The management accounting is the important tools which are used by the company to make their business operation decisions more effectively and its methods are used to measure the company performance. It basically comprises the explanations about the different management accounting systems and their elements for smooth functioning of the business activities which are integrated with the management accounting reporting. This report also involves the various useful planning tools which are used for budgetary control as to measure and monitor the company’s performance appraisal (Amoako, 2013). A comparison is provided to reflect that how the company can use the MA tools and techniques for appropriate implementation and execution. Under this report, Tech (UK) Ltd use the essential tools and techniques of the management accounting to solve out the department managers complained about the deficiency of financial information to better their decision-making. Under this report, the company will also prepare the management accounting reports for making the decision
It is the process which is followed by the company for examine the business costs to form internal financial reports, records and helps the management to frame the business decisions effective and efficient for achieve the predetermined objectives and goals. The accounting information which is obtained by doing analysis helps in financial accounting (Management Accounting, 2017). The management accounting assists the company’s management in the formulation of policies, procedures, in the decisions and also helps in daily operations of the business.
1. Distinguish Between Management Accounting And Financial Accounting:
The numerous comparisons in between the financial and MA which are explained as under:
- This accounting used within the organization by the managers and employees whereas external users use the financial accounting for the decision making about the investment in the company’s business (Vinayagamoorthi and et. al., 2012).
- The management accounting does not apply any rules or standards for the accounting while on the other hand, the financial accounting is worried with a different set of rules and regulations which are relevant to the company.
- The management accounting uses the financial and non-financial information for making the reports and other useful documents whereas the financial accounting use only and only the financial information for preparing the financial statements.
- The management accounting use only data which are historical, current, and future- oriented whereas the source of data is historical associated to the previous year performance in the financial accounting.
2. The Importance Of Management Accounting Information As A Decision-Making Tool For The Department Managers Which Are Discussed Below: Management accountants utilized the various tools and techniques for planning which helps in the decision- making process. They also focus on the main criteria of the business operations like revenue growth, productivity growth and efficient and effective utilization of assets.
3. Cost Accounting Systems (Actual, Normal And Standard Costing): This system assists the company to determine cost of the product. This system is used by the management of the company for lowering down their working expenses and similarly controls them in an effective manner. This is the type of accounting system which assesses about how an organisation is doing and benefits managers to form decisions which is relied on the costs of doing operational activity (Macinati and Anessi-Pessina, 2014). This system requires five basic parts. These are inventory valuation technique, input measurement basis, accost accumulation method, accost flow assumption, and a capability of recording cost flows at particular intervals.
4. Inventory Management System: This system keeps track the goods via whole supply chain or the portion of the goods used in the business operations. It covers everything from the production to retail, all the movements of inventory, etc. Management of TECH (UK) LTD. can be consolidated with this type of system to attain all the targets by efficient flow of stocks in the business manufacturing operations.
5. Job Costing Systems: This needs to collect direct materials, direct labour and overheads in an effective manner. Here are certain tools which could be implemented by the organisation for gaining sustainability. Tech (UK) Ltd can implement this system at the time when products are identical for tracking of the order expenses.
1. Diverse Kinds Of Management Accounting Reports:
Budget Report: This report lay out the plan to investigate the organization performance at the time of creating evaluation about the department’s performance and also control the costs. For preparing the budget, the actual expenses which incurred in the past years get utilized (Lim, 2011). Forecasting the future budget based on this report which assists the company to consolidate the attempt of various departments towards the company goals and objectives.
Job Cost Report: The job costs reports are basically concerned with identify the profits, costs, and expenses of each specific job. This report also makes evaluation of the cost at the time of project is work- in- progress henceforth, the waste areas can be engaged in consideration and the project can be completed more profitable to the company. All the efforts of the company are described in this report which helps the manager for future jobs.
Inventory Report: The Company’s business operations are involved in the manufacturing processes is required to prepare the report so that their inventory and manufacturing processes can be more efficient and effective. This report which is prepared by the company in order to track the inventory level and make them accordingly in order to smooth running of business operations.
Performance Report: Cited organisation while having manufacturing processes, form these kinds of report henceforth their inventory processes could become highly convenient and effective. This report have the per unit cost which are related to the labour, overheads and wastages of the costs which are linked to the stock.
2. Importance Of Using Above Accounting Reporting Systems:
According to the above discussion all the useful method of management accounting reporting are helpful to the company to track all the important financial transaction in their prescribed lay out. By the help of all the reports which are discussed above help the company to analyse their performance level, minimize the wastage of the resources, eliminate the unwanted costs, improves their productivity, etc. These reports also helpful to frame the strategies, goals and objectives for the future (van Helden and Uddin, 2016).
