. There are various types of tools that are used control the budgets. These are discussed in brief as under:
This tools takes the assumption that is based in the internal management which consists of effective skills, decision making and knowledge. This tools analyses the historical data and reports for making the future report and forecasting. These forecasts also analyses the future economic and non economic policies that may be implemented in the future and how it will affect the business. This forecasting tool also tells about the future and current industry trend in which the company is associated. The forecasts such as demand, supply, prices and labor costs are done in this forecasting system.
This tool is very crucial tool industries can use for examining and analyzing their pre specified targets. With help of this they can formulate the policies accordingly and determine the sales demand and relate costs that will incur in production.
The drawback of this tool is that it makes the forecasting based on the future information which may not always be certain and are based on assumption only.
Scenario analysis tools:
With the use of these tools the managers of the organization can analyze about the current trends of the market that are applicable. This tools assists in planning, investing and operational administration of Nero ltd. The changes in the working are done with the scenario analysis such as variations of demand in market and so on.
By using the assistance of scenario tool managers of the company are able to generate proper ideas for the selection and interpretation of upcoming opportunities and can make decision regarding whether or not to choose them.
It has been seen sometimes that this technique is not so effective when changes are done in policies and this is not able in generating positive outcomes.
Contingencies planning tools:
These tools are formulated by the companies when the firms have to make critical decisions at the time of contingencies. Implementation of a plan that is made for contingencies can be very effective in tackling critical situations.
These plans are very helpful in the times of contingencies as they help a lot in overcoming the critical situations.
The Plans made for contingencies are very uncertain and complex in predicting future conditions of the markets.
M3: Analysis of the planning tools
In accordance to make modification in the overall performance, it will be need various tools and techniques those are effectively provide safety to the budgets that are prepared by the company. There are certain budgets and variances evaluation through which the shortcomings would be determine and thus, can be taken into account so that they can be removed more quickly. Contingency tools are taken into account for controlling business risks those are arises in the department.
D3: Evaluation of planning tools for responding to financial issues
It has been analyzing that every organization would need to deal with various internal issues those are arises in Nero ltd. In order to manage various impacts that are related with budgets of an organization certain budgets. Forecasting tools is used to determine future issues that are affecting performance of the company can be resolve by using key performance indicators. It can be resolve by using financial governance rules those are made for the purpose of running business in more effective manner.
TASK 4 P5: Measures taken to resolve the financial problems of company
It is very obvious thing that every organization works for achieving some motives. But in reaching those goals the companies faces many problems because of the financial issues that arise in the companies. There are many of such issues that arise in the businesses. These issues are associated with the operational activities, investing activities and financing activities. Such problems are also created because of use of outdated technologies in the operations. Some of these are discussed as under:
There are various issues regarding profitability that are associated with the Nero ltd. This issue increases the extra cost and burden on the management to reach at their desired goals.
The problems that occur in the production process of products and services increases the costs of the process. This inefficiency occurs because of inappropriate uses of accounting system.
Performance Control and management:
when the mangers do not check the performances of the employees and management by comparing their actual performance with the budgeted ones , this causes extra expenses and if not controlled this reduces the overall earnings of the company.
In order to overcome the above mentioned financial issues the companies use certain techniques which are discussed as under:
Key Performance Indicator (KPI):
The tool is helpful in measuring the actual performances of the employees with the standard performances that are determined by the management in advance. This technique helps the managers in identifying the employees which have good skills and knowledge and the ones that are not performing upto the mark. Then the management takes actions accordingly to correct these things for the bad performances and the employees with good abilities are assigned more responsibilities so that they can get maximum return from them. This directly impacts the financial position of the company as the skilled employees give more valuable efforts in attaining the objectives of the company.
This tool assists the organizations in determining the performances of the employees of the companies with their competitors and then they set the targets accordingly for their employees in comparison with the rival companies. For grabbing the large market share , nero ltd has to be one step ahead in everything as compared to their rivals to taking the opportunities and achieve good financial position in the market for a longer period of time.
Difference between two companies
M4: Evaluation of the planning tools to deal with the financial issues
From the above analysis, it has been examining that organization need to use effective accounting system that can lead to consider effective development of marginal accounting that can used to record specific data regard to various tool of accounting. It seems to be crucial for future establishment of growth and earning that are expected to be use by an organization. Problems must be related with future estimated budgets and upcoming issues those are related with the department.
It has been concluded from the above research report that management accounting is very essential in the companies like Nero Ltd in order to sustain in the market. Because management accounting provides the summary of financial statements as well as future economic and non economic policies of the market to the internal management so that they can take suitable decisions for the company. This project brings complete light to the companies’ performances using various accounting systems and reporting techniques. For analyzing the net earnings of the company they can use various costing methods. This report also discusses about the practical approach of absorption and marginal costing. And finally the understanding of various financial issues and how to overcome them using techniques like Key performance indication and benchmarking.