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Introduction

Management accounting is a systematic and organised process that includes activities such as identification, analysis, recording, and presentation of financial information and such information is internally used by managerial personnels for decision making, planning and operational control. It assists management in an organisation to effectively perform and implement all necessary process and activities like formation of plan, managing activities and functions, staffing, administering and controlling. Management accounting refers to set of activities related to evaluation of business expenditure and functions or activities to formulate internal financial report and account to provide assistance to managers in decision making activities in order to attain business objectives (Lavia López and Hiebl, 2014). It helps managerial personnel to track significant business events that happens in organisation or nearby the organisation while analysing needs of organisation. Appropriate and effective decision are taken for steady improvement in business organisation's performance. This report describes management accounting and its various aspects in the context of British Telecom (BT). This report also covers advantages and disadvantages of different types of planning tools used for budgetary control, use of different planning tools and their application for preparing and forecasting budgets and a brief explanation about extent to which management accounting systems helps to respond financial problems.

TASK 1

1. Explanation of management accounting and the essential requirements of different types of management accounting systems

Management accounting system is applied in the BT for collecting, processing and communicating various managerial information that helps in management plan and in formulating company strategy.

Essential requirement: As should be clear by now, the various processes of management accounting system is the process of creating and using cost, quality, and time-based information to make effective decisions within the organization. Many people in the organization play a role in this process. The internal audit department has the responsibility of ensuring that controls are followed and operations are efficient. So the application of system of management accounting in organization is very significant as it ensures achievement of targeted performance. Different types of management accounting system are as follows:

Cost accounting:

It is a framework used to calculate the company's products profitability evaluation of inventory and estimation of their cost. The cost of producing a product and availability of products is determined for preparation of financial reports. For example ABC costing system is based on activity costing and Hybrid costing system is based on combination of features. With the help of these accounting methods British telecom company is able to control the cost of company and became the largest telecom company in united kingdom.

Inventory accounting:

Inventory accounting is the type of accounting that deals with evaluating and accounting of company's assets. Stock of company typically involves goods like unprocessed goods, in-progress goods and finished goods that are ready for sale. It involves determining the changes in the value of goods. Depreciation obsolescence and changes in the demand and supply are estimated. BT controls number of big subsidiaries. It provides fixed line, mobile, broadband and digital television Wi-Fi services to it's consumers. Recently company has removed the usage of huawei equipment in order to continue with it's policy (Leitner, 2013).

Price-optimizing systems:

Price optimization is system is a systematic mathematical analysis used by business organisations to define how customers respond to prices for its services and products through different channels. It helps to choose prices that will help management to achieve its objectives. This system aims to provide customer satisfaction while optimising price of product and services. In BT, minimum data tariff is charged by company to increase their customer using this system.

Job Costing System:

A job costing system combines process of collecting information about various cost related with a specific job or task. Output of this system used to report cost data and information to customer under an agreement where costs are incurred. In BT this information is also used to determine correctness of an organisation's forecasting system, that helps to determine prices that ensures profitability of company. The information can also be used to assign invariable costs to manufactured goods.

2. Benefits of management accounting systems and their application within an organizational context

All the management accounting systems includes both budgeting and planning activities which are very beneficial for the BT because it helps it in managing the business activities in better way. These system maximize the results for BT because these systems follows an systematic way to analyze financial and non financial items. There are various management accounting system which support the accounting of qualitative aspects of business as well. Such as cost accounting system is used to control cost

3. Different methods used for management accounting reporting:

Performance report: these reports are mainly generated to assess performance of whole business and the employees who are working in the company. In British Telecom such type of reports are generated by the managers to analyse that business is performing well or not. It helps them to make appropriate strategies for the betterment of the organisation. Main role of them is to guide the management to assess that employees are giving their full efforts to accomplish the tasks successfully or not. While planning for incentives these reports guides executives to distribute it in all the works according to their performance and potential.

Job cost report: Costs that are related to each job which is performed by companies are recorded in such type of reports. All the tasks that are performed according to the specification of clients of British Telecom are recorded in this report by the managers of the company. It is very beneficial for management because it helps them to analyse the overall cost of the jobs and activities that are operated by the company. It is very important for the service sector companies to generated such type of reports so that expenses that are made while performing jobs can be analysed for them separately (Modell, 2014).

Inventory management report: It is a summary of items that belongs to business, industry or organisation. It provides comprehensive accounts of the stocks or supply of various items that are served by British telecom to its consumers. It defines full information regarding goods that is held as stock and future requirement of goods. This acts as a tool that provides an analysis for better decision making. It reduces complexity in supply chain management and helps in anticipating correct demand in future that will help to enhance profitability.

