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Unit 5 management accounting level 4 assignment.

This article will provide an in-depth overview of Unit 5 Management Accounting Level 4 Assignment. The assignment requires students to analyze and evaluate management accounting techniques and processes, demonstrating their understanding of the subject. Students are expected to demonstrate their ability to use various tools, models, and techniques to analyze and interpret financial data in order to make informed decisions. Furthermore, they must be able to critically assess the application of management accounting principles within a given context.

Management Accounting Level 4: Unit 5 Assignment

Are you looking for help on your Unit 5 Management Accounting Level 4 Assignment? Look no further! This blog post will provide an overview of the assignment, as well as helpful tips and strategies to help you complete it. Read on to learn more about how to tackle this important assignment and come out with a top grade.

Unit 5 Management Accounting Level 4 Assignment

The Cost Of Quality

Unit 5 Management Accounting Level 4 Assignment focuses on understanding the costs of quality. Quality is an important element in any organization, and it requires an investment to achieve. Quality costs can include the cost of maintaining existing quality standards, implementing new quality standards, or improving existing ones. It also includes costs incurred from nonconforming products, scrap and rework, inspections and tests, preventive maintenance, and warranties and guarantees. Quality costs should not be seen as a waste of money, but rather as an investment in order to maintain a high standard of product or service. It is important for organizations to understand these costs so that they can effectively manage their operations and make informed decisions about where to invest their resources.

Activity Based Costing

Activity Based Costing (ABC) is a costing system that assigns costs to activities or processes, and then to the products or services that are associated with those activities. It is used to analyze and determine the cost of production and helps in understanding the cost structure of a business. ABC is useful when making decisions such as pricing products, determining cost reduction targets, and identifying which activities consume the most resources. ABC is a crucial part of Unit 5 Management Accounting Level 4 Assignment and can be used to develop accurate cost estimates for different products and services.

Life Cycle Costing

Unit 5 Management Accounting Level 4 Assignment focuses on life cycle costing. Life cycle costing is the process of identifying and analysing all costs associated with a product, service or system throughout its life cycle. This includes the acquisition cost, installation cost, operation and maintenance cost and disposal cost. The primary goal of life cycle costing is to help managers make better decisions by understanding the full cost implications of their choices throughout the product’s entire life cycle. Life cycle costing takes into account both the initial costs as well as the costs associated with using the product over its lifetime. This information can then be used to assess whether a particular product, service or system is worth its cost, or if an alternative option would be more beneficial in terms of both cost and performance.

Unit 5 Management Accounting Level 4 Assignment

Total Quality Management

Total Quality Management (TQM) is an essential part of the Unit 5 Management Accounting Level 4 Assignment. TQM focuses on improving the quality of a product or service by emphasizing prevention over correction. It also involves understanding customer needs and creating processes and systems to meet those needs.

TQM involves several steps, including developing quality plans, establishing process control and improvement, setting performance standards, and measuring quality results. Quality assurance and control activities are monitored to ensure that products meet customer requirements. Quality management teams look for trends in the data to identify any problems and implement changes to reduce defects. The goal of TQM is to continually improve the processes, products, and services delivered to customers.

Unit 5 Management Accounting Level 4 Assignment

Continuous Improvement

Continuous improvement is an ongoing effort to improve products, services, or processes. This is a key element of Unit 5 Management Accounting Level 4 Assignment and is an important part of any business. It involves making small, incremental changes to the way things are done in order to make them better. Continuous improvement can include anything from process redesigns to more efficient use of resources to introducing new technologies. The goal of continuous improvement is to increase efficiency, quality, and customer satisfaction. By making consistent improvements over time, businesses can stay competitive and ensure they are delivering the best possible products and services.

What is Unit 5 Management Accounting Level 4 Assignment?

Unit 5 Management Accounting Level 4 Assignment is an assignment which covers the topics in the textbooks, presented by top company management book publishers around the world. Unit 5 Management Accounting Level 4 Assignment is designed to help you learn, develop and enhance your knowledge in accounting and information handling concepts.

