UNIT 5 Management Accounting Undergraduate assignment, University level assignment , Assignment solution, Plagiarism free, Cheap rate, BTEC-HND, UK

Unit 5

Management Accounting 

Introduction:

Business is regarded as the economic process to provide the wants of consumers. Hence, the need for business organizations is significant for deriving financial benefits to the societies. However, motive of operating business is to earn profit (Kaplan, 2010). Profitable business depends on the required decisions taken by the managers and managers are the guide to direct other employees what to do and how to do (Blass, 2005). Employees perform activities according to the direction of the managers. Here, it has to be mentioned very clearly that managers also depend on something to get proper response to take decisions.

An explanation of the principles of Management Accounting

Management accounting is that term needed for the managers to guide the managers what is right to operate decisions. Accounting serves the purpose of sharing information to the interested users (Kaplan, 2010). Here, managers are the interested users for whom management accounting serves the information necessary for obtaining the basis of decision making process.

Ovation Systems is an UK based small company that serves the purpose of designing and manufacturing services of video surveillance for commercial basis especially to the military and government forces for UK. Services include audio and video records, video stabilization and so on. The author here is subjected to analyse the principles of management accounting for Ovation Systems.

Trust: Managers are subjected to make opinions and decide what the requirements are for the organization. But, information needed here must be trust worthy. By establishing a good practice of management accounting, trust worthiness is obtained.

Up-to-date: It is one of the basic principles of management accounting and also for Ovation Systems. Management accounting includes updated information from day to day transactions (Blass, 2005).

Presentation: Another basic principle of management accounting is to present reports of cost, sales, and accounting receivables and so on to the managers in the motive of getting right goals to be obtained (Kaplan, 2010).

Understandable: Management accounting presents data and reports to the managers that are clearly understandable and readable for the managers. So, planning and coordinating the elements are convenient here for the managers (Blass, 2005).

Timelines: Principle of timeliness implies that data provided by management accounting is of regular basis and can be comparable over other items.

Figure 01: Principles of management accounting

Source: Author, 2020

The role of Management Accounting and Management Accounting System.

Accounting has many purposes. But main purpose of accounting is to calculate the financial transactions to denote the output of the organization because of the interest of the accounting information users (Kaplan, 2010). Hence, information sharing is the basic motive of accounting. Information is served through financial reports and statements that are made at the end of accounting year. All this process is obtained for both internal and external users of accounting (Blass, 2005). Here, especial information is served by management accounting to the managers who are the internal users of accounting and recognized as the most important body for analysing information. So, it needs no doubt that management accounting is significantly a great part of accounting. Management accounting system is the theoretical practice of rules and procedures for making reports under management accounting (Doost, 1997). Ovation Systems must evaluate the need for management accounting and management accounting system quite significantly.

Role of management accounting

Figure 02: Role of management accounting

Source: (Doost, 1997)

Costing: It needs no explanation that costing is one of the basic sections of accounting process as success relies on the proper technique of costing for different products. Management accounting contains all the techniques for allocating and reporting costs (Cooper, 2006).

Decision making: Organizations are formed under certain surveillance. Top level authority recruits managers and offer duties to run the business according to the established principles. So, managers have to analyse the operations and make decisions. Managers’ use and practice management accounting as a tool for performing duties according to the way the authority wants (Cooper, 2006).

Planning: Plans are set according to the establishment ideas and principles with the objectives of managers. Plans and projects are processed by the tools incorporating by management accounting (Kaplan, 2010).

Control: It is not imperative to organize and distribute only the duties and responsibilities to the destined persons only. If the managers have no control over the operations, goal of the organization cannot be achieved. A great role here is played by management accounting to control the operations of the business (Kaplan, 2010).

Performance evaluation: Employees need appraisal from the managers as per the performance. Again, departments need recognition for the performance offered. Managers can evaluate the performance of the employees, departments and others by using the tools of management accounting (Cooper, 2006).

Role of Management Accounting System

Cost accounting: Management accounting serves the reporting purpose of internal costs. Management accounting system derives the tools for implying costing estimations and calculation for which managers can reduce cost of the products (Kaplan, 2010).

Inventory management system: Inventories are the basic material for manufacturing products. Inventory management system is the part of management accounting system that belongs to the calculation and analysis of inventories to denote cost of inventories, storage policy and so on (Kaplan, 2010).

