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BIZ103 Management Accounting Assignment

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INTRODUCTION

This project is all about providing crucial information about various management accounting aspects that are associated with an organisation. It is the utmost vital part of any business to record all their financial transactions in their respective statements so that valuable outcomes can be determined effectively. The primary motive of an organisation is to make proper utilisation of resources which are helpful for the company to attain long-term aims and objectives in a quicker manner. This project provides valuable perspectives about types of accounting and reporting systems. Apart from this, certain types of costing methods are taken help to calculate net profit for the company. Although merits and demerits of using types of budget that are helpful for attaining future goals in the near future. Lastly, some vital financial tools are used that are effectively responsible for resolving financial issues that are arising in an organisation (Hilton and Platt, 2013).

TASK 1

P1: Definition of management accounting and their essential requirements

In the current scenario, it has been seen that management is always looking to make use of all those systems that are effectively reliable to record all financial and non-financial transactions in their respective statements accurately. Accounting is said to systematic process of recording, summarising and evaluating everyday transactions that are done by the company during their regular course of operations. It is an important aspect that the objectives of financial accounting are not to study the worth of the company. This is used to reveal gain or loss for a given period of time and the value of Tech (UK) total assets and owner equity. Management used to provide vital aspects related to planning, organising, controlling and directing all information in an effective manner (Wickramasinghe and Alawattage, 2012).

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Definition: It is said to be a cost accounting process which is used to analyse business total cost and operations to formulate internal financial reporting and accounts to aid managers’ decision-making procedures with respect to attaining their aims and objectives.

Management accounting systems are known as a confidential internal report that assists managers in future decision-making. It is used to guide employees and managers working inside an organisation.

Importance of using MA:

            There are various significant aspects that are related to management accounting systems. Some of them are discussed below:

  • Effective decision-making: It is one of the primary systems for an organisation by which they can easily be able to attain their objective by setting appropriate decisions in the near future time. It has been determined that if the company makes effective decisions then the chances of getting better results can be enhanced.
  • Increase profitability: A health business can only attain positive outcomes in case they are using valuable accounting systems in the right manner. This will directly increase profitability as the company would be able to sell maximum products (Schäffer, 2013).

Management Accounting

Financial Accounting

It is held responsible for making valuable rules and regulations that

The accountant needs to follow all those policies and laws that are made by the upper level of the department.

The individual is not having any kind of issues, apart from this they need to decide companies overall operations by using the performance of Tech UK.

All the statements that are prepared during an accounting year are reported in a more particular manner by using the financial data of the company.

Types of management accounting system:

Cost accounting system: It is known as one of the most important aspects for an organisation that is held important for recording, summarizing and determining valuable alternatives that are effective for Tech UK. The major significance of this system is to deliver crucial advice to their department about one of the major courses of action which is assistance with the cost of production.

Inventory management system: This particular system assists managers in making use of and controlling stocks that are kept by the company.  It seems to continuous process with the aim of managing the inventories of Tech UK. There are various types of techniques by which stock can be managed such as FIFO, LIFO and AVCO methods.

Job costing system: It is an essential aspect for an organisation that is used for making estimation of total expenses and costs a company is incurring on production of products or group of products. Through this, managers would be able to generate valuable outcomes for the company. The total time a product takes to manufacture is determined by using this particular report.

Price optimisation system: According to this particular accounting system a company would be able to determine the perception of the customer regarding the prices of their products which are set by them. The main aim is to examine the reaction of, whether they are satisfied with the price range. It is considered one of the main systems for recording information for the company (Bennett, Schaltegger and Zvezdov, 2013).

M1: Benefits of using management accounting systems

For every business, it is necessary to make proper utilisation of accounting systems so that chances of mistakes can be overcome. All the above-mentioned types of systems have equal benefits and limitations. Cost accounting will guide a manager to use the appropriate amount of costs and expenses. Inventory management can lead to control overall stock position of the company at the same period of time.

P2: Various types of accounting reporting methods

In every business organisation, every department is working equally for the purpose of increasing profitability as well as financial stability for an organisation. This would be essential for them to take competitive advantages over other companies. Reporting is said to be an important aspect by which companies would be able to present their financial position in front of their investors and other financial institutions that are responsible for making capital investments in their coming projects. There are various sources of data collection which are used for the purpose of preparing financial reports for Tech UK (Chan, Wang and Raffoni, 2014). The primary motive of an organisation to prepare a report is to control and analyse all its expenses that are incurred during an accounting period. There are various types of accounting reporting methods that are used by an organisation to control their operations that are done during the time. Some of them are discussed below:

Performance report: This seems to be the most important report that indicates the overall performance of an organisation by taking data from the past with the present. They will create specific information about whether a company will be sufficient enough to fulfil its obligations in the right manner. Mainly, it assists managers in making valuable training programs for employees as well as aiding them to improve the performance of the company in the right manner.