When is the deadline for Unit 5 Management Accounting Level 4 Assignment?

If you want to get an early start on your Level 4 Management Accounting assignment , then it’s important that you complete and submit your assignment by 5pm on the due date. If you miss this deadline, the assessment centre will not allow you to submit your assignment under any circumstances.

How to complete Unit 5 Management Accounting Level 4 Assignment?

In this Unit 5 Management Accounting Level 4 Assignment we are going to give you an example of a common way in which you can use the information presented in the management accounting documents such as Proposals, Budgets and Analysis.

Students Assignment Help

Unit 5 Management Accounting Assignment Sample – BTEC-HND-LEVEL 4

Management accounting systems use financial and non-financial statements to provide insightful information. So that management can take an effective decision for the organizations.

It plays an important role in providing information to the managerial people. The scope of management accounting is wide as it includes all sorts of information related to a specific organization.

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Understanding of management accounting systems

The accounting management system studies cost and business operation. It aids the management to prepare financial reports and records. It eases the managerial decision-making process to achieve the organizational goal.

The accounting management system is the act of transforming the financial, and accounting data into meaningful information. It helps management to make an important decision on behalf of the organization.

The costing system or cost accounting system is the Framework used by the management to approximate the cost of the product for profitability analysis, inventory management, and evaluation.

Communication provides information that influences the productivity of the organization. The role of accounting management initiates and ends with communication. The effectiveness of the accounting management system depends on how well information got conveyed. The influence of management relies on communication, and well-organized communication leads to effective decision-making. The organization needs to focus on the communication of accounting information so that it can influence the management.

Accounting management can result in better decision-making. To do so, it needs to provide relevant information to the management. Accounting management incorporates all information, regardless of whether it’s related to cultural or social issues. Whether they’re financial or not, the accounting system offers valuable information to the management.

It helps the management to analyze the information, and take effective decisions for the organization. As such, proper analysis of information is important, as analysis reflects the decision-making of the organization. Management needs to analyze the information so that they can assess the financial condition of the enterprise, and take better decisions.

This principle focuses on how the Management accountants perform their activities. They should follow basic work ethics and be accountable to the organization. Management accountants should be trustworthy and analyze the information appropriately so that they can make effective decisions for the company. They ought to consider the company stockholders, and are credible for the betterment of the organization through effective decision making.

Important functions of management accounting

It includes the formation of the long and short-term plans and proper measures taken. Financial planning incorporates resources that get acquired and used over a specific period. Management accounting helps in planning activities as it offers insightful information for the decision-making process.

It helps to plan a list of alternative actions taken by management to meet the goals of the organization.

It is the process of allocating tasks to the staff members and establishing the organizational framework. It helps to achieve the goals and objectives of the organization. The

The accounting management system aids the managerial people to furnish necessary information by providing records and reports.

  • Controlling

It is the act of monitoring, measuring, correcting, and evaluating the business plan. An accounting management system helps to plan performance reports, control reports. To highlight the difference between expected performance and actual performance.

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  • Decision Taking

The main aim of the accounting management system is to help the organization make effective decisions.

Cost accounting is an act of Omit cost related to operating a business. In general, cost accounting gets used by the manager to determine the type and Amount of expense incurred while following the current model.

Performance reports get analyzed by the management after every 4 to 6 months. Managerial Accountants use budgetary plans to examine the actual budgeted amounts. The difference between the real and actual budgets gets analyzed and calculated when determining new budgets, And all information about accounts gets reflected in the performance reports.

  • Throughput Accounting

It is a new concept related to the accounting management system. An Israeli business management guru Proposed the throughput accounting concept.

  • Accrual Accounting:

If the management follows accrual accounting principles, it records revenue when a transaction gets completed, not receiving the cash in hand. It implies that the company records when it earns it, even if the consumer hasn’t paid it yet. For instance, a carpentry contractor that uses accrual accounting Records the revenue when the task gets completed, Even if the customer hasn’t cleared the final bill.

