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Unit 5 Management Accounting Assignment Help - H/508/0489

Introduction

Management accounting is a combination of finance and management, that includes business tools and techniques, it also added the real values of any business organisation. It helps managers in order to take financial and non-financial decisions. The practice of management is extends in three areas, such are as: - Strategic management, risk management and performance management. There is a huge difference in management accounting and financial accounting; management accounting is being focused on overall activities of the company. Although financial accounting is relates with providing details regarding products, divisional, operations, plans and individual activities. Management accountants are able to work across the organization, they are working not only just in finance but also in articulating business strategies & policies, implications of big financial decisions or monitoring risk (Ward, 2012). The information is provided by financial managers is helpful in developing dynamic solutions in order to improve business. Management accounting is helpful in making budgets and collects information regarding cash inflow, outstanding debts and revenues. On the other hand, financial management procedures, the useful data and information that is related with other business functions ie. Department managers. The responsibilities of these accountants is to providing comprehensive data of planning and forecasting, mentoring and reviewing cost inherent and performing variance analysis.

Task 1

What is management accounting

Management accounting is the process of manages accounts and financial statements of the organsiation. It is also helpful in supplying information exactly and timely and also proviides statistical data of the organisation to the managers so that they can easily take day to day or short term decisons. It involves the tools and techniques of financial management that are helpful in formulating strategies and policies. The reports of management accounting that are only useful for internal environment, and they are confidential. In Imda Tech Limited, management accounting is helpful in analysis the corporate as well as competitive environment, evaluate strategic options. It reviewing risk control and evaluate auditing by which managers can easily make financial strategies. It is able to communicate effective and gives suggestions on product developments and manufacturing (Kaplan and Atkinson, 2015). Management accounting manages the price and cost for competitive advantage and is able to set up or executes projects. It is helpful in reduces risk and uncertainties in organisation by applied forecasting theories. It is assistive in evaluation of overall business environment, internal as well as external environment by calculating capital expenditures.

To know more go through this sample: Advance Management Accounting

Difference between Financial accounting and management accounting:-

Financial Accounting

Management accounting

Financial accounting is concerned with prepare the financial reports and statements of outsiders, such as:- creditors, investors, suppliers, stakeholders, customers and lenders.

Management accounting is also known as managerial accounting, and it is the accounting that helps managers in order to formulate strategies, planning, forecasting and policies.

 

It is based on various principles, assumptions and convention like consistency, realisation, matching, materiality and going concern etc (Burritt, Schaltegger. and Zvezdov, 2011.).

 It is able to provide both quantitative and qualitative information’s and data as well that is being assessed and captured by accounting managers.

The statements of financial accounting are made for one financial year that enables financials positions, performance and profitability of the company.

It is answerable for day to day and short term financial decisions that can be helpful for internal uses only.

The format of financial accounting is specified and provides only monetary information as well

It’s format is non-specified and its provide both monetary as well as non-monetary information to the managers.

Importance of management accounting information as a decision making tool

The significance of management as decision making tool, it is helpful in providing needed data whether the organisation is in profit or loss. Management accounting information is helpful for making decisions that short term or as well as long term also (Parker, 2012). In Imda Tech Limited, it is working as a powerful tool that makes business more successful. The information is used by managers to determines that what product to be sold and how to sell it. Meanwhile it is helpful in relevant cost analysis, activity based analysis and make or buy decisions of the company. Management accounting is the process that is use in businee welfare in order to the development of financial accounts and statements. Along with this, it forces managers to weekly intrepretation of all financial activities in business orgabsiation so that firm can maintain their all accounts and balance sheet as well. It also assisitive in evaluate the revelant cost of the price and detemine the sales revenue and profit. The process management accounting is also helpful in make or buy decisions of the business so that maangers can easily improves the quality of their product and services. It also helpful in taking relevant decisions in order to compete forthcoming factors of external market.

Describe the systems of management accounting

There four main systems of management accounting, which are as follows:-

Cost accounting system: This system is also known as costing system or product costing system. It is used a framework in order to estimate the price of their products for cost control, profitability analysis and inventory valuation. Cost accounting is procedure of summarising, allocating, classifying, analysing, collecting and recording the alternative course of action that are helpful in controlling costs (Otley and Emmanuel, 2013). In standard costing method, all production cost are applied or charged to the charged for the inventory by using standard prices and cost. In normal costing is uses historical methods of costing, in that overhead is charged or applied by the inventory, and in actual costing method a new type of product process that can be used as inventory.