Account receivable report:  It is said to be one of the vital reports that provide valuable information about total lists of unpaid invoices and credit memos that remain due from the debtors' side. It is mostly associated with evaluating the total time in which debtors used to make payments of their outstanding balances.

Inventory management report: This particular report is made for the purpose of analysing all the essential stock details through tracking overall orders that are made by the company during the period of time. All information related to the opening and closing of stocks is taken into consideration. The main aim of doing so is to examine all level of mistakes that arises during the time of production process (Fourie, Opperman Scott and Kumar, 2011).

Job costing report: As per this report a company would be able to record all information that is collected during the time of producing product in each job size. There are various types of costing that need to be taken into account. Such as batch costing, process and contract costing. All these are equally responsible for increasing profitability for Tech UK.

D1: Critical analysis of accounting report systems

In accordance with getting the maximum return in the coming period of time, it is essential to make use of all reporting systems in a reliable manner. This will attain in increase future aims and objectives in easier ways. All the above-mentioned reporting systems are effective for the company. Performance reports can lead to guide investors about the company’s current year performances. An inventory report is used to control and evaluate the total stock level of an organisation. Further, this will enhance the overall productivity of the company in the near future period of time.

TASK 2

P3: Various kinds of costing methods used for calculating net profit

Cost is said to be the value of the amount which is to be paid by the company in respect to get something in return. This will be directly or indirectly related to the production of products and services (Hansen, 2011). The main motive for using these costs is to make a particular evaluation of the total earnings that they are going to invest in their production of products. Cost is simply an important aspect for Tech UK company to examine their total costs required for the production of one unit of products. It has been found that there are various types of costs those are associated with the production. Such as normal, actual and standard costs. Apart from this, some of the other costing methods are also those that are effectively responsible for analysing the performance of an organisation. Some of them are discussed below:

Absorption costing: It is known as one of the main cost accounting systems which are used during the production of products and services of an organisation. It consists of both variable and fixed costs at the same point in time. Because of this particular nature, it is known as the full costing method. It is not taken into account as more reliable for making future decision making.

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Marginal costing: This seems to be one of the primary costing methods which are used at the time of additional units produced by the company with the available resources. It includes only variable costs and fixed costs are not taken into consideration for evaluating the net gain of Tech UK. This is the most crucial costing method which is reliable for upcoming decision-making (Amoako, 2013).

Income statement as of September by using the Marginal costing method:

Working 1: Calculate variable production cost                        £       

Direct material cost                                                                        8

Direct labour cost                                                                           5

Variable production O/h                                                                 2

Variable production cost                                                                15

 

 

Working 2: Calculate value of inventory and production

                           Opening inventory                Production                   Closing inventory

                               Nil                                 2000*15 = 30000                 500*15 = 7500

 

Net profit using marginal costing

ï¿¡Amount

 £   Amount

Sales value

Less: Variable costs

Stock at the begining   

Cost of production

Stock at the closing               

Variable sales overheads                                

Contribution     

Less: Fixed costs:

Fixed Production overheads                         

Fixed Selling overheads                                     

                                                               

 

 

NIL

30000

(7500)

 

 

 

15000     

10000

 

52500

 

 

 

(22500) 

(7875)

22125

 

 

(25000)

 

Net loss

 

-2875

 

                        Income statement on the basis of Absorption costing method

Selling Price per unit

ï¿¡35

Unit costs

 

Direct materials cost

ï¿¡8

Direct Labour cost

ï¿¡5

Variable Production overhead

ï¿¡2

Variable sales overhead                                 

ï¿¡5.25

Budgeted production during the year is 3000 units

 

 

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

Absorption costing working notes

Working Note 1: Calculate full production cost

Direct material                                             ï¿¡8

Direct labour                                                ï¿¡5

Variable cost                                                ï¿¡2

Fixed cost                                                     ï¿¡5

Total                                                             ï¿¡20

Working Note 2: calculate value of inventory and production

            Opening inventory            Production                           Closing inventory