Accounts receivable report: It is a report that consist information regarding unpaid consumers and unpaid creditors by range in date. The report is the primary tool used by collection department of British telecom organisation to determines payments due date. Having a accounts receivable report brings collecting of payments on time and reduces chances of bed debts in future. This will help in developing best and cost effective method for collection of funds and reduces cost and makes organisation profitable.

Management Accounting reporting is integrated within organizational processes:

Reporting under management accounting system cover all aspects of organization and integrates all activities and significant process to achieve overall performance of organization. All processes of a business organization are interlinked with each other to optimize its different activity costs.

TASK 2

1. Costing Method:

Absorption costing: According to this method net profit is calculated by considering the fixed manufacturing overhead that are absorbed by cost of product which are manufacture by Conway Ltd.All the fixed industry or business costs that is involve in production process are considered as product cost so net profit for a year is determined easily.

Marginal costing: This is also one of the effective costing technique that help to evaluate net profit that includes marginal cost or variable cost of units for making an additional unit of output. The main reason of using this method is that fixed cost for the period of production are completely written off against the contribution.The basis for ascertaining cost in marginal costing is the nature of cost, which gives an idea of the cost behaviour, that has a great impact on the profitability of the firm (Nielsen, Mitchell and Nørreklit, 2015).

Calculation of Net profit through marginal costing:

Marginal Costing Method

 

 

Particular

 

£

 

 

40000

Sales

15

600000

Less: Cost of Goods sold

 

 

Opening Inventory

 

-

Direct Labour

4

160000

Direct Material

4

160000

Variable Expenses

2

80000

Total cost of goods sold

 

400000

 

 

 

Gross Profit

 

200000

Fixed production overheads

 

50000

Fixed Overheads

 

100000

Net Profit

 

50000

 

 

 

Marginal Cost

 

 

Direct Labour

 

4

Direct Material

 

4

Variable Expenses

 

2

Total Marginal Cost

 

10

 

Calculation of Net profit through Absorption costing:

Absorption Costing Method

 

 

Particular

 

£

 

 

40000

Sales

15

600000

Less: Cost of Goods sold

 

 

Direct Labour

4

160000

Direct Material

4

160000

Variable Expenses

2

80000

Fixed indirect production cost

 

50000

Total cost of goods sold

 

450000

 

 

 

Gross Profit

 

150000

 

 

 

Other fixed overheads

 

100000

Net Profit

 

50000

 

 

 

Absorption Cost

 

 

Direct Labour

 

4

Direct Material

 

4

Variable Expenses

 

2

Fixed indirect production cost

 

1.25

Total Absorption Cost

 

11.25

TASK 3

1. Different planning tool used for budgetary control with their advantages and disadvantages

Budget: Budget refers to estimation of cash inflow and out flow or receipts or expenditures over a particular period of time. It is simply used by business organisations to reserve or allocate funds for different-different functions or processes after a short comparative analysis of expenses, incomes and profits of previous years.

Budgetary Control: It is a type of management control under which a systematic comparison of actual expenditures and incomes is conducted with predetermined expenditures and incomes to asses the appropriateness of such planned figures of income and expenses.Budgetary control process helps to track and administer budgets determined for activities and processes. This is simply done by analysing difference between actual and expected results to decide how effectively budget is followed in organisation. In BT it is used by top managers to recognise variances in budgets and interlinked these variances with performance to formulate best policies and strategies to reduce these variances.

BT need to manage and control budgeted figures and standards of various process and activities to achieve sustainability in growth and to enhance profitability. Company should prepare a systematic plan to control budget that is required be to ensure that functions and activities are carried out efficiently. Following are the major tools used by business organisation to establish budgetary control, as follows:

Contingency tools: This budgetary helps to recognise and allocate sensitive and risky factors that can affect an organisation's performance, growth, results and functions in near future. In BT this tool provide assistance in evaluating and analysing financial position in terms of net and gross profitability conditions and performance of various activities and functions of company, BT is required to evaluate and analyse such factors and to formulate appropriate and effective strategies in order to solve them as soon as possible (Senftlechner and Hiebl, 2015).

  • Advantage: Contingency tools helps to identify potential and additional resources in case any complexity or difficulty arise in functions or process concerned with existing or already identified resources .
  • Disadvantage: Use of this tool is time consuming and costly.

Forecasting tools: This tools is used by business organisation to develop a framework for future events and happenings with the help of present and past changes in sceneries and trends. For effective results of forecasting tools, reliable and relevant data should be used by organisation from internal and external sources. In BT management or other relevant personnels can use this tool for amassment of future trends which can affect the company in future in negative manner.

  • Advantage: It helps identify any future uncertainty or opportunity which can affect business decisions.
  • Disadvantage: Practically it is hard to predict future events so reliable estimate can not be made.