Inventory management system: The system is helpful in manages stock and inventory of the business organisations. It is able to deals with when order to and how order to. The main aim of inventory cost accounting is to minimize the inventory cost in order to generate high returns. If Imda Tech, hold more than the average level of stock, it is an substantial opportunity cost because the investments are tied up in these inventories. There are some explicit costs that holding inventory, such are as:- insurance cost and standard cost. Basically, it is an on-going process of moving products and parts into and out from organisation’s location. Many companies manage their on daily basis so they can easily place new orders and projects.

Job costing system: Job costing system is the procedure of accruing information about the price is associated with a specific production or job (Granlund, 2011). The information is helpful in determining the correctness of a company's evaluation system, that is able to quote cost that allow for a reasonable profit.

Price optimising system: In that system, the price of the product is assessed, means it involves on which price product will be sell out in market or what is its wholesale rate.

Management accounting is helpful in providing the financial data and records to the managers, so that they can easily use it at the time of needed. It is also helpful in reduces expenses by reviewing the cost of economic resources and other business operations and activities. It also improves cash flow of the company by making annual budgets.Management accounting is a system by which managers can manages the accounting reports and statements of business organisatin. It relates with day to day accounting operations and assisitive in making short term financial decisions. It collects all the financial statements and reports by company can able to assess its financial performance and position in market.

Task 2

Income statement under marginal costing for the year end September 2010

Particulars

Amount (in GBP)

 Sales (35 X 1500 units)

52500

Less -  Variable cost :-

 

Labour (5 * 1500 units)  

(7500)

Material ( 5 * 1500 units)

(12000)

Variable production OH (2*1500 units)

(30000)

 Variable selling and distribution         expenses

 (52500* 15%)

(7875)

 

 

Contribution

22125 GBP

Less – Fixed cost :-

 

Fixed production OH (5*1500)

(7500)

Fixed selling and distribution expenses

(10000)

 

 

Net profit / loss

4625 GBP

Income statement of absorption costing for the year end September 2010

Particulars

Amount (in GBP)

                       Sales

1500 units

      Revenue      (1500 units *35)

52500

   

 

     Cost of goods sold :-

 

        Opening inventory (A)

NIL

        Production              (B)

40000

              Available for sale (A+B)

40000

Less :- Closing stock    (500*20)

(10000)

                COGS :-

30000

      Over and under absorbed overheads

NIL

                COGS at actual

30000 GBP

     Gross profit on sales  :-

 

(sales – COGS at actual) (52500 – 30000)

22500

Less :- Selling & distribution expenses

 

                Fixed

(10000)

                 Variable (15% * 52500)

(7875)

                 Net profit / loss

-4625 GBP

Interpretation of the results

From the above both the income statement veries from each other. The profit is more if the income statement is prepared by using the marginal method as compare to the absorption costing method. This is because the absorption costing is calculated by the deduction of variable cost as well as fixed cost. Whereas, in the marginal method the statement is prepard by deduction of variable cost only. It does not include the deduction of fixed cost. As above it can be seen that the income statement under the marginal costing has stated the profit of 4625 GBP and the the income statement under absorption costing has stated the loss of -5375 GBP

Tools and techniques of financial statements are able to resolve the profit statement of the company. These techniques are able to forecast all the financial positions of the company, by which any company can achieves their targets and goals. Marginal and absorption cost, both techniques are able to find income and balance sheet statement of the company, so that the accurate need of cash can be identifies. They gives Performa of profit and loss statement in the end of the financial year, after that if any changes are required so that they can be implemented. It is helpful in daily or short term decisions of the company. Any company can achives its grwoth and sucess with the help of these tools and techniques and manage the overall business activities of the organisation. Although, managers can also analse the risk and uncertainities with the help of of tools and techniques of managemnet accounting.

Task 3

What are the types of budgets and their advantages and disadvantages

Budgets are helpful in making financial decisions of company. There are 5 main types of budgets. Such are as follows :-

Operational budgets: These budgets are helpful in covers overall revenues and expenses that are surrounding the day to day activities of the business. Operation budgets describe goods and services of a firm, that expects to use in a budget period and it also involves the income and profit generating activities of the business organisation (Fullerton, Kennedy and Widener, 2013). Revenues signifies the sales of goods and services whereas the expenses defines the cost of products & administrative and overhead costs, they are directly concerned with the process of products and services. The main advantage of the operational budget that it is helpful in managing current expenses and projecting future expenses, and the disadvantage of operational budget, that is not capable to managing savings.