Inventory cost: Inventory cost is reported in the interim reports of management accounting system. It helps to detect the efficiency of the policy for inventory management process (Cooper, 2006).

Job costing: Management accounting system uses job costing as a tool for having proper control for the cost of all units that are separated than each other (Blass, 2005).

Price optimization system: Under management accounting system, price optimization system is specified as another tool for incorporating actions over the reactions supplied from the customers. It helps to set right policies for pricing (Doost, 1997).

Figure 03: Role of management accounting

Source: Author, 2020

The use of techniques and methods used in Management Accounting by presenting calculations for an income statement using marginal and absorption costing to show how these financial reporting and statements support business growth and success.

Absorption costing: Direct cost, indirect cost and fixed cost are included for costing approach which is known as absorption costing. It is regarded as full absorption costing also. Under absorption costing, no cost is written off (Blass, 2005).

Preparation of income statement under absorption costing: Income statement is the list of all expenses and revenues for incurring net profit or net loss for the related year. Preparation of income statement under absorption costing starts with net sales of the organization. Calculation of cost of goods sold is done after. Subtraction of cost of goods sold from sales produces gross margin (Blass, 2005). Then next part is the adjustment of selling and administrative expenses. At the end, the organization will find net operating income or loss.

Production cost = 10.0+8.0+7.0+ (200,000.0/200,000) = £26.0

Figure 05: Income statement of Ovation System under absorption costing method

Source: Author, 2020

Marginal costing: Marginal costing is the approach of costing where fixed cost is written off and direct costs and overhead costs are included for costing of different units (Blass, 2005).

Preparation of income statement under marginal costing: Income statement under marginal costing is not same as absorption costing although it starts from net sales. Here, in lieu of cost of goods sold, variable cost of goods sold and variable selling expenses are deducted to get contribution margin (Blass, 2005). Next process is to adjust both fixed selling expenses and fixed administrative expenses to find net operating income or loss.

Production cost under marginal costing is (10.0+7.0+8.0) or £25.0

Figure 06: Income statement of Ovation system under marginal costing

Source: Author, 2020

So, the author has mentioned both absorption costing and marginal costing and process of preparation of incomes statement of under both costing techniques. The author has found that absorption costing derives more benefits than marginal costing for Ovation Systems.

In this segment, advantages of absorption costing and marginal costing are going to be discussed.

Advantages of absorption costing:

Understandable: Absorption costing is not complex and sophisticated in terms of understand ability. Thus decision making process from this costing technique is also easy.

Following standards: Absorption costing method is compliances with GAAP. So, it is not unrealistic for producing and analysing reports.

Commendable for all business: Absorption costing can be used by any type of business for its simplification and validation (Cooper, 2006).

Advantages of marginal costing:

Variance: Marginal costing can be applied for all the variable costs. Thus it shows proper result for the changes of cost regarding each variable.

Allocation of cost: Proper allocation of cost is necessary for having advantage in decision making process, which can be derived from marginal costing approach (Kaplan, 2010).

Preparation of cost reports: Under marginal costing approach, cost reports are prepared conveniently. So, it acts as proper direction for the managers (Kaplan, 2010).

So, both absorption costing and marginal costing procures some benefits regardless of any organization.

4) Evaluation of how Management Accounting is integrated within the organization and the benefits of the function of the organization.

Management accounting acts as a guideline to the mangers which have already been mentioned in this report. Apart from sharing information to the managers, some reports for internal financial information are made under management accounting (Cooper, 2006). Those reports are embedded as the interim purpose of management accounting. Such reports are going to be analysed here:

Performance report: Management accounting is integrated within the organization by several reports and performance report is one of such reports. It is such a report that enlists each department, individual as elements of performance appraisal. Success and errors are found out through this report (Cooper, 2006).

Operation budget report: No organization wants to face obstacle by meeting loss. Operation budget report is an estimation based report of expenses and revenues to get an overview of the plans. It results a great dimension by which organization can be run in a proper way.

Accounts receivable aging report: Operations of business are not cash basis, it also follows accrual basis of accounting and those results in accounting receivables. Generally, more accounting receivables because more issue of liquidity. In accordance with this compliance, organizations want to know the number of accounting receivables for determine decisions. Management accounting gets integrated by it within the organization.

Job cost report: One of the most important reports prepared under management accounting is job cost report. It shows how much cost is incurred to manufacture a unit of product (Cooper, 2006).