                      0                             2,000*20 = £40,000              500*20 = £10,000

Working Note 3: under/ over absorbed fixed production overhead

Actual fixed production:                                            ï¿¡15000

Fixed overhead:                                                         ï¿¡10000

                  Total                                                         £5000 (under absorbed)

 

Net profit using absorption costings

ï¿¡Amount

    £Amount

Sales value                                                                                                        

Less: Cost of Sales:

Opening stock                                    

Cost of production                                                  

Closing stock      

(Under)/Over absorbed fixed prod. O/h

Gross Profit              

Less: Selling Expenses

Variable sales expenditure

Fixed selling expenditure

 

 

 NIL

40000

(10000) 

 

 

 

7875

10000

 

  52500       

 

 

 

(30000)

(5000)

17500

 

 

17875

 

Net loss

 

-375

M2:  Analysis of various accounting techniques

In order to deal with internal or external department of an organisation the manager of Tech UK need to use various accounting tools and techniques. The overall growth and sustainability can only be attaining by proper utilisation of resources. Some effective techniques are standing costing which is used by managers to compare the results with the actual one. While marginal costing techniques is used to determine extra cost which will be paid by the company for producing products and services.

D2: Critical evaluation of information about income statement

Reconciliation statements

Amount

Profit under absorption

-375

Closing stock 500*5

2500

Profit under marginal

2125

According to the above reconciliation statements, it has been determined a company needs to have two effective options in order to analyse net gain for Tech UK company.  In accordance to examine reliable results, managers need to consider all essential aspects in the right manner. The results show that a total net profit of 2125 was generated by the company during the time. The difference arises because of fixed costs treatments.

TASK 3

P4: Merits and demerits of various types of budgets

Budget is all about designing an appropriate plan or strategy for controlling expenses incurred at the workplace in order to maximize the profit level of an association. It covers the element related to the capital of an organization as funds are seen as the lifeblood of the overall company. However, every enterprise believes in designing an effective budget for managing their expenditure in the most suitable manner (Klemstine and Maher, 2014). Additionally, it is helpful for corporations in various manners such as; controlling losses by estimating future expenses, allocating costs for each or every business activity, assisting employees in how to accomplish their job role and so on. Hence, it has been understood that preparing a budget for each or every department is highly indispensable for company success and development. Besides this, various types of budgets are also identified which are discussed as follows:-

            Master budget:- It’s all about the overall management of organizational funds and all the business activities fall under this category only. It means it consists of various funds allocated for distinct departments of an association. However, all the necessary factors are considered while making a master budget such as; sales of a firm, working capital, operating expenses, several sources of income and so on (Lim, 2011). Basically, it supports assisting enterprises in various situations as well as entire staff members towards corrective paths. Thus, some of the major benefits and drawbacks of a master budget are expressed as follows:-

            Merits-

  • All the functional accounts are in a single report.
  • It helps in providing the estimated profit of an association.
  • Provides accurate information about the balance sheet.
  • Highly beneficial for top management.

            Demerits:-

  • Chances of confusion due to the long process.
  • Cost consuming.
  • Requires expertise and specialist suggestions.

            Production budget: The manufacturing department is liable for designing outstanding goods to gain the attention of maximum customers. Thus, for designing qualitative items an organization is going to require a sufficient amount of funds for accomplishing business activities in more effective manner. It includes various costs such as; labour, administrative, overhead, working capital and so on. Some of the major benefits and drawback of this budget is described as follows:-

Benefits:-

  • Plant and machinery are perfectly utilized in a suitable manner.
  • Aids in reducing production expense.

Demerits:-

  • Creates problems while designing a single budget because labour costs get maximized.
  • Consume a high range of cost.

            Apart from all the above budget, there are also some other monetary plans designed for accomplishing business activities in a more appropriate manner. For example; cash flow, static budget, financial and so on.

Alternative process of budgeting:

  • Determination of budget needs which is said to be the primary aim of managers before preparing the budget.
  • Gathering valuable data from various departments that are working inside of the company (Van der Stede, 2015).
  • Obtain a sufficient amount of capital from various sources of an organisation such as short and long-term sources.
  • Take approval of budget requests from higher authority through gathering appropriate recommendations from various members.
  • Makeup gradation in the budget techniques in more reliable ways through using master budgets prepared during the time.
  • Do review and collect essential feedback from various staff and members before releasing it into the market.