Scenario planning: This tool establishes a structured and organised path to frame or formulate framework for strategic planning of a business organisation. It helps to develop a base for assuming potential impacts of business environment in an organisation. BT should use this tool to identify or recognise potential happening which can affect the functions or business segments of company in near future.

  • Advantage: It is very flexible tool because it can be modified as per the aroused circumstances.
  • Disadvantage: Practical implication of this tool is very time consuming.

2. Different planning tools and their application for preparing and forecasting budgets:

From above discussion it is clear that different planning tools helps management in BT to manage process related to planning and preparation of budget. These tools provide a framework for preparation of blueprint for company to manage all activities that are directly or indirectly helps to determine company's performance and growth. Management can apply these tools to identify opportunities and possible threats. For smoothness of planning process these budgetary control play a vital role (Wickramasinghe and Alawattage, 2012).

TASK 4

1. Comparison of organisation adapting management accounting systems to respond to financial problems:

For comparison purpose two organisations Ever Joy Enterprise and Parkwood is selected to evaluate hoe management accounting system responds to financial problems:

EVER JOY ENTERPRISE

PARKWOOD

In EVER JOY ENTERPRISE, managerial personnels was facing problem regarding working capital requirement and, cash inflow and inflow. Decreasing cash inflow and inadequate working capital affecting its performance. Company has adopted cost control system to minimise their expenses to optimise cash outflow. This method not only helps to reduce expenses but also to increase profits.

PARKWOOD find issues and complexity related to inventory which leads to unfavourable inventory turnover ratio. Company in order to manage inventory and reduce wastage in production process,  implement inventory management system and  make a team for observing and managing inventory process and specific instruction are given to keep their proper insights on inventory, so that company can set a benchmark for quantity of order to reduce carrying cost and abnormal waste.

To establish a proper management system various management accounting tools are used by business organisation (Soin and Collier, 2013). These tools ensures organisation to achieve its objectives and sustainable success. Following are the major management accounting tools used by organisations, as follows:

Ratio Analysis: It is most popular accounting tool which incudes a systematic evaluation of organisation's financial information and it helps to analyse different factors which determines company's financial and operational performance. Ratio analysis describes company's liquidity, efficiency, solvency and profitability conditions through different metamathematical formulas called as ratios, this ratio interlinks different factors to measure performance. This analysis is generally used by management and accountants to compare results of different processes of company. With the help of ratio analysis BT asses their current performance to formulate strategy.

Benchmarking: Benchmarking refers to collection of activities to develop standards or criteria to compare organisation's performance. Basis of these standards can be time, quality and cost invested by the company on any product. Main goal of the organisation is asses its actual performance to take significant decisions. Adoption of appropriate practice is required to improve performance of organisation. This tool helps manageable in selection, planning and overall completion of various project. BT by setting benchmark achieve its targets and goals.

Key Performance Indicator (KPI): It an analytical tool which assists in identification of performance in comparison to business targets. It describes way to achieve business targets in efficient way. KPI are classified in two parts low level KPI and high Level KPI, A low level KPI emphasises on workers and staff in department such as administration, marketing and sales where as complete performance of organisation is measured through high level KPI. In BT, KPIs are used to enhance efficiency of specific function and solve particular task issue.

2. Evaluation of planning tools to respond financial problems

In BT manager adopts various management accounting systems to short out different financial problems such as company is facing problem of working capital requirement so managerial personnel in organisation has adopted Contingency tools, Forecasting tools and Scenario planning to identify main reason for the problem of working capital requirement which ultimately help the mangers to increase efficiency in working capital management (Ward, 2012).

Conclusion

From the above conclusion it has been concluded that management accounting helps to evidence, summarize and investigate all the necessary financial transactions that happen within an organisation during an accounting year. Different types of planning tool such as scenario, contingency are used to develop effective budgets. Manager uses different accounting tools that are helpful in resolving financial problems that benefits to increase profit and performance. The above mention presentation concluded that, management accounting is an effective methods that help manager of company in order to get useful information about operation so that effective decision making are made. Various types of system such as cost accounting, inventory management etc. are use to control and reduce cost and mismanagement of resources. Different report like performance report, job costing report are used by manager in order to evaluate and measure performance and control cost involved on specific job.

References

Books and Journal:

  • 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 Research. 27(1). pp.81-119
  • Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of Biases in Costing Systems (Vol. 664). Springer Science & Business Media.
  • Modell, S., 2014. The societal relevance of management accounting: an introduction to the special issue. Accounting and Business Research. 44(2). pp.83-103.
  • Nielsen, L. B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1. pp. 64-82). Elsevier.
  • Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in family businesses: past accomplishments and future opportunities. Journal of Accounting & Organizational Change. 11(4). pp.573-606.
  • Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and control.
  • Ward, K., 2012. Strategic management accounting. Routledge.
  • Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches and perspectives. Routledge.

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