Management Accounting Assignment Sample 2

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Introduction

The brief information on the management accounting and its benefits and its methods will be defined. How the reporting and system of the management accounting are interrelated with each will be defined. How the budgetary control helps the organization in the better planning and controlling of their finance will be defined and how tools of the planning of the management accounting helpful in this budget forecasting and their preparation will be defined. A discussion about the marginal cost and the absorption costing will be done. How the adoption of the management accounting in the organization will be helpful in the facing of the problems of the finance will be defined and how tools of planning of the accounting will be effective for the success of the organization will be discussed and their response to the finance also.

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Task 1

Management Accounting means:

Management accounting is defined as the process in which the business or organization prepares the financial reports for their operation of the business that can be used by the manager to create the best decisions for the long and short period of the business. With the help of management accounting, the manager and business can achieve the goal through the proper analyzing, measuring, interpreting, and communicating by properly identifying it. The management accounting is used by the business so that they can measure their overall performance of the business and can measure their current expenses of the business and the estimate expenses of the business and through differences; they get to know them the better financial position of their business (Burritt et al, 2019).

Management accounting system types essential requirements:

  • Product valuation and costing- The valuation and costing of the product determine the production cost of the finished goods. This contains all types of the cost which is involved at the time of the good or service production. The cost of the product determines by including indirect or direct cost, fixed, and variable.
  • Analysis cash flow- This cash flow is essential for management accounting as by doing this analysis the manager or organization able to know how much cash inflow and outflow is going on in the organization and how this can affects their business decisions.
  • Analysis of inventory turnover- This analysis tells that how much inventory is left in the organization and how much inventory is used in the previous year. With the help of this analysis, the organization can make decisions concerning the purchasing, marketing, pricing, and manufacturing of the products (Alborov et al, 2017).

Reporting methods of management accounting:

  • Cost report- This method of management accounting reporting is to help the manager to make the report of the cost of the operation of all the departments of the organization. With the help of this, the manager can set the price of the product. Through this, they can set the selling cost and price of the good.
  • Budget report- The budget sets the amount of the expenditure and income an organization can make in the annual year. This budget report in the management accounting helps the manager to set the restrictions on the spending of the organization so that they can earn more profit and manage all the activities of the different departments (Ghasemi et al, 2016).
  • Manufacturing and marketing report- This reporting gives the details about the volume or amount of manufacturing of the products by the organization in the year so that in future they can decide how much they have to manufacture in the current year so that they can manage the demand of the product and marketing report shows how much money is expended in the marketing of the product or services and by this, they can control in the expenses in the marketing.

Management accounting benefits:

  • Planning- This helps the manager to plan their activities of the organization and also helps them to plan their budget for all the departments of the organization so that they can increase their performance of the employees and the overall organization performance.
  • Controlling- This also helps in controlling the wastage of the raw material and inventories so that they can save the money of the organization and can increase the profit for the organization. Through this they also able to control the expenditure of the business.
  • Coordinating- This creates a bridge of coordination between all the departments of the organization by analyzing the activities of their tasks and helps them sharing of all the information of their so that they can make a good decision making for them (Doorasamy, 2016).
  • Increase the Performance- The management provides the manager with all the reports of the organization departments so with the help of that the manager finds out the possible issue which can occur in the organization and then controlling it and by this their performance get increases.

Management accounting application benefits to the organization:

  • Proper analysis of the financial statements of the organization as with the help of that the manager will be able to know about the financial condition or situation of the organization as if it is strong or weak and according to that they can make the decisions for their improvement.
  • Improve the decision making power of the manager as to when they do a deep study of the reports of the management accounting they able to know about the things and clear their thoughts while making the decisions for their business.
  • Increasing profit the management accounting helps the organization, as by controlling on the extra cost of the business and keeping an eye on the wastage of the inventory and other expenditure the manager can increase their profit (C?pu?neanu et al, 2020).

Integration of management accounting system and their reporting in the organization:

There is the direct integration of both the system and reporting of the management accounting as with the help of the reporting the manager can know about what is going on in the different departments of the organization and by this, they can manage the things in the business. The performance of the organization is also measured by the manager through the management accounting system. 

