Management accounting is a useful approach that is used to make cost control decisions by the business firms.. Any organization can increase its efficiency by applying management accounting tools. Present report is related to understanding different methodologies to be implemented for systematic management of Diverse Ltd. It is one of the small size dance academies of UK that was found in the year 2007. Therefore, significance of management accounting concept and its different components are to be obtained. Through this assignment, various costing techniques for price determination and analysis of several financial statements including ratio analysis will be expressed. Apart from this, several management accounting tools for decision-making and forecasting to implement further business operations are recognized. Hence, students can understand different aspects and importance of management accounting for the enlargement and enhancing service qualities of small business unit.
P1) Management accounting and its essential requirements of different types of systems
Management accounting is the dsicuipline under which different calculations related to cost are performed. In this system, management accountant of Diverse Ltd makes decision to enlarge entity and cultivating effective growth by analyzing business performance. Including this, different business operations such as cost and inventory management as well performance of organization is understood through applying accounting tools (Tucker, 2016). Moreover, optimum utilization of resources and proper financial management of firm is gained in respect of adequate decision-making process. Management accountant of entity identify overall business activities of small scale enterprise. As much further prepares strategy for implementing action plan in respect to improving way in which these activities are performed to reduce cost. It is valuable for management of entire operations as similar beneficial for creating positive environment of firm by preparing budget. Hence, it is determined that management accounting is crucial for the expansion of small business organization and increasing its efficiency for carrying on entity effectively.
Essential requirements of several kinds of management accounting systems
Management accounting is of different aspects and tools for implementing business activities at a high level. In this process, management accountant of Diverse Ltd. analyses different costing for setting a fair price of goods and services. Some of the important requirements of management accounting systems are to be described as below:-
Job order costing: - Under this costing, manufacturing and cost incurred on starting up of project is obtained. It includes expenses incurred for purchasing raw materials and in respect to specific batch or product line. Therefore, job order costing is valuable for evaluating pricing and different aspects of project accomplishment. However, expenses incurred on business operations and pricing for manufacturing process is determined through this process. On the basis of this costing, further price determination is created that put a huge impact on the market value of organization and its products (Kaplan and Atkinson, 2015). Thus, costing is appropriate for setting effective price and proceeding to production and final costing.
Processing costing: - In the process costing cost that is incurred in each and every phase of production is computed. all costs of different production stages are summed up to compute overall cost of production. In this process, pricing is determined for processing different stages of project planning. However, expenses incurred over various business activities are obtained through processing costing. It leads to gain price determination for expansion and proper management of organization effectively. In accordance with this, processing costing is considered as the basis for effective price determination. Hence, processing costing is interrelated with production and distribution of goods and services provided by the organization that put a direct impact on productivity and profitability of entity (Ibrahim and Yaya, 2016).
Finished cost costing: - In this process, price determination for production and supplement of product is determined. As per the same, effective costing is evaluated. Under this system, different costing and prices are included such as expenses incurred on advertisement and launching goods in the market (Hope, 2016). Therefore, management accountant of small business unit prepares record that includes all expenses and different tools used for launching and developing products in the market. Hence, finished goods costing is essential for increasing business and competitive strategies. Therefore, effective production and distribution of organization is made efficiently for systematic balance and management of all business operations. In addition to this, expenses incurred for setting up and developing products in the market are reported in this form that is helpful for preparing income statement. Therefore, balance between production and distribution of Diverse Ltd is obtained through this process.
Thus, above mentioned management accounting systems are beneficial to gain optimum allocation of resources as well as cost effectiveness. In this regard, different ideas are generated for systematic management of business operations at high level (Fullerton, Kennedy and Widener, 2013). Hence, effective costing is crucial for the expansion of small business unit and increasing high quality services of organization at a large scale.
P2) Methods used for management accounting reporting for Diverse Ltd.
Management accountant of Diverse Ltd recognizes all business operations and further, maintains records for preparing reports in respect to performance of entity. However, different management accounting tools are applied by the organization to achieve effectiveness can express as follows:-
Financial statements' analysis: - For this statement analysis, management accountant of organization recognizes income statement and costing for price determination. However, financial position of entity is obtained. Including this, by recognizing the income statement, further investment and fund allocation tools are determined to gain effectiveness of organization. Therefore, financial statements' analysis is useful for proper costing and optimum allocation of resources and fund effectively.
