Being part of a medium size manufacturing organisation Nero ltd. a report is to be prepared to facilitate an understanding between different department and informing the manner in which management accounting is used.
- Indicating an understanding of the management accounting systems which are used in Nero Ltd.
- Application of range of management accounting techniques to product appropriate financial reporting documents.
- Giving an explanation on the use of planning tools in management accounting for Nero Ltd.
- Differentiating the ways in which management accounting tools are used by business to deal with financial problems.
Management accounting is more useful to identify, measure, analysis and preparation of financial accounts and reports which helps in making an effective decision and suitable plans for the betterment of an organisation. For this, accounting managers are liable to record all financial as well as non-financial transactions happened on daily basis operations which help in identifying the profitable areas where the company get profitable outcomes. Financial reports should required to be made by company on annual basis so as to present company's financial position towards their stakeholders. The present assignment report is based on Nero Ltd. With the context of which all other aspects are explained under this report. The project report covers various accounting systems and reporting which facilitate management to make an effective decision and plans to achieve growth and success. Different planning tools used to control budgetary process has been also discussed under this report (Ahadiat, 2013).
SECTION 1 P1: Different types of accounting system and their essential utilisation
There are lots of transactions made on daily basis business operations which must required to be recorded and maintain financial reports such as profit & loss accounts, balance sheet, cash flow statement etc. Such reports are prepared with an objective of identifying the actual financial position of company due to which the management are more capable to make further actions to resolve errors or deviations if any found in financial accounts. This forces management to adopt various accounting systems which includes cost accounting systems, inventory management systems, price optimisation system etc. Before adopt such accounting systems within an organisation it is essential for managers to first identify their important which are discussed under the below:
Increase in efficiency: It will help in finding out the efficiency level of business activities through resolving errors or deviations which may restrict employees to perform in best possible way (Albu and Albu, 2012).
Measurement of performance: Different accounting systems helps in analysing the performance of employees through comparing their actual with standard performance. This will help in finding out the deviation if any, due to which the mangers are in position to resolve as quickly as possible.
Effective management control: Through using management accounting systems, the performance of employees are easily managed and monitored due to which the company can easily achieve best possible outcomes.
Comparison between financial and management accounting
It is an effective accounting system which mainly focuses on preparing financial accounts in order to provide financial condition of company towards interest parties.
It is also an accounting system which gives valuable information to the management about financial as well as non-financial transactions with the help of which the management are able to make an effective decision and suitable planning.
It includes external parties which make financial decisions and plans.
Internal management are the users.
Required to follow GAAP/IFRS and prescribed formats
Not restricted by GAP/IFRS
It is compulsorily required to prepare financial reports to outside parties.
Not compulsorily required.
Verifiability versus relevance
It emphasis of objectivity and verifiability.
It emphasis on relevance
Types of accounting system:
Price optimisation: This is an effective accounting system which determines the cost of products and services which maximise the satisfaction level of customer. For this, accounting manager of Nero Ltd. need to hire researcher who conduct research for them and hep them in finding out the actual perception of customers towards the price charged by company on their products and services. The details used in price optimisation include operating cost, stock and historical value. Thus, after identifying the current satisfaction level of customers the manager of Nero are able to set an optimum prices which increases buying behaviour of customers as well as increases profit of company as well (Alleyne and Weekes-Marshall, 2011).
Cost accounting system: Such accounting system is useful to adopt in order to determine the total cost or expenses incurred in production process so as to manufacture quality products due to which the company set their margin on each products. For this, the manager of Nero Ltd. should aim to focus on reducing cost through educating their employees to work on modern technology which help them in producing quality products at minimum cost due to which profitability of company may increases.
Inventory management system: It is an accounting system which determines and monitor the non-capital assets and inventory products. It is an affective to use such system which help company in knowing what amount of stock available with company at present times. This will provide an opportunity to manager of Nero Ltd. to place order to inventory from suppliers in order to achieve optimum level of inventory at warehouses so that the production process are not interrupted in any case and meet demands of customers within shorter period of time.