The reporting gives the financial position of the organization and it also tells the expenditure, cost of the manufacturing of the goods and income and budget report of the organization and by this, the manager can get to know about the information related to all the departments and activities of the organization and then they can make the decision in all this way the system and reporting of the management accounting are integrated. The different reporting of the management accounting helps in creating a good system of management accounting which can be used by the manager to measure the performance of their organization (GOVDYA & KHROMOVA, 2018).

Task 2:

Profit and loss By marginal costing

particular

May (In )

June (In )

Revenue (250*10075)

25000

18750

variable cost:

   

Direct material cost @60 for 100

6000

4800

Direct labor @40 for 10080

4000

3200

Variable production overheads @20

2000

1600

Sales commission @ 2% of revenue

500

375

Total variable cost

12500

9975

Contribution

12500

8775

Fixed cost:

   

fixed production overhead

2000

2000

Fixed selling overhead

1000

1000

Fixed Administration overhead

3000

3000

Profit

6500

2775

According to the analysis of P&L it is determined that according to the marginal costing profit is 6500 but in June month it becomes 2775 because in the June month the production and sales both become reduce. Profit decreases due to less sales and production.

Absorption costing

particular

May (In )

June (In )

Sales revenue

25000

18750

Less: cost of sales

   

Opening inventory

   

Variable cost of production

12000

9600

Fixed overhead

2000

1600

Less: closing stock 5 units

600

600

Gross profit

10400

6950

Less: Non- production cost

4000

4000

Profit

6400

2950

According to the absorption method the profit reduced by 100 in may month but in June month it increased by 175 because production fixed cost change according to the production.

Working notes 1

Fixed cost in may for 100

2000

June month cost for 80 units

1600

   

Working notes 2:

 
   

Total Variable cost per unit

 

Direct material

60

Direct labor

40

Variable production overheads

20

Total

120

   

Working notes 3:

 

Non production cost

 

Fixed selling overhead

1000

Fixed Administration overhead

3000

Total

4000

   

Working notes 4:

 

Closing stock = Production - sales

 

 80-75 = 5

 

Table 1:

Particular

Actual

Budgeted

Variance

F/U

Output

1000

1000

0

nil

Material purchased and used ( in kg)

2400

2000

-400

F

Per unit required kg

2.4

2

-0.4

U

Material cost

22400

24000

1600

F

Per unit cost (In kg)

9.33

12

2.666667

F

Table 2: Average method of closing stock

Date

Particular

quality change

Unit cost

Total cost

6/1/2020

Opening Inventory of 10 units @35 each




10

35

350

6/9/2020

Add: Bought 15 units @ 38 each

15

38

570

6/15/2020

less: Issued 12 units

12

 

0

6/20/2020

Add: Bought 10 units @32 each

10

32

320

6/23/2020

Less: Issued 10 units

10

 

0

6/27/2020

Less: Issued 3 units

3

 

0

6/30/2020

Less: Issued 2 units

2

 

0

 

Closing inventory ( In Unit)

8

   

Task 3

Budgetary control advantages:

  • It builds good communication between the departments of the organization as every department has their budget of expenditure for the year and this is made by proper communication between the departments and manager so it creates good communication in the organization.
  • Improve the efficiency of the organization, when a good budget is made by the organization by keeping all the things in mind by all the activities of the departments and goals and objectives of the organization then it will help in proper working of the organization and this will increase their efficiency of the business.
  • Controlling of the wastage of the money of the organization as when they will set the amount of expenditure of every department that how much they have to spend and how much they have estimated for the year then the chances of the waste will be reduced (Asumani, 2019).
  • Profit will increase of the organization as every budget is made with the motive of increasing their profit through full control on the expenses and creating the ways to increase the revenues of the organization through proper completing of the task on time and ineffective cost then the profit will increase of the business.

Budgetary control disadvantages:

  • The budget gets prepared from the estimation of the manager after seeing their previous year's budget that how much extra and less was given to the departments and how much they need to improve but no one can predict the future.
  • It is made for the future which is unpredictable so the budget which is made by the manager to give a good performance to the activities of the organization becomes uncertain there is no surety that this budget will work out for the organization.
  • The budgets are also changed according to the situation and condition of the organization throughout the year which reduces the efficiency and productivity of the organization's tasks and activities and reduces their timely completion of the project (FINES, 2018).
  • It is a very expensive and time-consuming activity as preparing a budget is not an easy task and it also takes a lot of money to properly formulate and implement it in the organization for their success.
  • Sometimes improper estimation by the manager and top management the chances of budgeting are arises and this creates the wastage of the money of the organization.

