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The Process of analysing, interpreting and then processing is called Management Accounting. This report comprises of various different criteria and terms related to management accounting. It contains the different methods and types of Management accounting systems. The various methods which are used in the reporting process are also discussed in the report. It also includes the various methods of Management Accounting which helps the management to grow and sustain in the business for the long term. The report also emphasis on the various cost that is being incurred on the activities and which are of utmost importance. Management Accounting affecting the financial performance is discussed later in this report containing the various measures which the company can take to increase its efficiency. The Absorption costing and marginal costing both are also being analysed in this report and both of them are compared and the best option is then taken into consideration afterwards. The report highlights how management reporting is integrated with management accounting and how it is beneficial for the management or the organisation as a whole. Various advantages of budgetary control and disadvantages of budgetary control are studied here.
Task 1
Management Accounting:
It is a term that is combined of two terms which are in the word itself that are “Management and Accounting”. It is a way through the top management does its work efficiently and effectively. In other words it can be said that it is the study of managerial aspect of accounting. It mainly concentrates on the techniques to redesign the policies which are effective for the top management to run the business( Busco and Scapens,2011). It includes various things such as formation of policies, control of executed methods and appreciation of this effectiveness.
The essential requirements of different types of management accounting systems are:
Different methods used for management accounting reporting are:
The benefits of management accounting systems are very crucial to understand which certainly includes these:
Management accounting systems and management accounting reporting is integrated within organizational processes:
Budgetarycontrol is the process of identifying the differences or the variances among the actual budget and the expected budget which helps the management to take the corrective decisions. The planning tools also help in keeping an eye on the organizational achievements of goals and activities which all are inclined towards it. ( Bobryshev et al, 2015).
Various advantages of different types of planning tools used for budgetarycontrol are:
Various disadvantages of types of planning tools used for budgetarycontrol are:
There are different planning tools which help in application for preparing budgets and forecasts.
Planning tools for accounting respond appropriately to solving financial problems to lead organizations to sustainable success
Financial analysis is the most important tool when it comes to solving problems and investment purpose. These include various things such as different types of ratios which help in identifying and making plans accordingly in the future ahead. These tools help the business in the decision making process and can improve the financial performance. Planning tools also help the organization in providing solutions to the financial problems of the business unit in different functions of the business and making these functions of the business more future oriented.(Moynihan et al, 2010). Some of them are being discussed here:
Management accounting systems to respond to financial problems in different Organizations
Today in this dynamic era all the companies face dynamic changes and face difficulties in formulating various plans, strategies etc.There are so many challenges related to the macro economic factors such as economical, political, social etc and different organizations work differently interpreting these. It includes modifying the business outlay for analyzing and sustainability, and then giving feedback on the effect of social and environmental aspects on organization performance.
There are various Financial Problems which affect the functioning and the organizations take various meas25ures to resolve these problems(Soudani,2012).
Like in the organization Called HSBCthe main problem was to tackle the amount of cash inflows and the cash outflows, so they use various different reporting system for all the daily activities like its subsidiaries, units, centers of responsibility, KPIs, management information blocks, contractors and IT support systems. There with the help of this they manage the amount of cash in the organization. Here the company has a separate accounting department which tries to formulate various different activities in accordance with the reports also. This organization is known for its smooth functioning and no glitches so to ensure the same these systems are used.
Just like the above company another company which is Unilever also makes use of the Management Accounting Systems because here also it face a lot of difficulty such as here the inventory is also managed by the systems. The company also uses activity based accounting to respond to financial problems because it is the easiest form of the system. It makes use of the strategic planning and price optimization principle to ensure smooth functioning in the financial department leading to the organization as the whole. It makes use of the budget reports so that it can easily target the profit for the next quarter or the financial year. Apart from all these it has also focus on the cost accounting system because the cost will ultimately define the profit afterwards. These systems help the organizations to identify the various problems related to planning, organizing, etc and then taking corrective measures in the future and strengthen its performance. All these help the company in strategic planning and making corrective decisions for all the projects and upcoming needs( Alawattage and Wickramasinghe, 2012).
Responding to financial problems, management accounting can lead organizations to sustainable success as
It is rightly said that all organizations do not succeed in the long run and gain sustainability unless they adapt their different strategies, business outlay, and organizational practices according to the environment. There are several ways through which the organization can do so:
Task 2
Cost Calculation using Two Different Methods:
Marginal Costing Method |
||
Cost of 5000 chairs manufactured |
Calculation |
Cost Per Unit |
Direct Material |
> |
30 |
Direct Labor |
> |
40 |
Marginal cost per unit |
70 |
Absorption Costing Method |
||
Cost of 5000 chairs manufactured |
Calculation |
Cost Per Unit |
Direct Material |
> |
30 |
Direct Labour |
> |
40 |
Fixed Production Overheads |
100000 |
20 |
Absorption cost per unit |
90 |
Marginal Costing is a process where all the variable costs are taken into consideration and is determined as the product cost. Absorption Costing is a type where not only the variable costs are taken into account but also fixed costs also are. Here, it has been clearly seen that costs has been determined to figure out which method will suit the organization more. In absorption costing it has been clearly observed that the cost incurred is somewhat high than the marginal costing but it gives a fair and true idea about the business or the enterprise.
With the help of these it is easy to know which method the company will use in maintain the books of accounts. The case here also the variable cost which is the marginal one is less reliable as it keeps on changing( Nawaz, 2013).