Job costing system: Such system of accounting is more helpful for manager of Nero Ltd. to allocate cost to produce specific product or bunch of products in optimum quality. This will motive client to think how to reduce cost of operations and find the areas where the cost should required to invent more. This will help manager in fixation of budget for reach job activity on the basis of their time of manufacturing and profitable outcomes received in future (Bodie, 2013).
P2: Various accounting system used in reporting
In order to make an effective decisions and suitable planning, the accounting manager need to have important information about the financial position of company ans the resources the company have at present so that future business activities can be executed in more effective way. Therefore, it must required for every business organisation such as Nero Ltd. to prepare different reports on continuous basis so as to get information whenever required. The crucial information the manager can get is from profit & loss accounts, balance sheet, cash flow statements etc. Such reports help in identifying the potentiality of company that whether firm are able to deal with short as well as long term debts in future or not. All the future decision take by manager should required to consider the information available through such reports so that influencing aspects which affects the performance of company will be easily identified (Gond and et. al., 2012).
If making some modifications according to the fluctuations in market conditions, preparation of such reports are more useful. On the other hand, such reports cannot be made without having support from the different departments. Therefore, adequate support from them is must which enable company to known the requirements of each department in execution of particular business activities. Thus, for this the manages must required to use various reporting system that help them in reporting their financial transactions. This will help in identifying the true and fair financial position of company. Such reporting system includes:
Performance report: Such reports maintained by company with an objective of analysing the performance of employees as well as an organisation which help them in finding out the issues and deviations which may comes in the process of executing business activities in more effective manner. Such reports includes the information related with utilisation of resources, future opportunities to achieve growth for outside parties. This will help in determining the current situation of organisation and accordingly put maximum efforts in maximising their performance through removing all barriers and deviations (Christ and Burritt, 2013).
Account receivable ageing report: It contains the details of unpaid debtors of company which directs the management to implement some actions and plans to recover the same along with the interest. It help company in making an effective policies regarding the eliminating of such situation in near future. Thus, essential to make such reports which provides the accounting details that are related with credit payment options.
Inventory management report: It is much difficult for inventory management to control stock at maximum level which can be resolved through using an appropriate stock tool that will help in analysing the inventory level of an organisation. Such tools includes EOQ, ABC costing and inventory management ratios etc. Thus, such reports provided the adequate information about the current level of inventory which directs the managers to make decision whether to place order to suppliers or not (Kotas, 2014).
Job cost report: Such reports is helpful for manager to track total expenses incurred in production process so that invested cost of producing each product can be easily identified. This will help manager in setting up prices of products after making properly analysis of expenditures and its profitable outcomes. It is more helpful in allocating cost to project activity in order to deal with financial efficiency and productivity during the time (Cinquini and Tenucci, 2010).
P3: Different costing methods and preparation of income statement
Cost: It refers to value of amount which is invested in the process of executing different business activities so as to achieve profitable outcomes in ear future. Such activities includes marketing activities, production activities etc. For example, cost incurred in executing production activities includes labour cost, raw material cost and overhead expanses.
Therefore, it is essential for the management of Nero Ltd. to use different costing methods in order to setting up the prices for their products and services which maximises the satisfaction level of customers as well as increase profitability of company. There are come costing methods which help in overcoming the extra cost of company. Such costing methods includes:
Marginal costing: It refers to the cost invested in producing an additional unit of output so as to meet customer’s needs and requirements. It is also more effective to use in stock valuation due to considering variable cost the inventory value is undervalued. Therefore, such costing methods doesn't include fixed cost and consider only variable cost (Endenich, Brandau, and Hoffjan, 2011).
Absorption costing: Such costing methods includes all expenses incurred in manufacturing process which means fixed as well as variable cost are required to consider at the time of valuation of products and services. It incudes every thing which is directly impact the products. Such cost includes Labour cost, material cost, overhead expenses.