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UNIT: 5 – Management Accounting, H/508/0489, Level 4, Regent College

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Introduction

Management accounting is the process which helps in identifying, analysing, recording as well as presenting the financial information as it can be used internally in the business entity. By using this information or data they can do proper planning, decision making and control which assist in doing the management. Managerial accounting helps in providing the proper information so that they can attain the useful data and by that staff members as well as managers can make appropriate decision (Baldvinsdottir, Mitchell and Nørreklit, 2010). Moreover, management accounting helps in measuring the performance so that company can maintain the position in the market place. The present report is based on Sollatek which is a manufacturer of valves and tubes. The main aim of the business entity is to provide the consumers as well as businesses those who are suffering from the power problems with the state of art products so that they control and regulate the incoming power to that they can ensure about the safety. In a below mentioned assignment, discussion based on different type of management accounting system. Along with this different methods which are used for the management accounting has to be discussed (Why lean accounting?, 2017). Moreover, advantages and disadvantages of the different type of planning tool also to be discussed.

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TASK 1

P1 Management accounting and different type of system

Management accounting is a system which helps the company in doing the proper and appropriate management by using the proper resources that how much needed and how they are using to produce the goods and services and sell it to the consumers. it is a provision of financial data which helps in providing the advice to the company that they have to use this in the firm as it aids in doing to developments of business(Bennett, Schaltegger and Zvezdov, 2013). Management accounting system refers to that system which helps in making the correct and appropriate decisions by making proper plans as well as measuring the performance of the company. Along with this it helps in providing the expertise so that they can make financial reporting so that they can make a control in formulating the strategies so that they can attain the success in the competitive market as well as succour in increasing the performance as well as productivity. Management accounting provides the data by doing management and on the basis of that they can make the correct decisions which assist in attaining the goals and objectives. Also improve the efficiency and effectiveness. Management accounting is a profession which involves partnering in the management decision making, devising planning as well as management system of performance. Along with this it helps in providing the expertise so that they can control the different business activities in the formulation and implementation of organisation strategy. The system of management accounting aid in reducing the cost which are associated with the production of the goods and services (Busco, and Scapens, 2011).

Cost accounting system:A cost book-keeping system (also called product costing system or costing system) is a structure used by entities to approximation the cost of their merchandise for profitability analysis, inventory valuation as well as cost control (Christ and Burritt, 2013). Estimating the precise cost of goods is critical for gainful operation.

Job costing system: A job costing system involves the process of accumulating information about the costs associated with a specific production or service job. This information may be required in order to submit the cost information to a customer under a contract where costs are reimbursed. The information is also useful for determining the accuracy of a company's estimating system, which should be able to quote prices that allow for a reasonable profit. The information can also be used to assign inventorial costs to manufactured goods (Cinquini and Tenucci,2010).

Inventory management system: Inventory management software is a computer-based system for tracking inventory levels, orders, sales and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials and other production-related documents.

Price optimisation system: Price optimization is the use of mathematical analysis by a company to determine how customers will respond to different prices for its products and services through different channels. It is also used to determine the prices that the company determines will best meet its objectives such as maximizing operating profit (Contrafatto and Burns, 2013).

P2 Different methods of management accounting report

Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy.