- Job Costing System: It will assist the company in estimation the all types of cost throughout the production process. Also helps in the determining the quality of the work done by the employees.
- Cost Accounting System: Tech (UK) Ltd could measure their effectiveness in manufacturing procedures and then help in preparing developments with implementing of this system. It will also assist the manager of the company to fix the price and also in reduction of the price of the particular product.
- Inventory Management System: Tech (UK) Ltd can change and recover the accuracy of the orders along with the help of this system. It will improve the business efficiency and saves the money, time and also the unnecessary wastages.
- Budgeting Reports: The integration in between the organizational procedures related with the Tech (UK) Ltd and budgeting reports make a way for the activities of the business to do proper concentration on the budgeted outcomes.
- Job Cost Reports: The business activities of Tech (UK) Ltd must be directed to the fulfilment of the cost objectives and this report make an easier way to the manager to decide the pricing strategies for the company.
- Inventory Reports: The integration in between processes which covered in Tech UK Ltd. and this report gives an effective management of inventory control and also gives estimation that how much required level of inventories are need in the production process.
Marginal Costing: This is the cost which contains the variable cost while calculating the net profits. This is also known as the net profits as per the contribution per unit. This is also known as the marginal costing approach which can be implemented by the company for assessing objectives in an effective manner (Gates, Nicolas and Walker, 2012). All the fixed costs does not consider while calculating the marginal cost.
Absorption Costing: This is the method that can be used by the organisation in order to know about the product costs effectively. Various variable and fixed costs are to adopted while producing per unit costs.
Net Profit Using Marginal Costing
Less: Variable costs
Stock at the beginning
Cost of production
Stock at the closing
Variable sales overheads
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
Income statement as per the absorption costing:
Selling Price per unit
Direct materials cost
Direct Labour cost
Variable manufacturing overhead
Total variable production cost
Fixed production overhead
Fixed production overhead incurred actually
Fixed selling & distribution expenses
Variable selling & distribution expenses
15% of sales value
Net profit using absorption costing
Less: Cost of Sales:
Cost of production
(Under)/Over absorbed fixed production overhead
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
In this case, the company is required to apply the management accounting tools and techniques to increases the profits. This will assist the Tech (UK) Ltd to run their business activities in sufficient and accurate way. The above methods are used by the management accountant for improving the productivity of the business. These tools are useful and important for each and every divisions of the company for making the effective and efficient decisions for the company’s growth and achieve their objectives.
The net profit which are attained with help of absorption and marginal costing. Both the methods calculation is different which reflects different net profits. As per the marginal costing and absorption costing method the company loss their profit. In absorption costing the company loss (£) 375 an in marginal costing the company loss (£) 2,875. So, it is beneficial to use the absorption costing because the loss in it is less than the loss of the marginal costing.
(A) The budgets are source of plans which help the company to evolve a financial plan that includes preparation of how the company will find the resources which are required and utilized them in various activities of the business during the particular period of time. It is in a statement form which is made on the basis of past performance of the company. It is an effective tool which is used by the management of the company in order to prepare their business activities run smoothly without any disruptions (Hiebl and et. al., 2015).
The Different Types Of Budgets Are:
Sales Budget: This budget is the main or important budget for the business which is used by the manager to estimate the sales figure in the future. For this estimation company prepare the various strategies and these strategies will be introduced in this budget. This budget is used to make the operations for the business effective manner and uses certain tools for achievement of goals.
- Sales budget is useful to find out the sale which is estimated.
- This is also helpful to the management of company to control the sales related expenditure and also enhances to allocate the available resources.
- This can't predict the future trends of events.
- Making sales budget takes high managerial time and it may not be easily accepted by all the people in the company.
Operating Budget: This budget assists the manager to plan for the day- to- day operations of the business so the company doesn’t run into financial deficit. This budget is used by the company for achieving the predetermined objectives. All the expenses which are related to the business operations are needed to be consider in this budget.
- The benefit of this budget is that it keeps tracking the entire business.
- It is prepared for financial responsibilities and aids the manager to control working expenses in an optimise manner so that the operating profits could enhance.
- Operating budget does not so easily to match the individual and corporate objectives.
- There is not always to generate the reliable outcomes for the business.
(B) Budgeting Preparation Process Covering Identification Of Pricing And Different Costing Systems:
Price Skimming: This is the price skimming is a pricing strategy through which a marketer fixes a relatively high initial price for a good or service during first, after that lowering down price over the price over the time. This is an efficient pricing method which assist in optimising sales of new products and services. During the initial stage, prices are more than the starting phases. The prices are normally lower after appearance of the products of the intense contenders.
