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HNBS 302 Management Accounting Level 5 HND in Business Management Level 4

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INTRODUCTION

Accounting is one of the crucial aspects for an organisation like Tech UK which is operating in order to produce appropriate products and services during the period of time. The main aim of this module is to introduce all fundamental matters of management accounting which applies to large parts of the business environment as well as the organisation. The primary responsibility of an accountant is to explore different ways one can use financial data to aid planning decisions and regulate the flow of finance within internal as well as external departments of an organisation at the same period of time. This project is all about discussing various types of accounting systems and reporting methods used in an organisation. Apart from this, various costing methods to calculate net profit for the company. The merits and demerits of using several types of budgets are also discussed in this report. A comparison of management accounting can be used to resolve the financial issues mentioned in this report (Amoako, 2013).

TASK 1

P1: Concept of management accounting and its essential requirements

Nowadays, it has been seen that the administration of various companies is to record all essential financial transactions that occur during the period of time. Management looking to have an appropriate accounting system will be useful to attain the overall aims and objectives of an organisation in a regular course of action. Every decision that is made by the company with respect to the use of the accounting system can assist them in making future business planning in a more reliable manner. With the help of this, individuals or managers would have basic information about the progress of company growth and coming sustainability that will assist them to reach a set destination in a quicker period.

Management accounting is known as one of the effective planning, organisation and evaluation of all financial transactions that are done during the production process. Accounting is a systematic process of recording, summarising, communicating and controlling all implications and dependencies that are helpful to attain future aims.

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Importance of using a management accounting system:

There are various crucial significance of using management accounting. It will help Tech UK Limited to record their capital flows in the right direction at the correct place. Some of them are:

Effective decision-making: One of the main motives of this accounting system is to collect all necessary information from every department and make appropriate decisions that would be beneficial for a longer period of time.

Increase efficiency and productivity: This is another important aspect for management to enhance their overall growth and profitability by increasing their productivity by selling maximum products during one accounting period (Klemstine and Maher, 2014).

Comparison:

Management Accounting

Financial Accounting

It is the management that is entirely responsible for making various sorts of rules and regulations associated with financial reporting.

All the accounts-related policies and laws that are made by companies are implemented with respect to preparing financial statements for the company.

 It is almost always reported at a primary detailed level. Like profit generated by product, customers and geographic region.

These are accounting reports on the entire outcomes of an entire business.

Types of accounting systems:

Cost accounting system: It is one of the important accounting systems which is held responsible for determining the total cost a company is incurring during the production of products and services. This is a design which is used by Tech UK company to estimate the costs of their products with respect to profitability analysis and cost control. In the case of profitable operations, it is very hard to make predictions of the accurate cost of products. It consists of various costs such as normal, actual and standard costs during the production process (Lim, 2011).

Inventory management system: It is one of the vital accounting systems that assist managers in monitors and regulating things of value to every business entity or combination of firms. It can apply to either tangible assets or intangible assets within an organisation at the same period of time. It is seen that various companies used to provide various investors with more specific or diversified options than they keep to themselves. There are various techniques which are used by management in respect to control their stock. Such as FIFO, LIFO and AVCO.

Job costing system: This happens to be one of the accounting processes of assigning the cost to a company's overall costs that are incurred to a particular job an individual or business is associated with. It is globally used in areas where the construction process is going on. There are various types of ways by which job costing systems can be analysed such as batch, process, and contract costing.

Price optimisation system: It is one of the crucial accounting systems which is used as a mathematical tool that assists a company in analysing how customers would react to various prices for their products and services by using plenty of channels. It is also used to analyse the prices that Tech UK should determine superior that would meet their aims and objectives like as increasing operating gains for the company.

M1: Advantage of using management accounting

In every business, the main aim is to attain as much profit as they can. This can only be done in case the company is able to use various accounting systems in the right direction at the correct period of time. It has been examined that all those above-discussed accounting systems have their own benefits. Cost accounting will be responsible for controlling the cost that is incurred by the company in its production process. Whereas inventory management can lead to maintaining the stock those are being kept by the company with them. Likewise, some other systems are equally effective in increasing the overall profitability of the company (Van der Stede, 2015).

