The aim of the unit is to introduce principles of management accounting which apply in a business environment and operation of activities, management of financial data
- Provide an understanding of management accounting system used by XYZ co
- Analyze a different range of management accounting technique used by XYZ co.
- Give a brief description of the planning tools used in management accounting.
- Compare ways in which XYZ co uses management tools for responding to financial problem.
The main objective of this report is to give some light on fundamentals of management accounting which is applied to the business environment and in addition to this, organizations which are operating in that environment. Management accounting is applied to financial data for assisting in monitoring, planning, decisions and managing of finance along with the company. This report will also give a brief understanding of management accounting systems with its proper explanation and its significance and combination with organisation is briefed. The role, origin and principles of management accounting are very essential. Though management accounting and financial accounting sound similar but there are major differences which are explained below. The different types of management accounting system are cost accounting system, inventory management systems, job costing system and price optimising system. Planning tools which are used in management accounting system are briefed and ways in which company must use management accounting to respond the financial problems.
P1 Management accounting, its requirement and its types.
Management accounting is playing vital role for managerial decisions. It helps in providing and preparing financial and statistical information to all business managers who take managerial decisions i.e. short term or day to day decisions (Lee and et.al., 2011). It is the process of identifying, measuring, analysing, interpreting and delivering financial information in the context of organisation's goals which can be also referred as cost accounting. Financial accounting and management accounting sounds similar but actually they are not, there main difference is that information related to management accounting objective is for assisting managers in the company while taking decisions and on the contrary side target for financial accounting refers to information which is offers to external parties of company. While preparing management accounts and reports which offer particular, timely and accurate financial and statistical information which is required by managers for establishing day to day and short term decisions. The reports which are prepared to accomplish requirements of management is also considered in it.
All the confidential information of management accounting is used for internal purpose only which is unique from financial accounting systems i.e. publicly reported (Davies and Crawford, 2011). These informations are calculated on the basis of management's informational need instead of generally accepted accounting practices. The basic principle of management accounting can be implementation of developing decision making companies and it also consists of influence, relevance, value and trust. Influence in perspective of communication which gives insight. Information should be relevant, value which has been impacted should be analysed properly and trust is build by stewardship. Accounting can be referred as process of identifying, measuring and communicating or elaborating the economic data for allowing informed decisions and users of data who take the judgment as per American Accounting Association. The application of managerial accounting always varies from other as every system is customised for giving various managerial information which is required by management for decision making.
There are many types of management accounting systems such as cost accounting system, price optimisation, job costing system and inventory management. Each and every method has their own objectives, function and elements. The basic elements of accounting system provides standardized context as the main objective for the data is to be analysed, communicated and identified properly. Explanation of these types is as follows:
Cost accounting system: Costing system is the basic framework which has been applied by corporation for identifying approximate cost of its products for valuation of inventory. Cost control and profitability analysis. In this type allocation of cost is according to traditional costing system or activity based costing. The approximation for actual products cost is important for effective and efficient functions (Wu, 2012). The main objective of this system is to capture the production cost of corporations along with weighing input costs of each and every production step and in addition to it some fixed cost such as capital equipment depreciation. It will individually record and measure costs and then actual comparison of outcome from input to the actual results or output which assists the company's management for measuring financial performance. Usually the business mangers depends on accounting data in general and specifically on cost as any of the company's task should be elaborated with its cost. It is the key concept of management accounting because it provides specific analytical tools such as marginal costing, budgetary control, operating cost, standard costing and inventory control which has been applied from the management perspective in replacing their reproducibility efficiently.
Inventory management: This method refers to controlling and keeping track on ordering, application and storage of the component which the organisation is applying for the production of goods which has been sold by them. While managing the inventory system it combines the usage of desktop software, barcode scanners, barcode printers and mobile devices for the streamline of managing inventory such as goods, stock, supplies and consumables. All finished goods for sale are also been tracked in this method. The main objective is to understand the present level of inventory and to control or minimise under stock and overstock situations. If there is efficient tracking, then managers have capability of drawing sufficient inventory decisions. Inventories represent key assets and accounts for investment which are tied to the products which are sold.
The main function of inventory management constitutes creation of purchasing orders, relocating, adjusting, disposing and receiving the inventory. It creates the sales order, packaging, shipping and picking of the products even the cycle counts and physical counts of inventory has been performed. The main benefits which represent inventory management system of organisation are enhancing accuracy of inventory, company's workflow has been improved and bottom line of company is also improved in same series.
Job costing system: It allocates the manufacturing costs to specific batch or individual item of the products. This method is usually applied when goods are been processed from one another. Usually practice of accumulation of data related to cost of particular service or any job related to production. This information is required for submitting cost data to a consumer who is in contract where cost is refunded and it is necessary for determining accuracy and estimating system of the company which is capable for quoting prices. This method combines three types of direct information labour, overhead and direct material.
Price optimisation systems: It is basic method for the application of mathematical analysis of the XYZ co. for determining the reactions of consumers for various prices for services and goods through different channels. Essentially it is used for identifying prices which XYZ co. shall accomplish goals like increasing the operating profit. An alternative should be discovered through highest achievable cost or performance which is effective under various barriers via increasing the desired aspects and vice versa (Siverbo, 2014).