Economy Prices: As per this method, diverse of cited is planned to fix low prices of their diverse goods to attract highly price conscious clients. Firms lowering the costs that are linked with the goods and marketing activities.
Different Costing Systems:
Direct Costing: Here, only those costs covered which are directly related to the manufacturing of the goods. This covers: direct materials, direct labour and direct overheads.
Standard Costing: This system assists in controlling costs and determination of variances that could arise in comparison to the standards (Zang, 2011). Diverse activities to which relates which is executed in the valuation of the stock, work in progress and making the price in fixing selling prices. This systems assist in controlling costs and determination of the variances that could emerge in comparison to the set standards. This covers diverse kinds of elements such as valuation of stock, work in progress and setting selling prices.
(C) Importance Of Budget As A Tool For Planning And Control Purposes:
There are various budgets which are used by the cited organisation for planning and controlling aim. These budgets render diverse kinds of information which are related to diverse aspects that assists manager to plan their future course of actions. This likewise renders opportunity to admire performance and risk management which enhances an entire performance of the organisation. there are various aims for which organisation’s budget are implemented for controlling purpose. Budgets also helps to make comparison between the actual and forecasted value which ultimately helps out to gain the business operations in an effective manner.
- SCORO: It provides management of TECH (UK) Ltd with the numerous budgets and instead of using various tools of managing the finance. It also combines budgeting with the Customer Related Management and online project management which assist in the entire business management in one single solution (Bodie, 2013).
- PROPHIX: The tool which is offer to the cited company with a wholesome upgrades the product and constantly growth of the company. It is easier tool due to its flexibility and adaptability. The budget preparation will be in better and the resources allocation can be properly evaluated and investigate.
There are numerous tools which implemented in order to evaluate the financial problems of the firm. By implementing those techniques organisation can recognise any financial risk and likewise assist them to responds these financial risk in proper way (Lukka and Vinnari, 2014). These techniques will aid in control to be applied and investment decisions could be considered in an adequate manner. The analysis and interpretation of financial data will supporting in external reporting which in turn will assure the growth of the company’s business.
BSC Approach: For the purpose of reducing financial stress and issues, there are various techniques and methods that Tech UK can adopt. BSC approach is given by Norton and Kaplan which can be considered as the strategic approach as well as performance management framework which can enable proper translation of strategies and vision in TECH UK into execution. These can be performed through working from major 4 perspective which are mentioned as below:
- Financial Perspective: Norton and Kaplan do not neglect traditional requirement for the purpose of financial information. Accurate and timely data funding will often remain their priority as well as manager provide necessary activities and execute to render it. In fact, there are, on the other aspects, more controlling and financial data processing. Through the corporate data execution, this is expected that major processing can be automated and centralise (Wickramasinghe and Alawattage, 2012). There is a proper requirement of additional data and information of finance like cost advantage data, risk assessment etc. in this.
- Consumer Perspective: In the present philosophy of management, this has presented an raised realisation of the value of consumer satisfaction and consumer centred approach in any business organisation. This can be considered as one of the leading indicator, if client or customer are not satiate with the service given by the company, they seek those supplier gradually which provide the products and services according to their demands.
- Business Procedure Perspective: It can be referred as the internal business procedure. This is essential to carefully plan these metric through those who understand these procedure most initially.
- Growth And Learning Perspective: This consist of corporate culture attitude and training associated with the corporate self-development and individual both. Agencies of government often found itself unable to recruit more technical worker as well as presents a decline in existing worker training (Hilton and Platt, 2013).
- The management accounting techniques and tools like standard costing, marginal costing and absorption costing etc. will help in consolidation of matters of sustainable into various decisions of the company.
- The managers of the company will necessary to support the strategy and goals of sustainable with the strategies and policies to be developed.
- Helps in expansion of reporting strategy that will consolidate with problems of sustainability which in turn will permit in reporting of financial and non-financial data.
From this report, it has been concluded that the management accounting can gives the managers of the company important and vast information about the financial and also states it position in the market. For this
purpose, there are so many accounting systems and reporting are utilized. This report also indicates that the costing system methods are used to evaluate the net profit of the cited company like marginal & absorption costing. The proper planning techniques are used for budgets preparation and this budget also helps the company to achieve their targets on the time. Finally, it has been concluded that the management accounting is the heart of the company’s management by which the company achieve its goals and objectives.