So, by the preparation of above reports, management accounting is integrated within the organization.

5) Conclusions that critically reflect the application of Management Accounting.

Application of management accounting in the organizational context needs no doubt that it is an integral tool for getting financial goal of the organization. Right decisions are made within the organizational context by management accounting.

Cost accounting: Ovation Systems includes the costing approach for all its hardware based products and services. So, efficient allocation is necessary regardless of any cost centre which is termed properly by cost accounting (Cooper, 2006).

Inventory management system: Inventory management system destines the end production process of the organization. So, it is undoubtedly helpful for the manager of Ovation Systems to decide right estimation (Kaplan, 2010).

Inventory cost: Inventory cost is calculated as management accounting tool which helps to procure effective control over inventories.

Job costing: Job cost is based on different unit's cost. For Ovation Systems, it is an integral approach to have efficiency (Kaplan, 2010).

Price optimization system: Management accounting opens a wide arena for making surveillance over the reactions of consumers. It is done effectively so that setting of price for the products of the organization.

Task 2

1) Compare and contrast three planning tools used in Management Accounting indicating their effectiveness.

Assumption is something that can produce expected result positively or negatively. In the business world, it is very regular and certain functions that assumptions are made for achieving what the organizations search for. Supplementary results are also estimated to denote the fact here. Planning tools are the supporting tools for which assumptions are made (John, 2010). Planning tools are widely recognized as budgetary tools are the presentation of estimated data that are used as standards basis. It procures an idea about the future of the organization that is estimated by the managers (Cooper, 2006). Though there are a lot of planning tools, the author for analysing business of Ovation Systems is addressing three planning tools.

Figure 04: Types of Budgets

Source: (John, 2010)

Zero based budget: Several budgets are there and zero based budget is one of them. Zero based budgets support its name. Every period has a new start of cost. Zero based budgets include all the costs for new budget period and estimates result as per the criteria.

Functional budget: An organization has certain bunch of functions. Purchase of materials, sale of costs, research activities, production process and so on. Functional budget is done for each of the function as mentioned. So, managers can learn the aspect properly from each function.

Incremental budget: For every function of business, there are some incremental changes over the tile period. Incremental budget supports the idea to be incurred into budget preparation technique. This budget includes incremental changes over the time period (Cooper, 2006).

Similarities between zeros based budget, functional budget and incremental budget

There are some similarities between each of the budget. Some similarities are:

Estimation of output: Managers make budgets to estimate final output which is certainly the main job from each of the budget mentioned here.

Selection of project: Zero based budget, functional budget and incremental budget work as a pioneer for selecting the right project for the organization.

Comparison: Each of the budgets mentioned here compares the result with the standard aptitude criteria for the organization (John, 2010).

Dissimilarities between zeros based budget, functional budget and incremental budget

There is some dissimilarity between the budgets. Some dissimilarity is:

Appraisal technique: Though each budget is ascertained for appraisal purposes, appraisal techniques differ than each other (John, 2010).

Difference of functions: Functional differences are seen between zero based budget, functional budget and incremental budget.

Purposes: Managers use these budgets for different purposes to estimate the output for a certain project (Cooper, 2006).

Advantages of zero based budget:

·         No cost of starting budget period is ignored here.

·         It is regarded as an integral process that includes all starting costs.

·         Focus for cost reduction is done here.

Disadvantages of zero based budget:

·         It has been recognized that this budget is highly relatable for issue of expertise.

·         To prepare this budget, managers have to spend more time.

·         The preparation report makes engagement of more manpower.

Advantages of functional budget:

·         Managers can have total estimation for each function.

·         Sufficient information can be shared for making master budget.

·         Comparison process gets improved.

Disadvantages of functional budget:

·         As it includes all functions, it needs much expense to be incurred.

·         Different functions need proper coordination that cannot be handled effectively.

·         Engagement of lot of manpower is a must which can be an issue.

Advantages of incremental budget:

·         Simple budget process for the managers.

·         Departmental performance can be adjusted properly.

·         Changes over the actions can be supplemented.

Disadvantages of incremental budget:

·         Focuses are given only for internal actions.

·         Time killing budget technique.

·         Excess of costs is required here

The author has found that zero based budgets is suitable for Ovation Systems as the organization can include cost for each budget period for having cost efficiency.