P2: Management accounting reporting method and its types

In the present era, organisations are looking to adopt more reliable accounting systems that are much more effective for the company in analysing their business operations in a reliable manner. The primary aim of Managers is to collect all necessary data that occur within an organisation from the production of products and services. Reporting is said to be a detailed document which is prepared by an organisation on the basis of all the information that is collected from every department about their financial performance. There are various sources from which data can be collected for the purpose of making a well organised report that highlights the current position of the company. Every piece of information is vital for making future decision making so that maximum opportunities can be created. All the reports are submitted to the company's external parties as well as investors to make certain investment decisions in accordance with their coming projects. In the process, some accounting systems are helpful for the company. Some of them are discussed below:

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Performance report: It is known as one of the crucial reports which are prepared for the analysing overall performance of Tech UK to collect some vital information about the company. The motive for using the reports is that managers use this as routinely those are produced by government bodies and those are financed by public income. It is needed to determine that the total money spent can be efficiently profitable for the company. A yearly performance report can assist an organisation to be produced for every employee of a business.

Account receivable report: As per this accounting report, the company would easily determine the total list of unpaid customer invoices and credit memos according to the date ranges. The report is considered a primary tool which is used for the collection of all invoices that are overdue for payment from debtors. It is categorised as present assets that are assumed to remain overdue within one accounting period of time (Lavia López and Hiebl, 2014).

Inventory management report: It is known as one of the effective reports which is consider as appropriate supervision of all inventory items that are stored by the company with their warehouses. It seems to be an effective element of supply chain management that determines the flow of products from producers to warehouses and from there to point of sale (POS). It is used to record all opening and closing stocks of the company.

Job cost report: It is identified as an appropriate method of recording all costs of producing a job, instead of the process. With the help of this, manager or accountant can easily be able to keep track of the total cost taken by each job through maintaining relevant costs to the operation of businesses. This report data of each job a company are working on and lists the total cost which is incurred on the last year's job.

D1: Critical Evaluation of the Reporting Method

According to the above-mentioned reporting methods, it has been determined that the company would be easily responsible for increasing productivity in more faster rate. The performance report is used to analyse the actual position of the company to that of the past one. The account receivable report provides information about the total list of remaining payments which are required to be collected from the debtors of the company. Likewise, an inventory management report is used to analyse detailed information about the overall stock position of the company.

TASK 2

P3: Different types of costing methods used to calculate net income

In any production process, a company need to analyse the cost of manufacturing by using various types of costs. These are directly related to each unit produced by the company. It consists of various aspects such as:

Cost volume profit: It is one of the appropriate analyses which is used to examine how any modification in costs and volume can affect a company’s overall operating income and revenues.  In performing this particular evaluation, there are various assumptions that need to be made such as sales prices used to remain constant (Hansen, 2011).

Fixed cost: It is one of the effective costs which remain constant with the changes in any production unit during the production of products and services.

Absorption costing: It is known as one of the crucial methods which is directly related to the production process. It consists of both variable and fixed costs at the same period of time. According to this particular nature, it is known as the full costing method. The company cannot use this costing as more reliable for making future decision making in the coming period.

Marginal costing: It is said to be one of the primary costing methods which is used in case any additional products can be produced by the company with the same resources. It included one variable cost and fixed cost remains absorbed in the case of calculating contribution per unit. This has been analysed by the company to consider this costing more reliable and accurate for making future decisions.

Income statement as of September by using Marginal

M2: Evaluation of various accounting tools and techniques

In every department, there is always the search that which information would be more beneficial for the company. It can only be determined by using appropriate accounting techniques which will be reliable sources for the company. The entire growth and dependencies can enhance their profitability in the coming period of time. There are various methods such as marginal costing which is analysing the additional cost of the company. While standard costs are more reliable for making comparisons of actual sales.

D2: Critical evaluation of data collected from the income statements

Reconciliation statements

Amount

Profit under absorption

-375

Closing stock 500*5

2500

Profit under marginal

2125

As per the above reconciliation statements, it has been seen that Tech UK can use two effective methods such as absorption as well as marginal to calculate their net income. The outcomes show a total net income of 2125. The only differences arise because of the treatment of fixed costs.

TASK 3

P4: Advantages and Disadvantages of Using Different Types of Budget

A budget is said to be an estimation of future costs and expenses that a company is going to invest for the purpose of producing valuable products and services.  It is framed as a reliable strategy for controlling various implications that arise during an accounting period of time. It consists of all components that are associated with Tech UK as capital seems to be a vital aspect of the company. However, every business concern assists in designing an effective budget in order to control and maintain their expenses in a more reliable manner (Fourie, Scott and Kumar, 2011). There are various types of budgets. Some of them are discussed below:

Master budget: It is known as a combination of all budgets that are prepared by the company during an accounting period. All the information related to various departments is taken into account for the preparation of financial statements.