Range of management accounting techniques

Accounting management tools.

Accounting management tools are tools and systems that help the management in their daily accounting activities. They help in maintaining the records, preparing financial statements, and controlling them to get a good performance out of them. Or,

Accounting management tools are used to help an organization manage its financial records. They are used to help with the accounting process, such as recording sales transactions, preparation of budgets, and preparing reports for various stakeholders. There are different accounting management tools that can be used by the management.

The most common accounting management tools are budgeting, financial planning, and cash flow management. 

  • Budgeting is the process of creating a plan that will allow your business to maintain its current operating deficit only once it has exhausted all possible ways to generate revenue. 
  • Financial planning is your business’s attempt to figure out how much money you can bring in each month, and then manage your expenses accordingly. 
  • Cash flow management is the process of controlling your money flow by making sure that you have enough cash and credit to meet all your obligations.

Cash flow analysis

Cash flow analysis is the process of determining how much money you have and how much money you spend. It will help you to manage your business and to maintain its balance sheet. The cash flow statement is a part of the financial statement that gives you a snapshot of your business’s cash inflows and outflows over a period of time.

The components of the cash flow statement are:

  • Cash inflows are those that are received from customers, such as payments for products or services, or payments for goods sold.
  • Cash outflows are those that go out to pay for expenses, such as salaries, taxes, interest on loans, and insurance.
  • Cash balance is your total amount of cash.

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Finance forecasting

Finance forecasting is an important accounting management tool. According to the survey, about 85% of the participants admitted that they used the technique. Forecasting is the process of predicting the year-end result while the year is still ongoing. The management to take corrective measures if needed.

For the Management Accountants, forecasting is a follow-up task of Budgeting. The budget of a financial year gets calculated, even before the year starts.

Management uses Financial forecasting to incorporate an Insight after planning a budget. The method and amount of forecasting vary from one organization to the other.

Cash Forecasting

Cash forecasting is one of the crucial tools used in the account management system. According to the CIMA survey reports, about 80% of the participants indicated that they followed the technique.

Cash forecasting predicts the liquidity condition of the organization. It is important, as unpredicted cash outflow can ruin the financial health of the business organization.

Even if the company has revenues and assets, the unavailability of Cash can cause the bankruptcy of the company.

Variance analysis

After cash forecasting, variance analysis is a crucial account management tool. The CIM survey report says that about 75% of the organizations use this tool.

Variance analysis aims to compare two related values. The comparison takes place between an actual and expected value. In general, it relies on the closing schedule of the organization. If the business has a monthly closing, management conducts variance analysis after every alternate month.

Tools used by the performance management system

  • Balance sheet: It is a management tool that is used to evaluate the financial position of an organization. It is also used to measure the assets and liabilities of an organization. It is a tool that helps in evaluating the financial health of an organization.
  • Business process reengineering: It is the process of changing the way a business is run. It involves a change in strategy, organizational structure, and information technology.
  • Performance-based management: It is the process of managing the organization, which is based on the performance criteria. The performance management system must be able to monitor and control all employees so that they can achieve their objectives and meet the organizational goals.

Use of planning tools used in management accounting

Strategic decision-making is an important task of account management. Important strategic management tools used in the organization are as follows:

  • SWOT analysis: It is a tool used to identify and examine the strengths, weaknesses, opportunities and threats of an organization.
  • Risk management: It is a process of identifying, measuring, controlling and communicating the risks of an organization.
  • Mission statement: It is a statement of the goals, objectives and strategies of an organization.
  • Future planning: It is a tool used to identify, estimate and plan the future needs of an organization.
  • Competitor analysis: It is a tool used to identify and measure the performance of competitors.

Advantages of budgetary planning

Budgetary planning is the process of planning the resources (money) that an organization needs to operate. The main purpose of budgeting is to allocate the resources among various categories, such as sales, wages, research and development, and administrative expenses.