Preparation and forecasting of the budget through the use of application and planning tools of budgetary control

  • With the help of the application, the manager can predict the upcoming opportunities for the organization and can decide or predict which department needs how much funds for their operation, and according to that they easily predict and forecast the budget and prepare it.
  • The financial statements of the organization show the strength of the organization in terms of finance and with the help of that, they decide that how much money they have to spend on the different activities of the organization, and according to that, they build up their budget.
  • The overall income and expenditure will the company earn in the previous year and based on that they make the budget as they forecast or predict from their operating budget that what situation can occur in the future and then they made the decision about the preparation of the budget (Ayorekire, 2018).
  • The budgetary control application gives the details about the future project's expenses that how much there will be can happen in any project and according to that they prepare and forecast their budget which can meet their requirement of the future. As by this, they will be able to complete their task easily and on time.

Task 4

Respond to the organization finance problems by adopting the management accounting system:

  • The management accounting provides the way for the manager or organization to respond to the finance problem more effectively and efficiently by properly analysis of their cost and valuation of the product or services which they are selling in the market, as if the cost of the product will be undervalued then the organization can have an issue of finance but if they properly do the valuation of the product then they will be able to earn well.
  • With the help of the management accounting the planning of the manager related to the finance for the departments of the organization will be good as in that planning they will keep in mind about the mistakes they made in their previous year budget and what they have to improve now and this will help them in the proper management and respond to the organization problem of finance is any of it will be happening in the future.
  • The fund flow analysis tells about the overall flow of the money from the organization that which part and which project used how much money and how much money will be needed more to manage and complete the tasks or project of the organization then they will not be able to face any financial problem and they will be able to respond to all the issues of the more perfectly and clearly in the correct time (Tuzovskaya, 2019).
  • When the manager decides after seeing all the alternatives available for the business then they will be able to respond to the finance problem more effectively as through the management accounting the manager comes across all the reports of the business accounting and will have a good deep analysis of all that and then will be able to come up with many good alternatives to respond the problem of finance of the organization in the more perfect way.
  • By doing a deep cost accounting about all the projects the organization decides to do in current and future then the manager will be able to estimate all the cost of completion of all that projects and by this, they will come up with all the possible needs of the funds for the future of the organization and according to that, they will be able to manage and arrange all the funds and able to respond the finance problem of the company in the more perfect way (Ax & Greve, 2017).

How responding to finance problems through management accounting leads to the sustainable success of the organization

  • With the help of the proper management accounting, the manager will be able to know that if they solve the problem in time they will be able to get success for their organization. As in the management accounting, the manager prepares all the reporting of the business in the format which gives them a clear picture of their business finance condition and by seeing that taking the right action on time they will be able to provide success to their organization.
  • By doing the proper analysis of the current situation of the organization with the condition and success which they predict and measure after that they will be able to know about the issues and they can solve them on time and this will lead to their success of the organization. By doing the comparison of their current situation and about their pre set standard condition then they will be able to come out on the issues they having and then solving it properly they will be able to lead their organization in the path of the success (Apunda et al, 2020).
  • Most of the time the organization purchase their raw material and other inventories for the operation and production of their goods and due to which they may face the problem of finance but by doing proper inventory analysis they will not do this mistake and can save money from the wastage of the inventory and this will help them to give success to their organization.
  • The success of the organization relies on the performance of their organization and their employees and when the manager will monitor and control the performance of the overall organization then they will be able to match the standard performance by eliminating the financial issues and problems in the organization and this will lead to the success of the organization for the long run and its growth.

How management accounting planning tools help the organization succeed by solving the problems of finance

  • With the help of the management accounting tools, the manager able to know about what is going in the organization what is the performance level of the people and organization, and where they are lacking it is either the finance of it is about the management of the resources and information of the organization and by doing this the manager can find out the problems and able to get the best solution for the problems.
  • The financial statements of the organization tell about how much money is over wasted in any of the projects and or the organization by any of the department then the manager tries to properly formulate the decisions by analyzing all the reports of the finance and take the best alternative decision for the solution of the problem of the finance in the organization (Sari et al, 2020).
  • While preparing the budget the top management and the manager estimates the upcoming revenues and expenditure which will be happening in the coming future by proper analysis of the previous year budget and with the help of this budget reporting the manager can minimize the chances of the issues in the terms of the finance in the organization.
  • The information flow from the top management to the low management is a very important tool of the management accounting through which all the departments coordinates their tasks and performance and the achievements which they can achieve and tell the problems which they can have in future and by this, the manager and all departments properly coordinate and work with each other to solve the issues of the organization related to finance and they can get the solution of it.
  • With the help of the analysis of the cash flow, the manager can know their current position of the cash in the organization and can easily allocate where they spend over cash and by this, the manager will be able to control that and work according to the plan to properly manage the cash of the organization and by this, the problem of the finance in the organization can be easily solved (Alsharari, 2019).