Cash budgets: Cash budgets are generally create for cash inflow and out flow in an business organisation for the next year. A cash budgets is essential cause it allows managers to timely identifies periods with cash shortage and overages, by which can they can easily take necessary actions. It involves four different components, such as :- net changes in cash, new financing, cash disbursement and cash recipients. It expects to Imda Tech, ability in order to take more cash than is able to pays out. The main disadvantage of cash budget, that it is cannot mnages the current expenses of the organisation.

Master Budgets: A master budget is a inclusive projection of the management expects in order to conduct all phases of business above the budget period, usually a financial year. The budget also summarizes probable activities with budgeted income statement, cash budget and budgeted balance sheet. Mostly master budgets involve interconnected budgets from the several departments. Master budget cannot be able to identifies the current cash flow and outflow in the overall buisness environment.

Sales budgets: Sales budgets describes the sales in an business organisation to produces goods and services in units and dollars for a financial year(Qian, Burritt and Monroe, 2011). It describes the quantities of products of a firm, that expect to sell and revenue acquired from those sales and all expenses accrued during selling. But sometimes it cannot be able to give proper estimation of overall sales of the year, due to lack of managerial discipline.

The process of preparing budgets

There are these steps that are helpful in making effective budgets, such are as follows:-

Update budget information: When the managers are trying to prepare budget, they have to collect the proper and accurate information by using financial statements and reports, so that they can easily create the outline or format of the budget as well.

Create budget packages: After that managers have to create budget package, so that is makes easier the budget process. They have to determine whether any step cost will be acquired during the budget process. The likely range of business procedure in the forthcoming budget period, and also describes the amount of these costs and at which activity levels they will be sustained.

Update the budget model: It refers to ease up all the issues and challenges, that are coming in budget making process. These issues can be reduces by using of latest and updated technologies (Soin and Collier, 2013). A budget should be make accordingly the needs of organisation as well their employees also fulfils. It is also obtain with department budgets and revenue forecasts.

Budget implementation: After budget formulation, budget is ready to be implement. Amending the budget as the financial year progress.

Explains what are pricing strategies

Pricing strategies is the forecasting of price determination of a product. A business is able to use various varieties of pricing strategies in order to selling a product or services. The price of the product can be can be set to develop profitability for each and individual unit of product can be sold in overall market. It can be used to protect prevailing market from new competitors; it is helpful in increasing the market share within a market. Pricing is one the important and highly demanded element in the marketing mix theory (van der Steen, 2011).  It helps customers to carry an image of the morals that the firm has offer through their products. Along with this, Pricing strategics are also helpful in selling of products and services, because customers only prefer to consume that kind of products which give them satisfaction. In competitive market, prices are formulated according to the customers requirements and their needs. Inda tech uses different types of pricing strategics, such as – Premium pricing, penetration pricing, economy pricing and prices skimming. Premium pricing relate with an unique and effective price of the product. It uses when product is something different and inovatitive. Further more, penetration pricing method uses when managers wnats to capture the overall market with their pricing offers. Economy pricing strategy involves a particular brand or a product and it is a very familiar startegy. In pricing skimming strategy, product offers some schemes and discounts in order to achieve competitive advantage.

Different planning methods of budgets are helpful in forecasting the financial situation of the company. Planned budgets are always successful, because they have proper idea of how to spend cash of different commercial activities, of the business. They gives support to the managers, in order to make another specific policies for the next financial year, it is also supplying flexible cash flow in the company. It is also accommodating in pinpoint of shortfalls and increases the instant changes in net cash. It gives an proper format of sales revenue and expenditure to the business organisation. Budget forecasting is helpful in making long term decision s for the organisation as well as day to day operations also, by using this company can easily grow its market share in the overall capital market place. Planning tools and techniques makes easier the decision making process of the company and develop effective communication skills among team members. So as managers and employees both can able to communicate easily in order to take effective decisions. Planning tools are also able to identifies issuses and challenges & give relevant solutions.