  • Financial planning:- The main objective of any business is to make there profit maximum, there objectives can be only fulfilled by sound financial planning, it is the best tool for the achieving of business objectives and goals(Dillard and Roslender, 2011).
  • Financial accounting information:- Sollatek should analysis there financial statements through the ration analysis, comparative statements, graph, trends, diagram and by fund flow, cash flow analysis. This method helps the management to know the growth rate of business concern.
  • Cost Accounting:- Cost data are been compared with the predetermined data and then the comparison is been done the management then decide the reasons responsible for the differences. It should include marginal costing and direct or incremental costing, standard costing should be in Sollatek to solve the problem in cost accounting (Fullerton, Kennedy and Widener, 2014).
  • Cash Flow Analysis:- the movement of the cash in Sollatek from the one period of time to the other can be analysed by this method.
  • Standard Costing:- The standard costing of Sollatek is been predetermined cost it can help in measuring the actual performance of the company.
  • Miscellaneous Tools:- Sollatek should include some accounting methods like integrated auditing, revaluation accounting, decision making accounting, managerial reporting, management informations. This is the methods or the topic which should be in miscellaneous tools (Håkansson, Kraus and Lind, 2010).
  • Decision making accounting:- the problems in Sollatek can be solved by the best alternative or the method with is been preferred, to select the alternatives the relevant cost is been compared.
  • Future informations/Ratio analysis:- It shows the way for the effective control over the business, in this method includes budget and budgeting information of future, in this Solletek has to forecast there business, the appraisal and evaluation also be there in this method (Herbert and Seal, 2012).
  • Statistical Techniques:- there many statistical techniques which are used to remove the management problems, methods are of least square, regression and quality control etc.
  • Revaluation Accounting:- in this method Sollatek has to revalue the fixed assets as per there revaluation accounting methods so that the capital of the company is been represented with the assets values (Hiebl, 2014).
  • Management Information System:- the flow of the communication within the Sollatek should be done to function there business effectively, the management of Sollatek should design the system so that every employee of the organisation can assess the information which is been design.
  • Management Reporting:- in Sollatek there should be an accountant who will be preparing the profit and loss account and the balance sheet and to summit it to the top management, the report can help in knowing the strength and the weakness of the organisation, it also helps the management in decision making(Jansen, 2011).
  • Historical cost Accounting:- the cost of the Sollatek are been recorded after it has been incurred, it helps to compare the predetermined cost to evaluate the performance.
  • Budgetary control:- This method is use to control the financial performance of the business concern, the business operation are been directed in a desired directions with are been set (Kaplan and Atkinson, 2015).
  • Job cost report: This report includes the summary of the job which includes summary of the company that what purchased by vendor. All the detail related to the jobs related cost which is incurred by each vendor and subtotalled by job.
  • Inventory management report: Companies in a product-oriented business usually struggle to manage inventory at optimum levels. There’s a constant tug-of-war going on between the need to have sufficient product to fulfil demand, and the desire to avoid the very costly pitfalls associated with overstocking.
  • Performance report: It is a report on the performance of something. They are routinely produced by government bodies which, being financed by public money, are required to show that the money was spent efficiently and usefully.
  • Variable analysis report: This report includes all type of variable and has to properly analyse so that they can not face any issue in attaining the goals and objectives.

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M1

There are different type of management accounting system which can be used by Sollatek so that they can attain the competitive advantage which helps in developing the cost allocation process by using the management function (Lee, 2011). These system helps in reducing the cost of the merchandise and services. Along with this it helps in improving the cash flow so that managers as well as employees helps in making the correct and relevant business decisions and they are in the favour of Sollatek so that they can attain their goals and objectives. Moreover, it assist in improving the productivity as well as proficiency.

D1

According to Luft and Shields, (2010), it has been observed that Sollatek is a manufacturing company and for that they have to use appropriate management accounting system as they helps in reducing the cost of the products and services. Management accounting succour in making the relevant decision by using the information and data. Further, management accounting helps in measuring the performance so that they can attain the goals and objectives. Management accounting helps in improving the cash flow of Sollatek. They have to make the proper accounting which helps in attaining the targets as well as reap the success in the competitive market.

TASK 2

P3 Income statement on the basis of different costing methods

There are different costing methods which helps in finding out the net profit. Two methods are:

Absorption costing: It is a method of calculating the cost of a merchandise as well as enterprise which was taken into account by using the direct as well as indirect expenses. It is a method which helps in calculating the cost of a product and all the expenses of Sollatek related to manufacturing of labour as well as cost of raw material (Lukka and Modell, 2010). In this direct cost of any product can be easily identified. But on the other side, direct cost can not be identified and calculated.

Income statement on the basis of Absorption costing method:

Selling Price

£35

Unit costs

 

Direct materials

£6

Direct Labour

£5

Variable Production overhead

£2

Variable sales overhead

£13

Budgeted production for the period is 600 units

 

Fixed cost for a month:

Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000

Administration Cost: In this budgeted cost is £800 and Actual cost is £700

Selling cost: In this budgeted cost is £400 and Actual cost is £60

Net profit using absorption costing

£

£

Sales

(-) Cost of Sales:

Opening stock

Manufacturing

Closing stock

(Under)/ Over absorbed fixed prod. O/h

Gross Profit

Less Expenses

Variable sales expenditure

Fixed administration expenses

Fixed selling expenditure

Over absorption

Net Profit

0

11200

(1600)

600

700

600

(100)

21000

(9600)

11400

(1800)

9600

Marginal costing: It is a change in the opportunity cost which assist in arising the quantity which is to be produced and that is incremented by one unit. This cost was put at each level of production which includes the additional cost and that is required and necessary to produce the next unit (Macintosh and Quattrone, 2010). There is a formula which aid in finding the marginal cost that is:

Marginal costing = Change in consumption/ Change in quantity of the product.