There are many management accounting techniques which help the business to grow and prosper in the future. The income statement has been prepared below using absorption and marginal costing. Margin Analysis, Trend Analysis, Inventory Valuation, Capital Budgeting al comes under this. These are the techniques which are used by the management in every aspect and then all of them are critically evaluated. The financial documents such as Income Statement, Balance Sheet, Cash Flow Statement and all the reports are prepared with the data and studied to run efficiently. The two types of costing are studied by which we can see that which method to use for the business.
Income Statement using Absorption Costing |
|||
Qty |
Unit Price |
Total |
|
Sales |
4500 |
110 |
495000 |
(Marginal Cost of Goods) |
|||
Direct Material |
5000 |
30 |
150000 |
Direct Labor |
5000 |
40 |
200000 |
Fixed Overhead |
100000 |
||
Net Contribution |
45000 |
||
Closing Stock |
4500 |
||
Gross Profit |
40500 |
Income Statement using Marginal Costing |
|||
Qty |
Unit Price |
Total |
|
Sales |
4500 |
110 |
495000 |
Direct Material |
5000 |
30 |
150000 |
Direct Labor |
5000 |
40 |
200000 |
Contribution |
145000 |
||
Closing Stock |
14500 |
||
130500 |
|||
Fixed Overhead |
100000 |
||
Gross Profit |
30500 |
The income Statement comprises of the most importantly Revenue which is the foremost thing in any organization and then deducting all the variable and fixed costs giving the value of contribution It has been clearly seen while analyzing the gross profit when using Absorption Costing Methods is more than the profit when using the Marginal Costing Method. The difference among the profit is somewhat around 10000. The main difference in both the methods of calculation of profit is the amount of Closing Stock.
The fixed overhead plays a vital role here because that will tell the exact contribution which will tell the Gross Profit and the net profit. The profit will determine the effectiveness and the company will obviously choose that method which will yield higher profitability(Drury, 2018).
Other financial reports need to be critically analyzed after determining the cost so that the planned activities are in the direction of the achievement of the goals. The planning tools also help in analyzing various aspects such as these reports tell the financial performance and growth in this. The techniques which are used in the management accounting are blended in the books of accounts to give a fair picture of the business. The variable costs which keep on fluctuating in the business and which is taken into account in marginal costing more importantly keeps the costs changing. A cost which changes the profit has been in both the methods of accounting but in Marginal Costing it changes the Gross Profit Value. The particular format has been taken and then calculated both the costs and Gross Profit. These facilitate the decision making process in the organization because the financial analyst now have valid points to approve or reject a method. Here, in this scenario also it has been clearly observed that this only help in taking the effective decisions for the company. In today’s era there are many complex activities which needs the planning tools need to be taken care(Collis et al, 2017).
CONCLUSION
The critical Evaluation of the report tells us first that what management accounting is. The various methods which are involved in the Management Accounting are studied in the report thereafter. All this is included in the first phase of the report above. Later both the costs are discussed and the best alternative is taken in the second phase. The costs are analyzed and then the best decision has been taken by analyzing the costs and which is the most suitable one. The Management accounting planning tools has also been studied above and the financial problems which have direct impact by these are also studied. Different Organizations have different financial problems which need to be solved. This report has also put the various tools to lead the organizations for sustainable development in the future. It also has shown the various methods and benefits of management accounting thereafter. The management techniques which help in decision making process are also studied above. All this gives a fair idea what all essentials are there for an organization to run smoothly and efficiently with these methods and tools. The report has also shown budgetary control and how these budgets help in the management process.
References
Busco, C. and Scapens, R.W., 2011. Management accounting systems and organisational culture. Qualitative Research in Accounting & Management.
Li, X., Sawhney, R., Arendt, E.J. and Ramasamy, K., 2012. A comparative analysis of management accounting systems’ impact on lean implementation. International Journal of Technology Management, 57(1/2/3), pp.33-48.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237-248.
Bernardo, M., Simon, A., Tarí, J.J. and Molina-Azorín, J.F., 2015. Benefits of management systems integration: a literature review. Journal of Cleaner Production, 94, pp.260-267.
Bobryshev, A.N., Yakovenko, V.S., Tunin, S.A., Germanova, V.S. and Glushko, A.Y., 2015. The concept of management accounting in crisis conditions. J. Advanced Res. L. & Econ., 6, p.520.
Nawaz, M., 2013. An Insight Into the Two Costing Technique: Absorption Costing and Marginal Costing. BRAND. Broad Research in Accounting, Negotiation, and Distribution, 4(1), pp.48-61.
Soudani, S.N., 2012. The usefulness of an accounting information system for effective organizational performance. International Journal of Economics and Finance, 4(5), pp.136-145.
Alawattage, C. and Wickramasinghe, D., 2012. Management accounting change: approaches and perspectives. Routledge.
Drury, C., 2018. Cost and management accounting. Cengage Learning.
Collis, J., Hussey, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International Higher Education.
Hoque, F., Walsh, L., Mirakaj, D. and Bruckner, J., 2011. The power of convergence: linking business strategies and technology decisions to create sustainable success. Amacom.
Laszlo, A., Laszlo, K.C. and Dunsky, H., 2010. Redefining success: Designing systemic sustainable strategies. Systems Research and Behavioral Science, 27(1), pp.3-21.
Moynihan, D.P. and Andrews, M., 2010. Budgets and financial management. Public management and performance: Research directions, pp.60-88.
Bragg, S.M., 2012. Financial analysis: a controller's guide. John Wiley & Sons.
Shim, J.K., Siegel, J.G. and Shim, A.I., 2011. Budgeting basics and beyond (Vol. 574). John Wiley & Sons.
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