Pricing method:

  • Cost plus pricing: It is said to be one of the easy methods by which products can be sold out to specific customers as per their affordable ability.
  • Prices skimming: These pricing techniques set the costs in the initial stage at higher and make a reduction after the competition slows down.

Importance of using planning tools:

It has been seen that budgets can only be controlled by the use of appropriate planning tools. Some of them are forecasting tools which are responsible for estimating total costs and expenses that are going to be incurred by the company in the coming period of time. Contingency tools are used by the company to control all risks those are associated with the company during the period of time.

M3: Analysis of various planning tools

Every business is always ready to deal with all essential reports that are useful in order to control budgets for TECH UK. There are various types of planning tools which are equally reliable and accurate for controlling budgets that are prepared by an organisation.  Forecasting tools are more valuable for the company as it is used to estimate future costs and expenditures of the company. Scenario analysing tools are also having certain benefits which will work in specific situations that arise in an organisation.

D3: Critical analysis of financial issues

In accordance to get the best possible outcomes in the coming period of time, managers need to make a proper analysis of the financial problems that are present in an organisation. These directly make an impact on the reputation of Tech (UK) Limited company. Such kind of issues can happen because of minimum product quality and bad service delivery to their customers. While some of them are arising because of outdated technologies.

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TASK 4

P5: Comparison of various ways a company used to deal with financial issues

There are various types of financial issues that are arising in an organisation. Some of them directly make an impact on the productivity and growth of the company. Below are various financial problems that are available in Tech UK. Such as:

  • Benchmarking: It has been seen that various kinds of financial issues arise without having the right standards set by the company. Benchmarking tools provide appropriate set standards to the company with respect to other organisations.
  • Key performance indicators: There are various kinds of financial and non-financial issues associated with the company. It can be overcome by using performance indicators that work by making a comparison of total past performance to that of the present.
  • Financial governance: It is known as certain rules and regulations made by the government with respect to operating a business in the right and systematic manner. By using this, the maximum chances of mistakes can be reduced in a quicker manner (Lavia López and Hiebl, 2014).

Characteristics of a management accountant:

There are various types of specific characteristics of accountants. Some of them are:

  • Reliable: All the decisions that are made by accountants are used to control performance and other financial data in effective manner.
  • Cooperative person: An accountant needs to have specific aspects which will lead to communication among each other to determine valuable outcomes in the near future period of time.

M4: Evaluation of financial issues

In accordance with all the information collected by the company after making an analysis of financial issues that arise in an organisation. There are various ways problems can occur. Such as because of the minimum training provided to the employees they are not able to get proper outcomes (BSC Terminology: Perspectives, 2017). With the use of various financial tools, they can resolve all of them. Balances scorecard is another important technique which can help managers to resolve financial issues.

Conclusion

From the above report, it has been summarized that finance is seen as the most indispensable aspect for the success of an organization because all business activities are totally dependent upon them only. It means the company needs to make plans for managing the capital of an association in an appropriate manner in order to control the possibilities of losses. Along with this, the company is involved in designing an impressive budget for designing effective schemes by considering necessary facts or figures. Additionally, various types of reports are designed by an organization to record confidential information in correct way. It helps in controlling losses by considering necessary facts or figures in a defined time period.

REFERENCES

  • Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.
  • Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches and perspectives. Routledge.
  • Schäffer, U., 2013. Management accounting research in Germany: From splendid isolation to being part of the international community. Journal of Management Control. 23(4). pp.291-309.
  • Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in management accounting for sustainability (pp. 1-56). London: ICAEW.
  • Chan, H.K., Wang, X. and Raffoni, A., 2014. An integrated approach for green design: Life-cycle, fuzzy AHP and environmental management accounting. The British Accounting Review.  46(4). pp.344-360.
  • Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2011. Municipal finance and accounting. Pretoria, South Africa: Van Schaik.
  • Hansen, A., 2011. Relating performative and ostensive management accounting research: reflections on case study methodology. Qualitative Research in Accounting & Management. 8(2). pp.108-138.
  • Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in Ghana. International Journal of Business and Management. 8(24). p.73.
  • Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.
  • Lim, M., 2011. Full cost accounting in solid waste management: the gap in the literature on newly industrialised countries. Journal of Applied Management Accounting Research. 9(1). p.21.
  • Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to? Journal of Management Accounting Research. 27(1). pp.171-176.
  • Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research27(1), pp.81-119.

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