Management accounting is an essential aspect for an organisation. By the help of this company would able to manage and control their financial transaction in more effective manner. The main aims of Tech UK are to attain maximum gain through using resources in more proper ways. This project report is providing crucial information about various accounting and reporting systems those are used for the purpose of recording transactions into their respective set format. Moreover, it will be discussing various costing methods that are used for calculating net profit for the company. With the use of merits and demerits of various budgets managers of Tech UK would be able to control their costs and future expenses. Apart for this, all those financial issues those are present in an organisation can be analyse by accountant and resolve them by using balance scorecard method in an effective manner (Amoako, 2013).
P1: Meaning of management accounting and their needs
In every business enterprises, management tried to manage their day to day financial transactions through using appropriate accounting system. These are helpful for an organisation to increase the profitability for an organisation. The primary motive of every business is to make use of vital accounting systems that are always assists Tech UK Ltd to regulate their operations in more effective manner (Klemstine and Maher, 2014). Management accounting is a systematic recording of all financial transactions that are incurred in an organisation during a specific period of time. by the help of a well organise accounting systems which is the only key to perform their operations at internal level. It is necessary to make evaluation of data through using appropriate tools and accounting standards. It will assist them to increase overall aims and objectives at the same point of time. The manager’s main aims are to enhance profitability as well as efficiency by proper allocation of organisation resources. It has been analyse that financial accounting and management accounting are having certain kind of similarities. Those are being discussed underneath:
According to this accounting system which is aid the internal and external department of Tech UK to provide all necessary information to accountant so that overall aims and objectives can be attain in reliable manner.
While in case of this, all the policies and rules that are being made by organisation are used for the purpose of preparing specific financial statements during the time.
All the data which is being provided by owners are always assists them to future planning and growth for the company.
The main objectives of using this accounting are to provide essential information about financial position of Tech UK to their investors.
Every data and information are taken into account those are related with financial as well as non-financial at similar stage.
Only financial data is taken into consideration to make accurate report for the company.
This accounting only provides practical overview and information about the company so that future decision making can be done.
Only theoretical aspects are analyse through using reliable accounting rule and regulation for the company.
Various types of accounting system:
Cost accounting system: According to this accounting method which assists managers to control and operate their internal operations in effective manner. All the costs that are used for the production of product and services are taken into account at the same point of time. There are certain types of costing which are needed to be taken into consideration such as:
- Normal costing: It is said to be an appropriate costing methods which a company normal incurred at the time of production of products with the same resources.
- Actual costing: It is known as those costs that are actually incurred while production of one unit by Tech UK Ltd in their daily course of business.
- Standard costing: As per this costing this charged as per the set standard by the owner of the company. This seems to be used for the purpose of making comparison of actual results to that with actual one.
Inventory management system: According to this accounting system that play an essential role in analysing total position of inventory which is been kept by Tech UK in an accounting period of time. This seems to be more reliable only to make comparison or tracking of stocks that are being provided by suppliers for the process of production. There are certain types of inventory systems such as:
- LIFO: It said to be cost flow assumption which can be helpful for the company in respect to analyse total moving of costs of products from stock to the cost of product sold. It means that last inventory which is kept by the company will be discharged first.
- FIFO: As per this method of stock valuation which is associated with cost flow basis that initial costs are firstly recorded and realise during the period of time.
- AVCO: It is known as effective method of inventory control which is being used to taken into account the total cost of products still present for sales and divided through total sum of products at the initial stage (Lim, 2011).
Job costing system: It is known as one of the appropriate costing system which is being assign during the production cost to a single products or job of products. Basically, the job cost is used at the time when produce products are sufficiently different from one another. There are various types of costing systems such as:
- Contract costing: This is that kind of cost which is used to track overall production level of a product produce by Tech UK. It is mostly associated with Construction Company.
- Batch costing: It a kind of specific order costing which is similar to job costing system. Every batch of products is being provided a specific number which is more identical and different from one other (Van der Stede, 2015).
- Process costing: It is mainly a method of assigned cost to particular products units produce during a period of time. This seems to be product costing which is being measure the product cost.
