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Management accounting practices in the management of the firm is not an easy task. However, there are so many professional accountants who are specially trained for convening the management practices in order to attain the main objectives and long term goals in the firm(Li and et. al., 2012). Imda Tech limited management accountant's does the management accounting practices for the reporting to the internal management for effective operation. Now, there has been some drastic changes emerged in the management accounting since this concept was come. Now the management accounting does not only reports to the internal management but also assist the firm in order to achieve the sustainable development(Baldvinsdottir Mitchell and Nørreklit2010). Effective application of management accounting practices helps the firm to run the operational management smoothly. Imda Tech Limited is running so efficiently due to efficient and effective management accounting practices attainment of the objectives. Management accounting is more particularly known fro the mix of operations , strategic planning and administrations. Management accounting practices support the higher level authority for framing the strategic plan for smooth running the operational process.
Management Accounting is the process which is used in the firm to make monthly and quarterly reports and also link the various departments and providing the relevant information for smooth operation. Management accounting helps in the firm for making the best strategy so that the sound decision in the firm can be taken. Now, there has been some objectives which Imda Tech Limited can attain after practising management accounting in the firm. Management accounting plays under mentioned role in the firm:
- Framing the objectives of the firm: MA activities helps the Imda Tech constrained to plan the better system so that the firm would ready to make their methodology for the advancement of the operations(Herzig and et. al., 2012). Presently, it is been concentrated that the firm proficiency and viability is absolutely relies on upon their vital arrangement. If the key arrangement of the firm will incredible then the firm can without much of a stretch achieve their targets.
- Investigation of the information and raw data: Imda Tech Limited examine the information or crude data so that the productive outcomes can achieve. Examination of the crude information requires the immense feeling of learning and this should be possible by means of compelling administration bookkeeping activities(Bodie,2013).
- Risk : From the consolidation to the ending up of the organization hazard is the component which is dependably oblige the firm. Chance in the business can be limited yet can not totally wiped out from the business. Hazard can be overseen if the firm will execute the administration hones.
- Arranging: Arranging could be made in the firm with a specific end goal to accomplish the targets in the firm. For the improvement of the firm, arranging is fundamental as this will mirrors the future activity of the firm. There have been such a large number of activities in the arranging stage which needs to receive by means of smooth running of MA(Garrison and et. al., 2010).
- Communication:Management rehearses in the firm upgrade the correspondence inside the association. To react rapidly, there is need the correspondence successfully. This is additionally perceive the data organization needs and deciding the numbers to different administrators in the firm which are not identified with fund field(Lukka and Modell, 2010).
- MA and FA plays an alternate undertaking in the business. Administration bookkeeping perform inside and help the interior administration to give them quality data with the goal that they would ready to perform better. Be that as it may, on the other way, money related bookkeeping help the firm and the outcasts to break down the budgetary articulations and on the premise of such monetary proclamations investigation, organization would ready to make their polices and tentative arrangements and furthermore take choices in their business in future years(Hope, J. furthermore, Fraser, R., 2013). FA is utilized as a part of the firm with a specific end goal to see the genuine photo of its monetary quality. There are the top level specialists who settles on their choices or plans according to their monetary reports which has been made by the money related bookkeepers. Finance accountants shows the correct pictures on the basis of firm's past financial statements.
- Administration bookkeeping is reveal inside the affiliation. While on substitute hands,FA is induced for outcasts. In any case, FA is of importance to present and potential investors, MA helps the experts to plan the budgets and furthermore the fund related methodologies. MA is precise and should stick to Generally Accepted Accounting Principles (GAAP), however MA practices is once in a while to a more noticeable degree a projection , the same number of the mangers don't have time for right numbers when a choice is required to be made(Macintosh and Quattrone, 2010).
b) Types of Management accounting:
- Administration bookkeeping can be characterized under various heads. This framework give help to the administration by helping the supervisors to bring different choices with the assistance of various reports introduced under various bookkeeping system(Weißenberger and Angelkort, 2011). These reports help in keeping the earlier year reports which help in doing the procedure of examination. It helps in taking the remedial measures by the supervisors which gave less outcomes in the past day and age. Distinctive sorts of bookkeeping frameworks can be concentrated under various heads which give long and short advantage to the association.
