As per the Scenario of this report Tech (UK) is an organisation which is known to produce charger for mobile phone and other gadgets which are offered through retail outlet in UK. This report determines the functions of management accounting systems in organizations.
- Explanation of management accounting systems and its essential requirements in Tech (UK).
- Preparation of income statements using absorption and marginal costing methods.
- Mentioning different types of budgets along with their advantages and disadvantages for Tech (UK).
- Evaluating the ways in which management accounting could be used to deal with financial problems of the company.
In present scenario management is always planning to make use of appropriate accounting techniques which will lead to increase better outcomes in coming period of time. It seems to be one of the crucial role of managers to make use of reliable resources that are sufficient enough to attain maximum profit for the company (Hilton and Platt, 2013) .According to the mentioned case of Tech UK it has been analyse the company is planning to analyse their financial statements because they are not able to earn valuable amount of revenues in last few years. For this purpose they have appointed a new accountant for auditing of their financial statements. This project an aim is to evaluated accounting and reporting methods in effective manner so that every transaction can be recorded effectively. Apart from this, different types of costing methods are being used to calculate net profit for the company. However, use of various types of budgets can lead to manage their future costs and expense. Evaluation of various management accounting techniques those are use for the purpose of resolving financial issues those are arises in an organisation.
TASK 1: Definition of management and their essential requirement
In accordance with increase overall goodwill of Tech (UK) Limited in front of other companies they need to grab new opportunities by using appropriate accounting systems. This will be consider more effective in recording all financial and non-financial transactions those are done within an accounting period of time. The manager always looks to make use of reliable systems which will be essential enough to increase overall productivity and growth for the company (Parker, 2012). Management accounting is known as one of the essential process of collecting, recording, summarising and evaluating all data in more vital manner in the set period. Managers are uses the provision of all information in respect to make better inform themselves before they decide all essential matters within their organisation. These effective provisions assist financial data and make advice to every company for using in the organisation and evaluation data that are made by company in last year. The process of formulating management accounting report and account that used to provide reliable and accurate financial and statistical results for the company. One more effective point is taken into account that financial and management accounting is having some kind of differences those are mentioned below:
It used to provide data to people within every organisation to make further decision for future planning.
This accounting is basically is mainly for those external parties those are associated with the business. Such as investors.
Management accounting cannot need any kind of rules and regulation because they always formulate them.
While financial accounting is entirely based on rules and policies those are used for the purpose of recording financial transactions.
It can be related with specific product and cost related aspects those are based on the increasing profitability for the company.
It used to contain entire organisation performances on the basis of their financial statements.
(ii) Importance of management accounting information
There are various crucial benefits of using management accounting information that are collected within an accounting of time from the managers. They uses this to be presented in front of various stakeholders that are vital parties for making future decision making in their valuable projects ( Renz and Herman 2016 ). Some of them are
- Increase profitability: The primary motive of using accounting information to enhance maximum profit by selling more products that are produced by Tech UK during the period of time.
- Forecast for future: Another important aspect of using management accounting information is to take crucial decisions that are entirely based on future productivity of the company. Every investment that is made by the company is considered more reliable in coming period of time.
(iii) Cost accounting system
It is known as one of the effective design which is being used by the company to determine their overall costs that are done within an accounting period of time. These are cost are used to analyse products ability and inventory valuation and controlling measure that are effecting operational effectiveness up to an extent (Soin and Collier, 2013). It is related with various types of cost those are incurred during production of various product and services for the company. Some of them are mentioned below:
- Actual costing: These are said to be that cost which are actually incurred by Tech UK while production process. It is mostly related with direct material and direct overhead.
- Standard costing: It is mostly used by an organisation to make analysis of actual cost that is paid by the company are relatively different from one another.
- Normal costing: It is basically that cost which is being incurred normally on direct cost of production such as direct material, labour and overhead costs.
(iv) Inventory management system
This seems to be ongoing procedure for moving parts and products into and out of a company premises. Tech UK used to manage their entire stock on regular basis as they are placed for new one or before shipping orders to various customers. This seems to be more relatively associated with tracking stock levels, orders and sales and deliveries during the period of time. There are various techniques that are related with controlling various stock of the company. Some of them are discussed underneath:
- FIFO: It is known as first in, first out which means that the long time stock items are recorded as sell firstly but do not important to detect exact oldest objects that has been tracked and sold by the company ( Christ and Burritt, 2013).
- LIFO: According to this, cost flow valuation that can be determine by various companies in moving their production cost from stock to the cost of product sold during the time.
- AVCO: This seems to be utmost valuable costing methods that are based on average cost of stock during an accounting period of time. It is used to calculate the cost of closing stocks and cost of goods sold for given period on the basis of weighted average cost per unit of products produced.
(V) Job costing system
Job order costing is basically reliable for assigning production costs to a single products or group of products that are produced within an accounting time. Basically, the job costing is consider only those situation the product manufactured are relatively separate from one another. There are various types of job costing which are incurred within an organisation during generating sufficient amount of goods to the company. Some of them are:
- Batch costing: According to this cost an organisation is liable to make analysis of products that are produces in batches in a given period. Each batch has been allotted a number that is relatively different from another.
- Process costing: As per this method company used to assign cost to units of manufacturing in Tech UK producing large amount of products for an organisation. Such kind of cost is mostly used to ascertain costs of a product at every phase of production (Figge and Hahn, 2013).
(b) Various method of accounting reporting
In current era, management is trying to make use of various effective reporting methods that are effectively responsible for increasing profitability of the company. Every reports are having certain benefits those are vital for the owner to plan their future projects in more effective manner. Reporting used to provide enterprises certain information about financial position of the company on the basis of their financial statements that are prepared by managers in last year’s. These reports are considered more reliable for making future decision in more reliable manner. There are various sources from which financial information can be gathered by accountant and to be presented to various investors and stakeholder for the purpose of making business strategies in near future time. There are various types of reporting methods which will be valuable for planning, organising and coordinating resources of the company. Some of them are mentioned underneath:
Performance report: This happens to be more crucial activities which are used in project planning process. It consists of collecting necessary information from project progress, utilisation of resources and estimation of future growth of the company (Wickramasinghe and Alawattage, 2012 ). This can be more valuable in case all the data collected by the accountant are accurately provided to the company. It can be related with past performance and profit they are incurred from the selling of products. Such kind of report is more helpful for the administration to success of a project and budget related matters.
Inventory management reports: According to this particular report which will be prepared by the accountant for the purpose of analysing current stock position of the company. All the opening and closing information of inventory are recorded in this report. This will assist an organisation to increase their internal capacity by use resources at the time of production of products and services with the accounting time frame. These are various inventory valuation techniques which are effective useful for the company such as economic order quantity level, inventory turnover ratio of an org