P2: Various types of reporting methods
Management accounting is all about managing funds in appropriate manner in order to accomplish things in effective manner as well as main objective is to control possibilities of losses. It helps in maximizing more or more profit by planning each or every aspect of an association. Capital is seen as lifeblood for corporate companies because it helps in managing various business activities in more appropriate manner. Along with this it aids an enterprise while making proper company plans with the help of useful strategies and schemes. Basically, it is not easy to manage expenses in appropriate manner. In order to allocate sufficient amount of funds an organization needs to design an effective report for various other departments. Their main objective is to manage things in better way by considering necessary facts or figures. Hence, numerous of reports which is going to be falls under finance department is described as follows:-
- Inventory report: - Stock management is very much essential for delivering products to right time at right place in a defined time period. Along with this, it’s all about management of goods which is produced by company, closing and opening balance for supplying it as per consumer need or demand. Mainly, it aids in controlling the level of mistakes and errors which might occur at the time of producing products. However, inventory report is consisting of various necessary details about transferring of goods across the international boundaries.
- Performance report: - According to this component it is essential to analyse the performance of employees in order to make necessary changes as per need or demand of staff members. Basically, it helps managers while conducting training programmes for employees as well as helps during judgement process so that company can easily improve the performance of an organization in much better way.
- Account receivable report: It is known as one of the crucial aspect which is used to determine total list of unpaid customers invoices and credit memo. It is mainly related with that particular report which deals with recovery of amount form debtors.
- Job costing report: The job cost report is the initial place for much of information which contained in other report. This report contain list of each job those are working on and cost incurred on a job in last period of time. It is kind of process which is assigning the cost those are incur to a particular production of a product (Lavia López and Hiebl, 2014).
(b): Importance of collected information
In the mentioned case of Tech UK Limited, they need to make proper understanding of all necessary information about financial position. This is major part for them to analyse every financial report that are necessary to increase profitability and growth in near future time. Financial reporting provides executive a clear image of the financial health of Tech Ltd. It cannot provide every data on necessary to assist them to determine business performance at operational level. There are certain accounting standard which are needed to be followed as per the GAAP rules and regulations. It is the collection of similar standards which is associated with financial transactions of an organisation. There are certain principles are needed to be followed before preparing report. Some of them are discussed underneath:
- It seems to be basic report of accounting principles and regulations.
- The one of the appropriate regulations those are being issued by FASB as per the requirement of the company.
M1: Benefits of using management accounting system
It has been seen that all those accounting methods a company is using in an organisation are having some kind of benefits which will assist in increasing overall growth and profitability for the company. In case Tech UK is using cost accounting system they are able to determine specific relationship amount normal, actual and standard cost they are incurring in production of products. While inventory management system which assist them to track current position of inventory those are being kept by an organisation with them. Whereas job costing is use to analyse total cost they are investing in manufacturing of a specific job cost (Bennett, Schaltegger and Zvezdov, 2013).
D1: Critical evaluation of accounting reporting method
In accordance with generating more appropriate results for the company. Manager need to make use of valuable reporting methods. These reports are being presenting in front of various investors and stakeholder for the purpose of making future valuable decision regarding their capital investment in their upcoming projects. Methods like performance report which is needed to be implemented in specific manner so that actual position can be analyse. While of account receivable report which is used to determine total time period for collecting necessary capital from the debtors.
P3: Various types of costing method used to calculate total net profit
Cost is an essential aspect for every manufacturing company to analyse their total cost needed for the production of one unit of products. The primary aims of using these costs is to make specific analyse of total capital they are going to invest in the production or goods. Cost is basically said to be value of amount which is being paid to get something (Abdel-Kader, 2011). There are various types of costing methods that are used by accounting to evaluate total profit for the company. Some of them are discussed underneath:
Absorption costing: It is known as one of the effective costing method which is used by Tech UK at the time of manufacturing products during the time. These costs included both variable and fixed costs because of which it is known as full costing method. It is not appropriate for making future decision for the company.
Marginal costing: It is said to be most appropriate costing method which is helpful or applicable for the company that is paid for additional production of units. It consists of only variable cost and fixed costs are not taken into account for analysing net profit for the company. This seems to be more reliable method which is being used for future decision making.
Income statement as on September by using Marginal costing method:
M2: Various types of accounting techniques
In respect to evaluate financial position of Tech UK manager need to make use of various accounting techniques which are helpful for increase growth and sustainability for the company. Some of them are ABC costing techniques which is used to categories specific products as per their nature. While performance techniques can assist them to determine present position by evaluate total capital available with them. Standard costing techniques are used to make comparison of actual results to that actual one. A marginal technique is one of the reliable for making coming decision for growth and sustainability in coming time (Hilton and Platt, 2013).
