Line manager working for Tech (UK) Limited has asked to produce a written report which will highlight the major functions of Management Accounting systems.
- Explanation of management account along with its essential requirement in Tech (UK) Limited.
- Preparation of income statement with the use of absorption and marginal costing methods.
- Explanation of the use of budgets for planning and controlling purposes in Tech (UK) Limited.
- Determining how Balanced Scorecard Approach can be used by Tech (UK) Limited to deal with its financial problem.
This particular project report is based on various aspects those are related with management accounting. It can be determining as effective study of managerial information related with recording of financial transactions that are done during the period of time. It indicates about accounting function that can be re-oriented so as to fit it within the design of management activities. The role of managers of Tech UK Ltd is to collect all necessary information which are essential for the development of an organisation. Nowadays, it has been seen that management is look for an effective system that can assist in evaluating and controlling different financial transactions those are valuable for the company (Hilton and Platt, 2013).
This project discuss certain specific matters related with types of accounting and reporting systems used by the cited company. Whereas, certain costing methods are taken into account for the purpose of calculating net profitability. Merits and demerits of several budgets are discuss under this report. Comparison of various management accounting in order to overcomes various financial issues arise in an organisation is explain under this project.
P1: Concept of management accounting and its essential requirement
In context to present scenario, it has been seen that accounting is said to be consider in delivering more emphasis on the planning for future. Another significant aspects of management accounting are to record all necessary data that are incur during the course of business operation during the time. Finance is considering primary aspect for an organisation to meet out short and long term obligation that are exists in an organisation during the period of time. The presentation of accounting data in such a manner as to help administration in order to create certain policy and daily business operation (Ward, 2012).
According to ICA (Institute of Chartered accountants of UK): It is a form of accounting which enable a business to be linked more efficiently with the department are consider to be management accounting.
Thus, all accounting those are utilise directly or indirectly delivery effective tools and techniques to managers of an organisation in order to lead in enhancing overall productivity of Tech UK. It is systematic allocation of role and responsibility for implementation of effective strategies and budgets of an organisation. The primary motive of managers is to provide opportunities and facilities for performing overall responsibility for an organisation. The aggregation of strategies would cover all aspects of TECH UK that consists of selling, production and finance department. The management procedure implies mainly four basic functions such as:
- Planning: It is considering utmost import plan of action to attain a specific objective during the time. A budget is said to be financial planning that indicate about total resources those are available to acquire and utilise over a particular period of time.
- Organising: It is known as systematic formulation of an organisation design and allocating responsibility to an individual those are working in Tech UK. This will assist in attaining overall aims and objectives during the time. It is clarity regarding each manager’s duties and line of authority to deal with various situations (Lavia López and Hiebl, 2014).
- Controlling: It is an essential process of monitoring, measuring and analysing actual outcomes to ensure that a business enterprise aims and plan can be attaining in more vital manner. With this, accomplishment with the use of collected data from various customers. The use of performance and control report use to follow effective principles of management to take necessary actions.
- Decision making: This process of selecting appropriate method to competing best alternative for an organisation. It is inherent in every of major management functions. A manage use to guide their employees and staffs to work in right direction in order to attain specific aims and objective within a definite period of time.
It would require to target changes on internal detail those are occur in an organisation.
The TECH UK as whole deal with every aspects of the department.
It is concern with future planning and programs those are going to be implemented by TECH UK.
These are mostly associated with historical record.
The emphasizes those are analyse which enhance total value of information in wide of uses.
It place great stress on those specific qualities in data which can relies on universal confidence.
Importance of using management accounting making effective decision:
- Helps in forecasting the future: The primary aspect of managers is to make appropriate planning in order to make decision for the future. This would assist in making solution to specific answers those are effectively helpful for an organisation.
- Assist in make or buy decision: It seems to be secure material or a commodity those are being produce by the company. This decision would be based on overall market analysis which will help in increasing overall growth for an organisation.
- Forecasting cash flows: This seem to be more effective purpose of managers to make estimation of total cash inflows from the total sales done by the company during the time. For this purpose, they need to involve designing of budgets and trend analysis which use the managers to enhance overall performance of an organisation (Management Accounting, 2017).
Types of management accounting system:
Cost accounting system: This seems to be assess managers to determine the costs of operating a business in more effective manner. During the time of industrial revolution, cost accounting has been originated. The complexities of operating a wide scale business will have led to the formulation of systematic recording as well as tracking of costs to help an owner of an organisation. There are various types of costs which are associated with the production process. Such as normal, actual and standard cost (Nitzl, 2016).
- Normal costing: It is mainly use to evaluate total value of producing products with real material costs.
- Standard costing: It is an estimation of performing an operation or developing a products and services in a given normal conditions. These are mainly uses for the purpose of targeting future cost.
- Actual costing: It is a systematic recording of products costs those are based on the following factors such as actual cost of material.
Inventory management system: It is known as total quantity of product which has been owned and kept by a business that is conscious either for resale or raw material. It is a kind of system which is used to track stock level, orders and sales done by the company during the time. It is continuous process of analysing moving products out of company’s locations.