Different planning tools to analyse to preparing and forecasting budget

The author has identified each of the budget's purpose and criteria. For forecasting the cost efficiency, zero based budgets are used. Functional budget is applied in order to identify the functional efficiency over the period. Incremental budget is applied to make adjustments for the changes.

2) Using specific case studies as examples compare ways in which management accounting is applied, the effectiveness of Management Accounting in dealing with financial problems and preventing financial problems in organization.

A lot of problems prevail there in operating business. These problems can be found by following measures:

Bench marking: This process refines the standards. Results are dimensioned for comparison with the standards. So, issues can be found and rectified as the manager knows the standard output (Kaplan, 2010).

Financial ratios: It is an analysed based technique to find out the derivatives. Several elements are lifted from financial statements to find differences. Issues are found very conveniently by this technique.

Standard costing and variance analysis: It is certainly a costing approval technique where the manager has standard costs result. Flaws are emerged through the comparison (John, 2010)

Key performance indicator: Performance of related bodies is emerged for analyse the result. It helps a lot to improve the performance of the organization (John, 2010)

.

The author has been deployed for determining sole duty to find issues. The author found two issues- bad debts and cash flow problems.

Management Accounting systems	How management accounting systems can be used to solve financial problems
Cost Accounting systems	Ovation Systems faxes bad debt and cash flow issues which can be perfectly adjusted through cost accounting. If the manager uses cost accounting approach by sorting all the elements properly, the issues can be solved.
Inventory Management Systems	Inventory management system must be improved by Ovation Systems. Cash flow issue can be solved either by this process (John, 2010).
Job Costing Systems	Ovation system has different batch costs that must be adjusted and integrated through job costing system. It will certainly bear expected output (Cooper, 2006).
Price-optimisation systems	If Ovation Systems recruits proper tool for price optimization system, the issues may not be faced. So, improvement must be regarded for price optimization system (Cooper, 2006).

According to analysis of case of Ovation systems, they are facing a problem regarding cash flow. Actually the financial manager of the organization finding source of funds but they don’t have any idea about how much money the organization needs for next accounting period or project. So the financial manager meet with team of management account to get helps from them. In this case the management accounting team has promised to help them. So the management accounting team has prepared a cash budget for next accounting period including all expected cash inflow and out flow. This cash budget has provided vital information to the financial manager to get an idea about how much money they need to borrow.

3) Provide conclusion and recommendations to the organization on which methods to apply in order to achieve sustainable business success, based on your feelings and evidence provided.

Following recommendations have been provided by the author:

Recommendations:

·         Ovation Systems has better implication for corporate social responsibility for having growth of the business.

·         There are several stakeholders. All stakeholders have to be brought on the right track.

·         Corporate policies are bound to be measured to improve the condition.

·         Resources are limited. So, better use must be determined.

·         Managed have to be careful for making decisions for each function.

Conclusion:

The significance of management accounting is very deep which is firmly embedded within the organization (John, 2010). In this report, the author has gone thoroughly the business functions under management accounting implication for Ovation Systems. The author has discussed about important issues of management accounting regarding role of management accounting and management accounting system. The author has discussed a case about how management accounting helps to the financial accounting to solve financial problem. Finally they have provided some recommendation to the Ovation system.

References:

Adams, E. M. (1997). Rationality in the Academy Why Responsibility Centre Budgeting is a rong Step down the Wrong Road. Change: The Magazine of Higher Learning, 29(5), 58-61.

Blass, E. (2005). The rise and rise of the corporate university. Journal of European Industrial Training, 29(1), 58-74.

Cooper, P. (2006). Adapting management accounting knowledge needs to functional andconomic change. Accounting Education, 15(3), 287-300.

Doost, R. K. (1997 b). What is our university overhead cost anyway? Managerial Auditing Journal, 12(2), 94-97.

Hensley, P. A., Bava, D. J., & Brennan, D. C. (2001). Responsibility Center Management: A Financial Paradigm and Alternative to Decentralized Budgeting. Cincinnati, Ohio: American Educational Finance Association.

John, R. (2010, March). Likert Items and Scales, Survey Question Bank: Methods Fact Sheet 1. Strathclyde, UK. Retrieved from http://surveynet.ac.uk/sqb/datacollection/likertfactsheet.pdf

Kaplan, R. S. (2010). Conceptual Foundations of the Balanced Scorecard. Working Paper 10-074. Boston: Havard Business School. Retrieved September 30th, 2015, from http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf