Management accounting is that which does required in every field and this concept is such which do help in defining the financial information that make management of firm to produce an effective decision and strategy for company, and it also maintain the day to day transaction in better way. Even though entity also uses advanced technology so that they can develop there solution in proper way and thus it can also lead to have an improvement in business too (Garrison and et. al., 2010). Moreover, dividing the finance can make company to reduce the wastage of resources in great way. The report is based on Tech UK limited which is a seller of mobile phones, special charger and gadgets too etc. Assignment will include the difference in between the management and financial accounting and its importance with different management system. Although various accounting report and its importance too, absorption and marginal costing etc. apart from all budget with its advantage and disadvantage and importance as well.
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P1 Essential requirement of management accounting and its system.
a.) Difference in between the management accounting and financial accounting:
Management accounting is that which do help in making an effective decision and strategies for the company.
Financial accounting is such which also classify, analyse and record different thing and it also summarize financial affairs of the entity in great way.
Management Accounting is that which also make management to have an meaningful steps and the strategies too.
Financial accounting is that which show forth accuracy with fair also having an picture of financial affairs too.
Management accounting is such which do take help from the financial accounting to make some of the right decisions in great way.
Financial accounting does net get depended on management accounting.
Management accounting is that which doesn't follow the rules in proper way.
Financial accounting is such which do should be prepared as per the GAAP and IFRS.
b.) Moreover, there is an importance of management accounting for making an decision for the department managers and some of point of importance for the company are as:
- Basically, it is such which do help in identifying the key performance metrics for the important department too.
- Moreover, Collecting data and comparing it and make report in between the indicators of current performance with expectations of business.
- Management accounting is such that also analyse the variation and also look forward to provide the better solution and corrective measures in effective way.
- Even though with the help of management accounting the advanced tools and techniques such as key performance indicators, balance scorecard and having an scenario planning with the management information system too.
c.) The various cost accounting system is such which do include the different costs and some of those are as:
- Actual cost: Actual cost is that which leads to actual expenditure made in acquiring asset, which do include the supplier invoice expense addition cost of delivery and test to asset. Therefore, this is that cost of asset which is recorded in financial statement as fixed asset in great way (Fullerton, Kennedy and Widener, 2014).
- Normal cost: Normal cost is that which is used to provide some value to manufactured product with the actual cost, as actual direct labour cost and also manufacture the overhead based predetermined manufacturing overhead rate as well. Moreover, these cost is referred to product cost and used for cost of goods sold.
- Standard costing: It is such which has an substituting the cost for the actual one in accounting record and periodically having variance that show the difference in between the expected and actual cost as well. This is something which has an simplified alternative system as FIFO and LIFO method, in which large number of cost information is there which maintain the items.
d.) Inventory management system:
Inventory management is such which is considered as the process of moving parts and product out of the company's location as well. Firm is such which also manages the inventory on the daily basis and having an place with new orders from product and deliver commodities to ultimate customer (Dillard and Roslender, 2011). Even though it is required to determine stock of product as it does help in meeting the need and wants of customer that can be satisfied in proper way.
e.) Job Costing system:
It that method of accounting system which do determine the cost that normally occur in developing the jobs from which the firm can earn higher income and revenue in great way. Therefore, for such situation various needs and thing are there that help in gathering information which is related to expenses with revenues of same too.
P2 Financial information.
a.) Types of management accounting report:
Different method are there which can be used in producing the managerial reporting in better way. Report are such which include like Budget, job cost etc. It also help in gathering information related to financial and non-financial data that may help in monitoring performance of firm. Some of the reporting are as:
- Budget: It is that which help in preparing the different budget of firm which do include expenses that is incurred with in earlier years as well. Basically, budget is that which help in execution of performance of the department (Cinquini and Tenucci, 2010). Budget report is such that mainly control the expenses which do sometime occur in between process and it also help for looking forward to reduce some of operational cost and such it can make themselves to attain the goals.
- Inventory: It is that which consider reports of inventory and also having an production product of Zylla firm in great way. Generally, report is such which does help management of raw material and somewhere it also help in finished goods. Generally, it help in preparing product according to the requirement of market demand and having an allocation with different resources effectively in proper way. It is that which include the wastage of labour cost and overhead cost etc.
- Account receivable: Management accounting is such that help in monitoring the debtors in great way. Moreover, it is being considered as the effective tool that is used by the firm and also lead to manage the cash flow in effective way so that decision can be made and regarding to this credit time is there of customer in great way. It is such which does help to keep in mind about the various number of debtors and also create proper and effective policies to such only in great way.
- Job cost: Report is that which is somewhere prepared by management and it is required to determine the various expenses that is going to incur while having an implementation of project as well. It is such, also match different expenses with expected revenue too. Moreover, it is such which do help in earning higher income and profit too. Basically, it is that which contribute cost and also has an time for firm and it also lead to help in reduction of the operation of areas that has some worth of it.
Importance of these report for the organization and these report do help in performing in better way so that firm can attain the goals and objectives in great way.
Decision making: Availability of information is such which is related with financial and non-financial thing which do help in knowing actual problem of finance and it all has an necessary steps and thus it has execution of business activities which are taken according to it. Management also formulate the planning, performance management and having risk management that also gain productivity as well (Christ and Burritt, 2013).
Increase financial return: Actions and procedure are those that are implemented and it is required that needs to be followed by management of company. Basically, it is required to conduct program to employees so as to perform proper way and it is such that has an possible outcome in near future too.
Reduces cost: Information is such which do help management of entity to anticipate some future problem and it also make an effective plans for having an purpose of eliminating different issues as quick as possible. It is that which do help in reducing cost of production process through various quality product are affordable in reasonable prices.
P3 Income statement using absorption and marginal costing.
Cost is such which lead to invest some amount of money in production process and it also produces quality product and services for customers. It is such which also determine some of the cost that is to incur some of the stages of production process which do sell quality product to ultimate customer in effective way.
Marginal costing: This is that which is merely invested in production in extra unit of product with the variable resources. Moreover at the time of calculation using marginal cost leads to only have an variable cost and it is that which taken into account and it is such which do excludes foxed cost (Baldvinsdottir, Mitchell and Nørreklit, 2010). Basically, marginal costing is mainly used by every company or maximum number of firms as this helps in earning higher profitability as well.
Absorption costing: This is that method for having an purpose of calculation of actual cost of product, both variable and fixed cost also take into account too. Generally, adding cost which is fixed and having an cost with profitability and also look to compare it by using some marginal costing method as well.
Income statement on basis of the marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing
Less: Variable costs
Cost of production
Variable sales overheads
Less Fixed costs:
Fixed Production overheads
Fixed Selling overheads
Income statement on the basis of absorption costing:
Selling Price per unit
Direct materials cost
Direct Labour cost
Variable Production overhead
Variable sales overhead
Budgeted production for the period is 3000 units
Fixed cost of the month:
Production overhead: Budgeted cost is £15,000 and Actual cost is £10,000
Selling cost: Budgeted cost is £10,000 and Actual cost is around £7875.
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material £8
Direct labour £5
Variable cost £2
Fixed cost £5
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40000 500*20 = £10000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000(under absorbed)
Net profit using absorption costing
(-) Cost of Sales:
Cost of production
(Under)/ Over absorbed fixed prod. O/h
Less: selling Expenses
Variable sales expenditure
Fixed selling expenditure
Profit under absorption
Closing stock 500*5
Profit under marginal
From above statement, moreover it has to see that changing closing stock valuation of 2500 is there and even though marginal costing after having settlement of fixed cost when it comes to 2125.
P4 Various kind of budget and there merit and demerits.
Moreover, there are various types of budget is there which needs to be prepared by management of tech UK limited with an motive of operating business functions in more effective manner. Including master budget, operational budget and having an cash flow budget too. Budget are described below:
Master Budget: Moreover, it is that type of strategy which do forecast the future sales, production level and capital investment as well that require the execution of future business activities. Budget is such which also interrelated with the budget and having an different department of company (Macintosh and Quattrone, 2010). Budget is that generally that needs to purpose of making an effective plan and also set performing the objectives in great way.
- Advantages: It is such that help in providing overall cost that has incurred with production process too.
- Disadvantage: Budget is having an preparation for having an specific activity that has reliability and also having an accuracy of information may be reduce.
Operational budget: Budget is such which cover the revenue and cost that incur the operating business activity on the daily basis too. Cost is that which are incurred with the help of production that consider the overhead and administrative cost which is required for the determination of management of firm in right context.
- Advantages: Budget do represent the revenue and cost that has incurred in with daily basis business operation. Moreover, it also help in reduction of expenses that incur the future business operation in right context too.
- Disadvantages: It is that which consumer more and more time to prepare operational budget for having an functions of company in better way.
Fixed budget: It is that which cannot be changes and remain same for longer period and modify the sales and for other activities either may it increase or decrease at for the same time (Nandan, 2010). Basically, it does not allow to change the financial plan in order to execute the business activities.
- Advantages: This is that which does help in measuring the growth and success of the small enterprises too.
- Disadvantages: Moreover, it cannot be able to adjust different factor which has prices of raw material, interest rates and having an degree of competition as well.
Flexible budget: It is that which has different type of budget that can be adjusted and having modified with changes happened in business activities as well. Moreover, changes are done at anytime even manager identify need of changes in better way.
- Advantages: Helpful in having an possible outcome through which it make changes in budget as well on time to time too.
- Disadvantages: It is that which needs an additional funds in executing some of business activity and if manager needs to found some of the adjustment as well. Hence, it is such which also increase the cost of project activities in great way.
Different pricing systems:
Price skimming: Pricing method which has company which do help to maximise the prices and product in order to generate different revenues in better way. Management is such which do focus on the adopting such prices and policy when the product are also merely firstly introduced in market and later on prices are such which should be decreases in order to have a compete with competitors as well (Nixon and Burns, 2012).
Economy pricing: Moreover, pricing policy is such of company that charge different and lower prices then the rivals for the product in order to have attract large number of customers too. Even though, its possible for company which help in reducing the cost that incur in production and marketing activities.
Importance of Budget for planning and control:
Creation of financial roadmap: Budget is such which define the way of execution in which future business activities in effective and efficient manner. Moreover, analysing previous cost incurred in completion of the project in better way.
Plan for future growth: Budget can help to attain higher growth if there is no proper plan. Even though the Tech UK should make an effective plan and strategies in order to grab some opportunity that will somewhere help in gaining the competitive advantage too.
P5 Management accounting that respond with financial problem too.
According to research, it has been determined that Tech UK is somewhere facing an loss of £1.5 million which is due to the some financial position in market (Otley and Emmanuel, 2013). To have an ignorance of financial issues, different financial tools needs to be acquired by company. Some of those as:
Key performance indicators: KPI is being considered as the effective one that also indicate everything which do help in measuring the performance of employees through comparison of actual with standard performance, so that if any difference is there then the management also having an position that leads to rectify the corrective steps. KPI is used at each level so that success through corrective steps.
Balance scorecard approach: It is that approach which is helpful in aligning business activities with plan and strategies implemented by firm so that every activity is having an proper evaluation coordination as well.
There are four perspectives of balance scorecard approaches:
Financial: It is required by company to attain the better financial position of firm and it is also possible to have available resources which should have an proper utilises in appropriate manner.
Customer and stakeholder: Moreover, having an quality product to customers that help in increasing the number of satisfaction level if customer and it also help in enhancing the profitability of firm (Parker, 2012). The management should required to have an betterment of stakeholder through providing the maximum return too.
Internal process: Implementing advanced and having an efficient technology in the production of process and having an employees in improving the efficiency level that which needs to direct the positive impact of profitability of firm.
Just in time: It is that which has a process of ordering inventory only and while management feels that which has an shortage of raw materials as well (Pipan and Czarniawska, 2010). Normally, reducing cost of inventory in which management decide to store some unwanted resources in warehouses and it can be ordered only when there is need occur in production process.
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Comparison of Tech UK with 4com plc.
Balance scorecard approach is used by firm to minimise or eliminate the financial issues and capture large market share.
Management is required to focus on analysing the financial information in great way to reduce the financial issues as well.
Main objective of firm is to look for those various large number of issues originally occur.
Main objectives are such which also capture the large market and also attain some goodwill due to which it attract the large number of customer.
From above it can be concluded as, management accounting is such which do help firm to receive the important financial and non-financial transaction as well which has happened on somewhere on the daily basis within the organization with help of management that make them to have an effective decision and planning as well. The assignment has also included the Balanced scorecard, key performance indicator etc. all such are adopted to reduce the chances of risk.
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