Conclusion

The conclusion from this report is that if the organizations will use the management accounting then they will be able to manage their complexity in their business life, as with the help of the management accounting they will be able to record the financial reports and then can use that to control the over cost and reduce the expenses and raise the good profit for their organization. It is also found out that budgetary control gives benefits to the organization in the proper planning and controlling of their business finance by creating a restriction on the uses of excessive funds by the departments. The tools of the planning of the management accounting help in the best forecasting of the budget and also in the preparation of it. A good response to the problems of finance helps in the success of organization sustainability.

References

Alborov, R,A, Kontsevaya, S,M, Klychova, G,S, and Kuznetsovd, V,P, 2017, The development of management and strategic management accounting in agriculture, Journal of engineering and applied sciences12(19), pp.4979-4984.

Alsharari, N,M, 2019, Management accounting and organizational change: alternative perspectives, International Journal of Organizational Analysis.

Apunda, M,A, and Ndede, F,W, 2020, The effect of adoption of management accounting practices on financial performance of commercial parastatals in Kenya, International Academic Journal of Economics and Finance3(6), pp.119-130.

Asumani, K, 2019, BUDGETING AND BUDGETARY CONTROL AS MANAGEMENT TOOLS FOR IMPROVING FINANCIAL PERFORMANCE IN LOCAL AUTHORITIES, MPIKA DISTRICT COUNCIL AS A CASE STUDY (Doctoral dissertation, Cavendish University).

Ax, C, and Greve, J, 2017, Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes, Management Accounting Research34, pp.59-74.

Ayorekire, M, 2018, Budgeting and Budgetary Control in Non-Governmental Organisations: A Case of Infectious Diseases Research Collaboration (IDRC).

Burritt, R,L, Herzig, C, Schaltegger, S, and Viere, T, 2019, Diffusion of environmental management accounting for cleaner production: Evidence from some case studies, Journal of Cleaner Production224, pp.479-491.

C?pu?neanu, S, Topor, D,I, Constantin, D,M,O, Manole, A,L, and Hint, M,S, 2020, Environmental Management Accounting: A Business Perspective on the Policies, Analyses, and Benefits of Its Implementation, In Management Accounting Standards for Sustainable Business Practices (pp. 27-51). IGI Global.

Doorasamy, M, 2016, The perceptions of management on the benefits of adopting an environmental management accounting system as a waste management tool, Foundations of Management8(1), pp.93-106.

FINES, M, 2018, AN ASSESSMENT OF EFFECTIVENESS OF BUDGETING AND BUDGETARY CONTROL SYSTEM IN A GOVERNMENT BASED INSTITUTION (Doctoral dissertation, Cavendish University).

Ghasemi, R, Mohamad, N,A, Karami, M, Bajuri, N,H, and Asgharizade, E, 2016, The mediating effect of management accounting system on the relationship between competition and managerial performance, International Journal of Accounting and Information Management.

GOVDYA, V, and KHROMOVA, I, 2018, Methodical Aspects of the Decomposition Approach to the Formation of the Managerial Cost Accounting System in the Organizations of the Russian Agroindustrial Complex, Journal of Applied Economic Sciences13(3).

Sari, R,N, Pratadina, A, Anugerah, R, Kamaliah, K, and Sanusi, Z,M, 2020, Effect of environmental management accounting practices on organizational performance: role of process innovation as a mediating variable, Business Process Management Journal.

Tuzovskaya, O,S, 2019, ADVANTAGES AND DISADVANTAGES OF PARALLEL FINANCIAL AND MANAGEMENT ACCOUNTING AT THE ENTERPRISE, In ?????. ???????????. ????????. ?????????? ???????? ? ???????? ??????? (??????????? ? ???????????? ???????) (pp. 314-317).

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