If marginal cost of any product is high then the situation for producing the merchandise is better for the business entity.

Income statement on the basis of Marginal costing method:

Net profit using marginal costing

£

£

Sales

Less Variable costs

Opening stock

Manufacturing

Closing stock

Contribution

Less Fixed costs

Variable Production expenses

Administration cost expenditure

Selling cost

 

Net Profit

 

 

0

9100

(1300)

 

 

600

2000

700

600

21000

 

 

 

(7800)

13200

 

 

 

 

3900

9300

M2

Sollatek have to use proper and relevant management functions and also to be use management techniques so that they can do effective operations as well as activities. In Sollatek, less than 50 staff members are working and turnover is also less that is £500,000 (Nandan, 2010). There are different instruments which they can use:

Cost volume profit analysis: This analysis is to be done by Sollatek and by this they can determine the changes in the cost as well as volume which is affected by the operating and new income. PV ration can be find out by using the formula which is total contribution divided by sales that is

= contribution /sales x 100

= 10800/21000 x 100

Absorption costing technique: By using this instrument, it has been interpreted that staff members having a over absorption of expenditure and they are related to fixed production that is 200 and gross profit is 9800. By this it has been identified that gross profit is affected by the over absorption of fixed expenses (Pipan and Czarniawska, 2010).

D2

Every company have to make their financial reports which assist in maintaining the different information or data. Along with this Sollatek have to present the information or data in a attractive way as it assist in making the correct decisions for doing the investments. Moreover, it provides the some description or overview of the financial position of Sollatek so that investors can find out the capabilities and on the basis of that they decide to do investment in the company or not (Quinn, 2011). According to the Marginal cost, net profit is 7500 along with the contribution which is 10800. Moreover, net profit by absorption costing is 6700. So, by this it can be analysed that by using both the methods of costing new profit is different. So, this aid the investor in making the correct decisions to do more investment.

TASK 3

P4 Advantages and Disadvantages of different type of planning tools for budgetary control

Budgetary control refers to that managers of Sollatek have to utilize the budget so that they can monitor as well as control the cost and operations in the given accounting period. Budgetary control succour the managers of the firm in setting the financial and performance goals by making the appropriate budgets (Renz, 2016). Along with this they have to compare the actual results as well as adjust the performance if there is necessary. Proper budgets helps the managers of Sollatek in managing as well as coordinating the resources. Along with this it helps in defining the standards which are needed in the control system. Moreover, it helps in providing the guidelines so that they can use proper resources and also fulfil the expectations of the consumers. It assist in evaluating the performance of the managers. They have to use proper and relevant approaches so that they can make the financial situation in a operational way. They have to attain the appropriate information in a effective manner which provide support to the manager in a planning and control procedure (Significance of Management Accounting Techniques in Decision-making: An Empirical Study on Manufacturing Organizations in Bangladesh, 2011) . There are different type of budgets which helps in doing planning for budgetary control.

Master Budget: It is a comprehensive projection which helps in managing the different activities so that they can conduct all the aspects of the business over budget period. It includes the summary of projected activity of cash budget, budgeted income statement and budgeted balance sheet.

Operational Budget: It covers the revenues and expenses so that they can do day to day activities of the company. Managers of Sollatek have to compare the results to make budgets by doing proper planning as well as adjusting for variations in revenue (Sánchez-Rodríguez and Spraakman, 2012).

Cash flow Budget: This budget helps in examining the cash inflow and outflow on the daily basis. They have to maintain the records for the expenses and sales so that employees can not face any problem in maintaining cash.

Advantages and Disadvantages of different type of planning tools are:

Advantages:

  • It provide the support to management accounting to manage all the strategies for the operational activities regarding future (Setthasakko, 2010).
  • It assist in doing the proper and effective communication related to facts and figures which having a affect in the operations of Sollatek.
  • It improves the performance of the employees (Shah, Malik and Malik, 2011).
  • By using all the appropriate planning tools employees of Sollatek attain the actual and relevant information or data and by that they can attain the targets.

Disadvantages:

  • These planning tools provides the pressure on the employees of Sollatek that as these budgets provide the targets and they have to fulfil them on a specified time (Talha, Raja and Seetharaman, 2010).
  • When the managers allocate the resources then sometime it creates a conflict among the different departments.
  • If targets of the company which are pre-decided and they are not achieved then it create a dispute among employees (Vaivio and Sirén, 2010).
  • All the budgets which includes the high cost and they are prepared by the managers of Sollatek.