  • Advantage: Managers can collect all tiny information within an organisation to get an overview of business capital.
  • Disadvantage: It is harder to prepare as it requires more capital or time to do so.

Operation budget: It is said to be an annual budget which is prepared of an activity stated in respect of budget that is classified in various parts such as cost account and other crucial factors.

  • Advantage: In included estimate the total value of resources that are required for evaluating the performance of operations.
  • Disadvantage: Sometimes, the company would not be able to record all the information as maximum production can be done in a single day time.

Capital budget: It consists of an effective process that determines and analyses potential expenditures or capital investments that are made by large companies (Chan, Wang and Raffoni, 2014).

  • Advantage: It is a more effective budget which consists of building a new plant or making investments for more than one year.
  • Disadvantage: It considers only cash details which are made by the company within an organisation.

Process of budget:

  • The financial department prepares worksheets to aid the department in charge in the formulation of overall estimation.
  • The administrator used to call group meetings of managers and make discussions about the projections.
  • The appointed managers used to work with financial services to prepare an estimate for coming departments.
  • The entire budget is transferred to executive officers for approval.
  • Making reviews or justification of budget that can be necessary in writing.

Pricing method:

  • Cost-based pricing: It is said to be an appropriate pricing method in which some part of the desired capital is included in the cost of a product in respect to attain the final cost (Bennett, Schaltegger and Zvezdov, 2013).
  • Demand-based pricing: Under this pricing method, a product is selected as per the demand of customers. In case the demand is high the organisation used to set high prices (Demand-based Pricing. 2018).

Benefits of using planning tools:

There are various types of planning tools which are used by the company in order to control the impacts of budgets. Some of them are:

  • Forecasting tools: It is said to be the most important tool which is used to estimate total costs and expenses which are mentioned in the budgets that are prepared within an organisation.
  • Contingency tools: It is known as one of the crucial tools which help the company to deal with any kind of business risks that arise without any alarm in an organisation (Schäffer, 2013).

M3: Evaluation of various planning tools

All the above-discussed tools are more reliable for the company to control every impact that is affecting the overall growth and profitability. Forecasting tools are more accurately essential to control future losses that happen in an organisation. Contingency tools are used to control and deal with financial risks that arise in the department.

D3: Critical analysis of financial issues

It has been determined that there are various types of financial tools which are responsible for overcoming financial issues that are affecting the internal department of the company.  key performance indicators and benchmarking are considered more reliable techniques which can control all impacts that occur in an organisation.

TASK 4

P5: Comparison of Various Ways to Use Management Accounting to Overcome Financial Issues

Every business organisation that is operating at a large level needs to make analysis of financial issues that are affecting the efficiency of the company. There are various financial issues that are arising in the department (Wickramasinghe and Alawattage, 2012). Some of them are directly associated with the productivity and financial sustainability of the company. Under mentioned various financial issues those are present in Tech UK:

Key performance indicators: It has been determined that there are crucial financial and non-financial problems that are related to the company. This can only be overcome by using these particular tools.

Benchmarking: It has been observed that different kinds of financial problems are present without any set standard. These particular tools provide a reliable benchmark for the company to deal with other competitors.

Financial governance: It is known as one of the effective tools used to provide the right direction to operate their business by following certain rules and regulations in an effective manner.

Important characteristics of Accountant:

  • Reliable is making appropriate decisions with respect to controlling performance and other financial information of the company (Hilton and Platt, 2013).
  • Effective communication is considered another important feature of accountant to determine valuable results in the coming period of time.

M4: Analysis of financial issues

The above-mentioned financial tools are responsible for overcoming issues like product and service quality and productivity of an organisation. Some of them are resolved by using appropriate rules and regulations that are made by the government.

CONCLUSION

From this particular report, it has been concluded that management accounting is one of the crucial aspects for managers to determine better results for the company. In this manner, managers can have various options like accounting and reporting systems that are discussed in the above. With the use of the costing method company easily be able to analyse net profit for the company. The help of merit and demerit of various types of budget can provide a better chance to make better outcomes in the coming period of time.

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REFERENCES

  • Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches and perspectives. Routledge.
  • Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to?. Journal of Management Accounting Research. 27(1). pp.171-176.
  • 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.
  • 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.
  • 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.
  • Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.
  • Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.
  • 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.
  • Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2011. Municipal finance and accounting. Pretoria, South Africa: Van Schaik.
  • 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.
  • Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in management accounting for sustainability (pp. 1-56). London: ICAEW.
  • 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.

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