Budgeting: - It is one of the most appropriate management accounting tools that is useful for proper management of business entity Under this system, on the basis of current business performance, strategies are prepared for maintaining balance between production and distribution of products, reducing uncertain changes occur at workplace as well as adequate allocation of funds and resources (John, Etim and Ime, 2015). In this way, strategic and risk management is presented that is useful for carrying on Diverse Ltd business operations systematically. However, excess and wastage of goods are also reduced through preparing production budget to control over excess of production. Along with this, management accountant of small business unit prepares an agenda for operating business activities and enhancing quality services of organization to gain maximum level of customer satisfaction.
Ratio analysis: - Ratio analysis is the method that is used to measure company performance for specific time period. Through this process, different elements of Diverse Ltd. are obtained including inventory, costing and liquidity. Therefore, by comparing all these elements with last years' activities as well contrasting business operations of entity with its competitive creates sense for expansion of firm. Including this, ratio analysis is the qualitative term for recognizing all aspects of organization and development of small sized enterprise effectively (Otto and et.al., 2013). In this regard, different methods are utilized for implementing strategies regarding effectiveness of business. Hence, by determining the turnover, liquidity and solvency ratios, economic profile of entity is obtained that is helpful for improving various operations of enterprise to enlargement.
P3) Costing techniques and its differences for preparing income statement
Costing is term of calculating incurred expenses and income earned by organization. Through costing, management accountant of Diverse Ltd analysis all factors and elements of business organization as per which prices are determined for production of goods. In accordance to this, effective income statement is prepared that is useful for presenting financial position of entity. Therefore, costing is a process for evaluating price regarding business operations and performance of organization in monetary aspects. Therefore, different costing techniques can be described as below:-
Marginal costing:- Under marginal costing, after evaluating gross profit, net profit is measured in which fixed assets are not included. In this process, costing is benefited for making decisions for short time period. In accordance to this, management accountant of Diverse Ltd obtains costing to prepare income statement (Chenhall and Moers, 2015). However, different aspects are presented for investment and further business operations. Thus, marginal costing is related to setting price of products for production and distribution system.
Interpretation:- There is expense incurred on business operations is 6600 and gained income is 21000. Therefore, gross profit is evaluated by subtracting revenue to expenditure is 14400. It presents that organization has gained proper profit and analyses that organization can increase its earning capacity. Moreover, for determining net profit, only variable expenses are deducted with gross profit that is 12600. Thus, through marginal costing, profit is obtained efficiently to enhance profitability ratio of organization.
Absorption costing:- Under this costing system, it is believed that fixed expenses should be added to variable to determine total cost of product. In this regard, while evaluating net profit, variable expenses are added to fixed that is useful for further implementation of business organization. It is beneficial for long term planning and decision-making process to increase efficiency of organization (Christ and Burritt, 2013). However, absorption costing is useful for determining accurate pricing to generate different ideas for further business operations.
Interpretation:- Through this data interpretation, it is determined that gross profit of organization is 14400 that is effective for presenting favorable earning capacity of entity. Further for determining net profit, variable and fixed expenses are added that are 1800 and 3300 respectively. Thus, overall expenses are evaluated 5100. In this regard, net profit is measured by subtracting gross profit to total expenses that is obtained as 9300. Hence, net profit margin through absorption costing is beneficial for long term planning that is useful for further business operations.
Thus, under marginal costing process, total cost is considered as variable cost of products while absorption costing is related to addition of variable and fixed costs to determine total price of products. It is comprised that marginal is benefited for achieving short term goals while absorption is useful for long time period that is helpful for making place in market for long periodicity. Hence, proper idea is generated for investment and systematic funding for allocation of resources systematically. It is interrelated wit overall business operations for production and supplement of goods and services (De and et.al., 2014). Hence, various factors and decision-making tool is processed for expansion of small business entity.