M3

There are different tools and techniques which assist in management accounting and by that administrative bodies solve the problems which are generated and affect the daily operations of Sollatek (van der Meer-Kooistra and Vosselman, 2012). Some information or data based on financial accounting so it becomes easy for the employees in managing the data which includes the ratio analysis, cash flow, fund flow etc. Some are based on cost accounting as it assist in reducing and managing the cost of the product. It includes marginal cost, cost variance analysis etc. Some are based on the information which are helpful for Sollatek in future. It includes the monetary control, budgets along with the estimation.

D3

Sollatek is the company which having a employees less than 50 and the turnover of the business entity is £500,000. For doing the proper activities, the manager have to manage and record all the information or data in a proper and effective way (Van Helden and et. al., 2010) . For recording the data they can use proper financial technique which includes ratio analysis, comparison on the fund flow analysis etc. When the company manage the cost of the product which aid in generating maximum revenue. The employees of Sollatek have to use appropriate management instruments so that they can not face any obstacles and by that they can attain the goals and objectives.

P5 Comparison of two organisation of their management accounting system so that they respond to the financial problems

The employees of Sollatek have to use appropriate management accounting system so that they can collect the correct information and use them which helps in attaining the goals and objectives and by that they can improve the performance as well as productivity. For attaining the targets, Sollatek managers have to make correct decisions by using appropriate tools and techniques (Ward, 2012). They have to make the provisions against these uncertainties between two companies which are using different tools of management accounting so that they can respond to financial problem are:

  • Sollatek have to use proper tool for making plans for budgetary control for the future. They have to make proper investments and they are required by them in the particular project for future. On the other hand, vectair holdings is also using the specific budgets so that they have to decide that they have to do investment so that they get proper return(Weißenberger and Angelkort, 2011).
  • Sollatek have to do appropriate variance analysis by doing the quantitative investigation of the difference between the actual as well as planned behaviour(Cost Volume Profit Analysis, 2013). Where as Vectair holdings have to use distinct tools of management accounting so that they can attain the best outcomes and they have to use appropriate financial resources which assist in controlling the cost of the products so that they can improve the productivity and proficiency.
  • The staff members of Sollatek can use capital budgeting technique which helps in maintaining the capital structure and by that they can get the better returns without any obligations against any technique which is related to finance(Baldvinsdottir, Mitchell and Nørreklit, 2010).

A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organization has to use KPIs so that they can evaluate their success at reaching targets.

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M4

The employees of Sollatek have to use proper and appropriate instruments and tools and techniques so that they can resolve the financial problems by utilising the appropriate resources which assist in attaining the good results. Managers have to do proper research which assist in identifying the elements and by that the strategies should be affected (Bennett, Schaltegger and Zvezdov, 2013). For attaining the sustainable development they have to make correct and relevant decisions by allocating the funds into the distinct activities of the business on the basis of requirements. In attaining or reaping the goals and objectives, sustainable development is necessary.

Conclusion

From the above analysis, it has been observed or inferred that the staff members of Sollatek have to use appropriate management accounting system so that they can manage all the records of information and data. For analysing the net profit of Sollatek they can use absorption or marginal costing methods which helps in attaining the goals and objectives. Sollatek which is a small and medium enterprise which having a less than 50 employees and a turnover of £500000. Thus, they have to manage their financial resources which helps in attaining the best results. Moreover, for become successful in the market, the employees of the business entity have to use appropriate tools and techniques so that they can accomplish their goals and objectives

References

  • Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory and practice in management accounting. Management Accounting Research. 21(2). pp.79-82.
  • Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in management accounting for sustainability. (pp. 1-56). London: ICAEW.
  • Busco, C. and Scapens, R.W., 2011. Management accounting systems and organisational culture: Interpreting their linkages and processes of change. Qualitative Research in Accounting & Management. 8(4). pp.320-357.
  • Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the significance of contingent variables for adoption. Journal of Cleaner Production. 41.pp.163-173.
  • Cinquini, L. and Tenucci, A., 2010. Strategic management accounting and business strategy: a loose coupling?. Journal of Accounting & organizational change. 6(2). pp.228-259.
  • Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change and management accounting: A processual view. Management Accounting Research. 24(4). pp.349-365.
  • Dillard, J. and Roslender, R., 2011. Taking pluralism seriously: embedded moralities in management accounting and control systems. Critical Perspectives on Accounting. 22(2). pp.135-147.
  • Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management. 32(7). pp.414-428.
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