Job costing system: It is an effective system for allocating production costs to an individual products and group of products. Basically, the job order is used to analyse products are relatively different from each other. If there so many jobs that are currently in progress are associated with an organisation.
P2: Various methods of reporting system
In every business organization need to make use of appropriate reporting system in order to record all necessary financial transaction. A report is a systematic detail of financial information that are done by an organisation during the period of time. This act of a company of giving an official statement regarding present performance and past financial position that are incurred. The role of account managers is to analyse all financial statements by using appropriate tools and techniques which will be helpful in increasing the profitability position of an organisation. The sources of data collection would be taken from various department such as internal or external level. This would cover particular periods, activities, events and financial ability to meet out their long and short term obligations are mentioned under this report. In case of opening and maintaining solid, professional accounting system is more essential aspects of the purpose of growth for Tech. It has been analysing that management accounting and financial management are having various similarities. The reports for a company internal stakeholder as opposed to outside inventors. It has been suggested that management reporting system would capture the sort of data which require by an organisational manager to operate business (Sisaye and Birnberg, 2012).
This sorts of financial information would have presented in annual report which is typically associated with their core operations. It is said to be cooperation bound and is used for external purposes. This include the preparation of report on timely basis such as monthly, quarterly in order to retain each month detail for an organisation during the time of productions. The reports are prepared by making proper valuation of income statements, balances sheet and cash flow statements of TECH UK Ltd. This report is presented in front of various investors and stakeholder in order to make crucial decision regarding capital investment in their future projects. There are various types of reporting method which will be analyse before making any specific decision. Some of them are discussed underneath:
Performance report: This seems to an important activity which is used in project communication department. It consists of collecting and disseminating project data, utilisation of resources and future forecasting of progress to provide certain value to several stakeholders. It enables reporting is intended to assist decision maker to analyse overall efficiency of an organisation. This will indicate that past and present performance of an organisation is said to analyse by using this report (Zang, 2011).
Account receivable report: This particular report provides valuable information about customer invoices and credits outstanding balance that are still remain unpaid. This report is considering primary tools which is used for the purpose of collecting department to analyse which bill are overdue for the payment. It has been seen that most of the factoring industries request to use this report because they help to understand their total outstanding receivable and overall quality of their products.
Inventory management report: According to this particular report which is summaries detail of items those are associated to Tech UK. It would provide a comprehensive consideration of inventory or supply of different items. This can be written in different forms or manner. It has been observed that an ideal report would always be simple and specific to understand the position of the company (Qian, Burritt and Monroe, 2011).
Job cost report: It is an accounting system which would track total cost and earning which is consider a Job and make enable standardize reporting for the purpose of increasing profitability for an organisation. It is the starting place for overall data which contained in respect to prepare report for Tech UK. As per this report list each job selected for working on the total cost incurred by an organisation are needed to be taken into account.
Importance of using various method of reporting:
A report should be generating as positive outcomes for an organisation. This would be incurring to get timely outcomes for the company. The system is considering more flexible enough to adjust all essential requirements those are made by users. This will provide a great insight if deviation from which are determine on the basis of collected data. This must be accurate at the time of analysis of financial position of the company in front of investors. This system uses to analyse a company’s overall outcomes at a given point of time, henceforth they require to be more specific and reliable. Few of the significance aspects of using management reporting system are discussed underneath:
- A management accounting reporting system is considering to be only effective in case all entries are made in more specific a correct manner.
- A report must be detailed enough to let management to know key areas those are lacking behind of the increasing growth for the company during the period of time.
All the above discussed reporting methods are more reliable for the company. They do have certain kind of benefits and limitation. As by the help of performance report Tech UK can be able to analyse effective comparison of actual performance to with the standard one. Account receivable report is more effectively use to collect necessary information about total list of unpaid customers those are remain outstanding during the time.
M1: Benefits of using types of accounting system
In accordance with operating their business and to make adjustment of their setup according to accounting system in order to make effective system. It is the primary objective of managers to make use to financial transaction more safe by posting them into their respective format. It is considering to be feasible for a generating greater outcomes for an organisation. Accounting system can save time as well as costs for the company by offering valuable and appropriate information with set time limit. Cost accounting system is an essential aspect for an organisation in order to increase the overall productivity of an organisation by collecting necessary information about total cost and expenses. While inventory system is use to record crucial data related with stock position during an accounting period of time. Job costing is another important system which would determine various costing methods such as process costing, batch and contract costing during the time.
D1: Critical evaluation of various method of reporting
In context to above mentioned reporting, it has been seen that manager need to make use of data in more effective manner. Report are used to make analysis of data which are uses for the purpose of making a well organise reports. There is various method those are helpful for manager to analyse future decision for an organisation. Performance report are used to analyse past financial position with the present one. While by using account receivable report to make identification total list of unpaid customer those are responsible for paying outstanding amounts. The inventory management report is use to collected specific information about total opening and closing stock position of Tech UK during the time.