P4) Advantages and limitations of budgetary control
Budgeting is an approach for forecasting and decision-making process for expansion of Diverse Ltd. It includes different aspects related to reducing problems occur at workplace and increasing its efficiency. In addition to this, proper management of business operations is obtained through this technique regarding effectiveness of entity. Under this process, management accountant of organization recognizes all business activities as well presents various strategies for enhancing service qualities of firm (Fullerton, Kennedy and Widener, 2013). In this regard, different merits and criticism of budgetary tools can be described as below:-
Characteristics of budgeting
Management accounting tool as budgeting is beneficial for forecasting and making decisions related to effectiveness of organization. In accordance to this, various tools and techniques are obtained for enlargement of small business unit. Different advantages of budgeting can be expressed as:-
Analysis actual business performance:- Under budgeting process, management accountant of organization recognizes business performance including financial and other operations. Therefore, recorded data are analyzed through this system to implement positive changes. Including this, production and distribution system related to business activities are obtained that present business and competitive strategies effectively. Moreover, different costing and price determination methods are generated for increasing efficiency of entity at high level (Grabner and Moers, 2013). In this regard, market value of firm and customer satisfaction level is determined through this process. Thus, it is determined that budgeting is useful technique for forecasting and decision-making related to further business operations. In addition to this, different ideas are generated for implementation of small business unit as well creating its good reputation in market for long term sustainability.
Decision-making tool:- Budgeting is considered as decision-making tool for implementing strategies related to business effectiveness. In addition to this, for this planning process, management accountant of organization makes decision as per current performance. Including this several strategies are prepared for implementation in further years and making its effective position in market at high level. However, management accounting tool as budgeting is essential for decision-making process and expansion of business unit in next years (Heizer and Barry, 2013). Moreover, decisions are made by management accountant for reducing changes occur at workplace that is useful for creating positive environment of entity to increase its efficiency for facing competition and making place in market for long term period.
Monitoring over entire business activities:- Through budgeting tool, excess and wastage of products are get managed effectively. In this process, management accountant of small scale enterprise analysis production and distribution system of products that is useful for systematic management of all business operations (Hope, 2016). However, proper balance between supplement and production of goods is maintained through implementing strategies. It is useful to gain optimum allocation of resources that impacts on productivity of entity at high level. It influences business and competitive strategies to make position in market and maintaining customer satisfaction for demand of products at large scale. Apart from this, it is beneficial for enlargement of entity and increasing efficiency of organization efficiently.
Limitations of budgeting
It is risky for obtaining accurate market research and analyzing business operations more specifically. In this regard, accepting challenge for forecasting and making decisions related to further business operations is difficult that impacts on business organization's effectiveness. Including this, occurrence of uncertain changes at workplace disturbs environment of entity. However, budgeting planning procedure is not followed efficiently. In accordance to this, it is recognized that do not follow on prepared strategies in decided time remains unable to reach out set target. In addition to this, preparation of budget is quite costly that is not affordable for small business entity. It impacts on financial position of organization for enlargement and increasing service qualities of firm to face competition (Ibrahim and Yaya, 2016). Moreover, wrong prediction over current business performance disturbs all planning procedure and decision-making tool to implemented for further business operations. Hence, it is required for management accountant of Diverse ltd to analyze all business operations effectively that will be appropriate for further operations. Including this, systematic approach for expansion of small business entity is essential to make planning procedures more efficiently. In addition to this, it is crucial for making decisions adequately to expand business through effective strategies to increase efficiency of entity. It will be able to create positive atmosphere of company. Thus, it is necessary for organization to use budgeting technique effectively for enlargement of entity systematically.