Task 4

What is balanced scorecard and how can be used to identify the financial problems

The balanced scorecard refers to the strategic management and planning tool that is used comprehensively in the business, industries and as well as government and non-government organisations. It is aligned with worldwide business activities in order to make the visions and strategy of the organisation, developing external and internal communications and monitoring the overall business unit. In Imda Tech limited, it predicts with day to day activities that are involved in strategic management, and give properties products, services and projects (Li and et. al., 2012). A balanced scorecard effort to interpret the vague and pious hopes of a company’s mission that is able to manage the business enhanced at every level. It is an approach, that is to be take a universal view of an organization and co-ordinate MDIs so that effectiveness are experienced by all over departments.

Benefits of balanced scorecard in order to identifying the financial problems

A proper balanced scorecard is helpful in all dynamic challenges in order to measuring performance.  Senior executive managers can realise that their organization’s measurement system effectively impact on the behaviour and attitude of employees. It provides some realistic facts and data by which managers can easily identifies the problems of financial management. BSCs reviewing the overall business performance, internal as well as external and giving suggestion according to with that (Pitkänen and Lukka, 2011). It is an analysis of overall organisation strategies and position, by which all financial challenges and issues of Imda Tech limited, can be easily solved in order to make effective measurement. It provides managers a comprehensive framework, so that they can easily take decisions makes policies with their long term mission and vision.

How it can be used to improve financial governance and development of effective strategies

Balanced scorecard is helpful in making effective performance strategies, and it makes easier the process of making strategies and decisions in an business organisation. It is an planning of an business’s financial success and growth because it assistive in defining and communicate what that organisation wants to achieve and what are the necessary steps to do it (Cuganesan, Dunford and Palmer, 2012). Unfortunately, less than 10% policies are effectively implemented in Imda Tech limited, whether success is often defined mostly in terms of dollar raised that is a narrow or short term outlook in order to measuring a strategic planning. To make an effective and comprehensive strategic plan, companies should develop a balanced scorecard. It is a tool that improves financial perspectives of the company, internal process, learning and growth of the organisation. 

It also reduces the chances of risk and uncertainties of financial department, suggest them better and effective performance measurement techniques. It also makes easier the process of decision making and managers capable to create innovative techniques by using them the chances of risk and uncertainties can be reduces. The process of financial development is generates from the financial conditions and financial positions of the company in capital market, it gives support to the managers by applying strategic management techniques (Cadez and Guilding, 2012). It provides an objective way to see that plans are working or not, it also focuses on employees attention in order to take review about what matters most to the success. In that, the most crucial element is success and profit, so that managers have to worked on it, to develop their market share and financial statements by using budgetary tools and techniques.

Management accounting is helpful in resolving the financial problems of the company; it gives proper suggestions and guidance in order to making decisions and strategies. It is the combination of finance and management, so that if management accounting works effectively, the problems regarding finance are automatically solves. It provides the better suggestions to the managers; by using them they can solve their day to day operations as well as their long term activities. It is the process of reducing risk and generating high profit in capital market. Management accounting makes business capable to compete with their external competitors and also reduces the chances of internal conflict. All the financial and non financial problems of the employees can also be reduces by the financial management process. The term finance and maangement both are the two sides of a coin becasue without any financial activity, the management of the organisation cannot be manage.

Conclusion

From the above mentioned, it has been concluded that management accounting is a essential tool for an business organisation. It is helpful in assessment of overall financial conditions ad position of the company in capital market, whereas financial accounting is related with financial report and statements that are prepared for outsider such as creditors and investors. Absorption and marginal cost, both are able to provide accurate and exact information of income and balance sheet statements, so that managers can evaluates the cash inflow and outflow. Budgets are also necessary to take long terms as well as day to day financial decisions. There are such types of budgets:- cash, operational, sales, financial and master budgets. Financial tools and techniques are helpful reducing all financial risk and uncertainties by assessing the overall analysis of internal and external business environment.

References

  • Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
  • Ward, K., 2012. Strategic management accounting. Routledge.
  • Burritt, R.L., Schaltegger, S. and Zvezdov, D., 2011. Carbon management accounting: explaining practice in leading German companies. Australian Accounting Review.
  • Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and relevance. Critical perspectives on accounting.
  • Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.
  • Granlund, M., 2011. Extending AIS research to management accounting and control issues: A research note. International Journal of Accounting Information Systems.
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