D2: Analysis of data collected or reconciliation
Profit under absorption
Closing stock 500*5
Profit under marginal
In accordance to above analysis of income statements, it has been determined that company is having two options to evaluated net profit for the company. In respect to analyse more accurate outcomes which is more reliable for the company's managers of Tech UK. It would be needed to make use of both marginal and absorption costing methods that are essential for making further planning for an organisation. As per the reconciliation of income statements it has been seen that profit under absorption cost is -375 after making evaluation of closing stock is 2500. They are able to determine total marginal of 2125.
P4: Merits and demerits of various types of budget
Planning is an essential aspect for an organisation. This seems to make proper analysis of resources which are needed to be helpful in attaining future aims and objectives in more quick time. There are various types of budgets which helpful for Tech UK to regulate their business in effective manner. Some of them are discussed underneath:
Operation budget: As it is known as one of the effective forecasting income and expenses over the course of a specific period. There are certain factors needed to be taken into account in this budget such as labour cost, overhead and manufacturing cost.
Advantage: It is prepared on weekly, annually and monthly basis to determine total estimated cost and expense incur during production (Parker, 2012).
Disadvantage: Only limited information are collected with this report which is not effective for prepared final account.
Cash flow budget: It is a projecting about total cash comes in flows out of Tech UK within a specific period of time. It used to consider factors like accounts payable and accounts receivables.
Advantage: It is useful in determining whether company is able to managing their cash in effective manner (Renz and Herman, 2016).
Disadvantage: Once the recovery period is over, manager would be able to take into account this budget.
Process of budget:
- Identification of budget ideas which is primary aims of managers to prepare budget for the company.
- Collecting necessary information from different department those are operating at internal level.
- Obtaining capital forecasting from various sources.
- Collect budget request from upper department by taking appropriate suggestion.
- Update budget model in more proper manner in the manner of master budgets for the company.
- Review of budget is a end process which is completed by taking feedbacks from various employees and departments.
Pricing policy: There are various types of pricing methods such as:
- Cost plus pricing: It is known as more easy and simple pricing techniques by which products can be sold to their customers (Youssef, 2013).
- Price skimming: Under this, setting of price in starting stage is higher. After the competition get normal company used to reduce prices.
Importance’s of using planning tools:
There are various types of effective tools that are effective enough to manage and control budget for Tech UK. Some of them are
- Forecasting tools which is used to estimated total cost and expense incur by the company in coming time.
- Contingency tools are other important techniques which is important for an organisation to control all risk factors those are associated with the company.
M3: Analysis of different planning tools
All the tools that are discussed under this report are helpful to controlling budget for the company. Forecasting tools are more reliable and accurate for increase growth and profitability in more quick time. While another important tools are scenario tools that are helpful in case of any crucial situations arises in an organisation.
D3: Critical evaluation of financial issues
In respect to manage all necessary problems that are arises in an organisation are mostly associated with financial issues. These are can be occur because of low product and service quality or not effectively allocation of resources. These can be overcome by using appropriate techniques.
P5: Balance scorecard method
As per the mentioned case of Tech UK, it has been found that they have recently detected some issues associated with financial statements. It is showing a net loss of 1..5 million because not following appropriate accounting techniques. The company asked from accountant to deal with these issues. They have suggested making used of balance scorecard techniques. It is a kind of effective methods which will be responsible for control financial problems those are arises in an organisation. It consists of various perspectives. Such as:
- Financial: It is used to view organisational current financial position in effective manner whether they are using resources in proper manner (BSC Terminology: Perspective, 2017).
- Customer or stakeholders: As per this perspective the performance from the point of customers and create specific interest to their stakeholder are meet in reliable manner.
- Internal process: It is mostly associated with quality and efficiency to their products or key business processes.
- Organisational capacity: It is related with human capital, technology and other capacity that are more reliable aspects for the company (Ahmad, 2012).
M4: Evaluating financial issues
In accordance to deal with essential problems those are present in an organisation, manager’s uses effective techniques such as key performance indicators this used to compare actual performance with standard one. While financial governance is another technique that consists of rules and policies set of government to operate business in proper manner.
From the above project report, it has been articulated that management need to make use of valuable accounting and reporting systems to manage their performance in effective manner. This project provides vital information about use of costing methods to calculate net profit they are able to get in future time. While with merits and demerit of various budgets they can plan their coming business in more reliable and sustainable ways.
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