- Cost accounting: This bookkeeping framework is worried with the distinctive cost of the items. With the assistance of this framework supervisors take different choices in regards to the fund distribution. Subsequent to dissecting the diverse alternatives accessible with the chiefs they pick the best reasonable one by contrasting it and the previous year reports(Zimmerman and Yahya-Zadeh, 2011). Taken a toll bookkeeping likewise help in keeping control over the distinctive cost of creation by keeping appropriate mind the diverse components of the generation procedure. With the assistance of this framework organization can take the choice of future extension too.
- Inventory Management: stock alludes to the raw material kept in the business which will be changed over into final products by processed them. It is critical to have great stock administration framework so that circumstance of non accessibility of crude material can be maintained a strategic distance from as this will prompt wastage of time and furthermore loss of potential customers(Lukka and Modell, 2010). It is additionally critical to stay away from the circumstance of abundance in the association so as to maintain a strategic distance from the cost of capacity and upkeep which further is added to the aggregate cost of the item.
- Job costing framework: In an association diverse occupations has there various cost which is at last added to the item. As much distinction in the cost of the item should not be possible remembering the value affectability in the market(Macintosh and Quattrone, 2010). Every one of the clients before purchasing any item do the correlation of the considerable number of items accessible in the market. Consequently high cost can not charged from the purchasers.
- Price optimizing system: Before fixing the cost of the item it is imperative to investigate the cost of the other related products additionally so that the cost get accepted by other client in the market. At first it is essential to keep the cost generally low so that more clients get pulled in towards it (Angelakis, Theriou and Floropoulos, 2010). Just if the client discover the item worth of the value they will attempt the new item else it is hard to offer position to the item in the opposition outside.
With the help of these above mentioned management accounting tools, company could improve their performance by providing better management decision-making policies. This could lead to have the competitive advantages over the others.
Calculation of net profit using absorption costing and marginal costing techniques:
In order to calculate the net profit for Imda tech. Various techniques can be used. In order to get the profit amount the company is calculating the net profit with the help of absorption costing and marginal costing.
Absorption Costing: In the method of absorption costing all the different cost are absorbed in the cost of the unit produced. Different costs can be direct or indirect(Davies and Crawford, 2011). Direct cost are the cost of raw material or cost of production indirect costs are cost of labour,rent etc. All these costs are absorbed in the units produced.
Income statement on the basis of Absorption costing method:
Variable Production overhead
Variable sales overhead
Budgeted production for the period is 3000 units
Fixed cost for a month:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Working 1: Calculate full production cost
Direct material £8
Direct labour £5
Variable cost £2
Fixed cost £5
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40000 500*20 = £10000
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000(under absorbed)
Net profit using absorption costing
(-) Cost of Sales:
(Under)/ Over absorbed fixed prod. O/h
Variable sales expenditure
Fixed selling expenditure
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material 8
Direct labour 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing
Less Variable costs
Less Fixed costs
Fixed Production expenses
Marginal Costing: Marginal costing is the system in which the variable cost is charged against the goods in order to write off the fixed cost a particular time period. This costing helps in the decision making process by the mangers(Garrison and et. al.2010) . It is directly related to the marginal which is effected by change in the total output. Marginal cost is the change in the total cost due to a unit increase in the total output. With the help of marginal costing the change in the total profit due to change in output is also calculated.
(a) Different types of budgets and advantages and disadvantages and relevance of pricing in budget formation
Budget plans assume an imperative part in any association. It helps in viable assignment of financial resources with the goal that greatest returns can be accomplished. Through spending plans process the supervisors keep control on the total cost of the diverse ventures. Every department is given their financial plans and along these lines they watch that they don't surpass the given budget line, if exceeds then, corrective measures have been taken out (Kaplan and Atkinson, 2015). There are distinctive sorts of spending plans which can be utilized by the cited firm to have compelling workplace in the association. These financial plans could be of long term or of short term spending plans relying on the need of the venture.
1.Master budgets plan: It is the primary spending plan of the association. Under this spending, each resources are assigned in various departments like the business department,production division and so forth every department is given their objectives and assets are likewise given to them which might be required at the time the venture working(Herzig, and et. al.,2012). This financial plan has its own positive and negatives influences. Some of them have been mentioned hereunder;
Advantages of master budget:
- It gives the abstract of the various little spending plans that are readied. Likewise alternate spending plans are set up after the master budget is readied.
- These financial plans helps in getting the estimation of the total earned in a specific era.
Disadvantages of master budget:
- As this financial plans are a mix of the various little budgets, it ends up noticeably troublesome for the top administration to compute the budget of various departments. In this manner it can not be computed that in which division most extreme cost is done(Garrison, R.H., Noreen, E.W., Brewer, P.C. furthermore, McGowan, A., 2010).
- As every one of the harmful elements of every division budgetary plans are given in a similar spending report it winds up plainly hard to comprehend and there are additionally possibility of loss of value data.
- Operating spending plan: These financial plans are identified with the every day operations of the business it helps by giving spending plans to various operations of the business. Distinctive operations should be spending plan contrastingly as operations has their own particular need in the organisation(DRURY, 2013).
Favourable circumstances of operating budget plan:
a). Operating planning helps in keeping up sufficient measure of liquidity for the operations of the business which can not be kept away from by the organization like purchasing of crude material, wages to workers lease and so forth.
b). It helps the organization in expanding the aggregate holds by giving the best other options to the motivation behind investment(Li,and et. al.,2012). For making the speculation it is imperative to have the sufficient measure of hold with the organization.
Weaknesses of operating budget plan:
- It require a different body to keep up the operation spending plans which prompts the expansion in the aggregate cost of the organization.
- financial budget: Under this budget plans, various functions are set up under various headings. It is received in all the association as it is essential to set the financial plans so that if in the event that back is required in the association courses of action should be possible ahead of time.
Points of interest and hindrances of financial plans:
- Keep up viability in various elements of the association.
- Convenient accessibility of the fund is done through the procedure of budgetary planning.
- As this planning framework is included with back which is extremely hard to oversee hence it turns into an issue to keep up these financial plans and to make the compelling spending plan for a particular function(Zimmerman and Yahya-Zadeh, 2011).
b)Process of budget framing:
- The initial step is to aggregate all the required data. In this data with respect to the need of spending plan is discovered(Lukkaand and Modell,2010 ). It is a vital part and should be finished by giving full endeavours.
- Rundown of various costs are made with the goal that they can be classified into various heads relying on their urgencies.
- Arranging is done how the aggregate back of the organization can be used with the goal that it can full fill the prerequisites of every divisions.
- After the need of every division is perceived spending plans are apportioned to them which the office needs to take after to finish their given venture.
- Offices are furnished with all the required assets so they can finish their venture with the given the given spending plan.
- After this the financial backing is looked into before doing the assertion. At this stage the potential outcomes of accomplishing the objective with the given spending plan is inspected once more.
- At last, the monetary allowance is pronounced to the concerned department.
Adopting the pricing strategies help the business to keep the effective control on the cost of the business and also to achieve the best price for its product. Business can use various pricing strategies like:
1.Penetration Pricing: This is the process of price taking. Producer has to keep their price relatively low in comparison to other products in order to cover more market and than gradually can increase the price once it is recognised by all.
2.Premium pricing: In this the producer can set the price according to himself as they are providing with the product with good quality(Macintoshand Quattrone2010 ). Customer is also willing to pay high price due to the difference in the product type and quality.
3.Skimming pricing strategies: Products for high class society are produced in this pricing. They charge high price from the customer at the starting and customer find it as a status symbol to buy expensive products. Though the price fall after a certain time period.
These are the marketing pricing strategies which are need to consider at the time of making pricing strategies.
A). Importance of scorecard in the organisation:
Scorecard has become a famous tool nowadays. It helps in maintaining the record of an individual performance in a particular period of time. Also with the help of this tool comparison between different employees over a period of time has become more easy. It is important to have the environment of comparison in the organisation so that everyone work towards giving their best. This help the organisation to get the work done in time and also in the best manner. Balanced scorecards help the management to overcome the external factors by doing the effective planning in advance(Ward,2012). As the company is suffering loss it can utilise this tool for effective planning and take better actions. Balance scorecard is the procedure of keep up vital arranging and administration framework which helps them in keep up an appropriate vision and system of an association and furthermore helps them in recuperating from all the outer and inward variables.
This is for the most part utilized by the organization to break down their execution and aides in keep up key administration framework. This strategy is one of the viable way.
Imda tech endures lost £1.5 million and from recuperating from that they ought to need to utilize this method since it helps them in keep up their execution alongside their workers execution. Likewise it helps them in making technique in this way, that they can examine every one of the elements and actualize the procedures as indicated by manner(LukkaModell2010 ).
An organization can distinguish its money related issue with help of this approach on the grounds that in this technique they incorporate all their main goal and dreams. It demonstrates the rundown of blend monetary and non money related things. Like by utilizing this approach it ask a question that what shareholders look like by the firm. This inquiries answer is by utilizing income and so on. This helps them in understanding out their monetary problem(Li et. al., 2012).
This scorecard demonstrates the techniques which are detail by the refered to association. It helps in recollecting all elements on consistent schedule by the administration in this way, that they need to chip away at such element and execute every single such procedure through which they can recuperate their loss of £1.5 million. By showing the balanced score cards to the employees they can be motivated to improve their performance. As the details of financial and non financial items are also given on the score cards it can be utilised by the external users of the organisation to get the idea about the present position of the firm. Also with the help of these cards different financial problems can be resolved by taking these information as a ground.
From the above report it can be concluded that management accounting helps the Inda tech to take various important decisions. These decisions can be financial and non financial in nature. Through effective financial management the company can save its maximum cost which can be further utilised in the expansion of the business(Zimmerman,Yahya-Zadeh 2011 ). Different methods of cost accounting is used to make the financial statements. These statements give the quantitative data about the total change in the profit of different time period. Though both financial and management accounting serve the organisation with various benefit they are different from each other which is clear above by doing comparison between both of them.
Books and journals
Baldvinsdottir, G., Mitchell, F and Nørreklit, H., 2010. Issues in the relationship between theory and practice in management accounting. Management Accounting Research. 21(2). pp.79-82.
Bodie, Z., 2013. Investments. McGraw-Hill.
Burritt, R.L., and et. al., 2011. Environmental management accounting and supply chain management (Vol. 27). Springer Science & Business Media.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Angelakis, G., Theriou, N. and Floropoulos, I., 2010. Adoption and benefits of management accounting practices: Evidence from Greece and Finland. Advances in Accounting, 26(1), pp.87-96.
Weißenberger, B.E. and Angelkort, H., 2011. Integration of financial and management accounting systems: The mediating influence of a consistent financial language on controllership effectiveness. Management Accounting Research, 22(3), pp.160-180.
Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press.
Garrison, R.H., and et. al., 2010. Managerial accounting. Issues in Accounting Education. 25(4). pp.792-793.
Herzig, C., and et. al., 2012. Environmental management accounting: case studies of South-East Asian Companies. Routledge.
Li, X., and et. al., 2012. A comparative analysis of management accounting systems’ impact on lean implementation. International Journal of Technology Management. 57(1/2/3). pp.33-48.
Lukka, K and Modell, S., 2010. Validation in interpretive management accounting research. Accounting, Organizations and Society. 35(4). pp.462-477.
Macintosh, N.B and Quattrone, P., 2010. Management accounting and control systems: An organizational and sociological approach. John Wiley & Sons.
Ward, K., 2012. Strategic management accounting. Routledge.
Zimmerman, J.L and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education. 26(1). pp.258-259.
5 Types of Budgets for Businesses. 2017 [Online]. Available through:<https://www.fool.com/knowledge-center/5-types-of-budgets-for-businesses.aspx>. [Accessed on 11th April 2017]
Definition of 'Pricing Strategies'. 2017 [Online]. Available through:<http://economictimes.indiatimes.com/definition/pricing-strategies>. [Accessed on 20th April 2017]