P5) Different management accounting systems to solving out financial problems of Diverse Ltd
There are several accounting systems that affect o business performance of Diverse Ltd (Diverse Ltd, 2016). For example; cost, financial, inventory and different accounting tools. In this regard, different ideas are generated for expansion and increasing efficiency of firm (Ismail and King, 2014). Including this, systematic management of all business operations can be managed through this systems. Therefore, some of the main management accounting systems can be described as below:
Through costing and analyzing all financial statements such as income and cash flow is beneficial for craeting proper balance production and distribution of products. Therefore, management accountant of organization focuses on economic structure as well makes decision related to increasing earning capacity of firm (John, Etim and Ime, 2015). In accordance to this, several tools and techniques are obtained for systematic financial management and fund allocation that impacts on other factors of entity. In addition to this, management accounting tool as budgeting and ratio analysis is useful for presenting actual monetary performance of entity that generates various ideas for further business operations. However, systematic financial management of organization interrelated with growth of entity entirely. It influences business and competitive strategies of firm to gain its effective position in market. In addition to this, ideas are generated for investment and allocating fund from different sectors are useful for enlargement of entity also impacts on overall business performance for long term sustainability of firm in market.
Adequate price for increasing in demand for production and distribution is determined through this process. Therefore, management accounting tool as cost effectiveness is valuable for effective price determination and making decisions related to costing. For systematic cost effectiveness, management accountant of small business enterprise sets price by concentrating on overall determinants of company's factors (Kaplan and Atkinson, 2015). In accordance to this, cost effectiveness is termed for affordable pricing regarding increasing in market demand and enhancing productivity of firm. Under cost management approach, management accountant of organization evaluates costing in different forms such as marginal and absorption costing for preparing income statement to present financial performance of organization. In this regard, price determination is obtained effectively that impacts on business and competitive strategies of firm.
Under this management accounting system, inventories are managed effectively for systematic production and distribution of products. In this way, varieties of tools and techniques are applied for keeping goods safely and providing services to customers effectively (Novas, Alves and Sousa, 2016). In addition to this, management accountant of small business enterprise uses different approaches for enlargement of entity and proper management of goods. However, it impacts on production and distribution of products related to business performance. Therefore, inventories are managed through using management accounting tool that affects business performance at high level to increase efficiency of entity. Including this, it is helpful for systematic utilization of resources and further various decisions are made regarding this business approach. Thus, through management accounting tool, proper inventories and goods of entity can be managed efficiently to increasing efficiency of organization at high level (Otto and et.al., 2013). It is interrelated with other business operations to make place in market and attracting customers at large scale.
Management accounting tool is essential for gaining effective performance of business organization and employees. Under this tool, various tools and techniques are utilized for getting workers' good contribution in team work and increasing their interest towards performing job (Quattrone and Paolo, 2016). In this regard, business performance including different elements as financial, production and costing are concentrated for expansion of entity as well remains valuable for proper balance of maintaining its good reputation in market. Including this, effective business performance is interrelated with entire development of activities. In accordance to this, varieties of ideas are generated for increasing efficiency of organization as well gaining effective role model of workers to create positive environment of firm effectively. Thus, management accounting is beneficial for overall expansion of entity and increasing strength for business and competitive strategies at high level.
Thus, management accounting systems are useful for systematic management of all business activities. In accordance to this, different methods are utilized to gain effectiveness of organization (Quattrone and Paolo, 2016). Including this, developing business performance and enhancing service qualities of firm can be determined effectively. However, management accounting as decision-making tool is useful for expansion of small business and increasing its qualitative services that is useful for optimum utilization of resources and funds at high level. Including this, it is beneficial for creating positive environment of organization to increase its business and competitive strategies at large scale. In addition to this, it is helpful for encouraging employees for effective contribution at workplace that impacts on customer dealing services of entity. However, various tools and different ideas are generated for implementation of small scale enterprise to increase efficiency of firm effectively.
The report is concluded that management accounting is significant for entire development of business organization. Different management accounting tools and systems are determined for enlargement of Diverse Ltd systematically. In addition to this, approaches for determining business performance is obtained through this study. However, importance of management accounting is effectiveness of organization is considered that impacts on overall performance of entity. Moreover, decision-making tools and forecasting tools including budgeting and income statement are determined. Along with this, costing techniques and differences between them are obtained through this assignment to gain cost effectiveness. In accordance to this, advantages and limitations of budgeting is considered for effective strategic and risk management of firm. Apart form this, several kinds of management accounting tools for entire growth of organization is obtained through this tool to make position in market. However, different methods are understood for systematic management of all business operations effectively to increase business and competitive strategies of organization for long term sustainability in market.
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