Budgetary planning is a useful tool for managers to understand the financial resources that are required to run an organization. Budgeting is helpful in allocating resources among various categories, such as sales, wages, research and development, and administrative expenses.

  • Maximizes profit: The goal of budgeting is to maximize the profit of the organization. To do so, coordination and planning of different organizational functions are essential. Budgeting helps to control revenue, cost, and capital expenses while optimizing the use of resources.
  • Uniform Plans and policies: Budget planning centralizes the control over all divisions and departments. It helps the management in carrying out a uniform policy without getting affected by the authoritarian nature of the Enterprise.
  • Delegation of authority: Budgeting facilitates delegation of authority. It fixes the limit within which the authority can exercise its power. Executives and subordinates can make decisions and judgments staying within the budgetary limits.
  • It helps an organization in managing the quality, quantity and timing of resources to achieve organizational goals.
  • It helps in ensuring that the resources are used efficiently.
  • It helps an organization in planning and managing its financial resources.
  • It aids an organization in developing a corporate budget.

While budgeting has several advantages that are essential for an organization, it has disadvantages that Management should consider.

  • Budgeting, forecasting, and planning need not include the exact application of science. budgeting utilizes judgments and approximations that might not be 100% accurate. At its peak, Budgeting is an apprehension, no one knows exactly when it will happen.
  • Success and utilization of budgeting rely on cooperation and understanding from all the members of management. members are needed to take actions based on the Plan. It requires the top-level management to adhere to the plans and Offer Corporation. Oftentimes, budgeting fails As the top-level executive officer offers lip service to the budgeting.
  • Budgeting is merely a tool, it is neither a replacement nor it takes over the management.
  • Budget planning takes time. Management imposes too much expectation from budgeting. When the expectations don’t get fulfilled, Blame is food on a budget.
  • As the year-end period of the company approaches, employees realize the gap between the actual expense and the budget. Employees might get tempted to spend excessive amounts to get the allowance exhausted. Such activities might lead to less than optimal profit for the organization.

Ways in which organizations could use management accounting to respond to financial problems.

To meet the objectives, accounting management system depends on a variety of techniques including the following:

Margin analysis

Margin analysis is mainly concerned with the added benefits of product Optimisation. Margin analysis is one of the important functions of accounting management. It includes the evaluation of break-even analysis, which finds its application in listing the optimal product mix for an organization.

Constraint analysis

Product line analysis of an organization helps in identifying the bottleneck, and Problems created by this bottleneck, and its effect on the Company’s capacity to generate revenues.

Capital budgeting

Capital budgeting is the act of analyzing information Required to Make important decisions related to capital expenditure. Capital budgeting analysis helps the management to evaluate the net present value and rate of return to make budgeting decisions.

  • Inventory valuation

Inventory valuation includes assessing and identifying the actual cost of the company’s inventory and products. It helps to allocate and calculate the overhead cost, and the direct costs related to COGS ( Cost of product sold).

Integration of accounting management To the organization and its benefits

Accounting management is an important role in Controlling costs, supporting, Decision making of the organization. Management accounting Is the act of evaluating information, so that management can make effective decisions for the organization.

The advantages of accounting Management are as follows:

  • accounting management helps to increase organizational efficiency
  • Accounting management helps to fix the target, and product pricing
  • accounting management helps to forecast and prepare the budget, making it easy for the management to estimate expenses and income.
  • Accounting management helps to evolve better decision-making for the .organization
  • Accounting management helps to find ways by which companies can minimize production costs and maximize profitability.

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Unit 5 Management Accounting Assignment Help - Level 4 BTEC HND in Business

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University of Sunderland

Programme: BTEC Higher National Diploma in Business

Unit Number and Name: Unit 5 Management Accounting

Level: Level 4

Assignment Title - Management Accounting

LEARNING OUTCOMES

On successful completion of this module, students will have demonstrated:

• Demonstrate an understanding of management accounting systems. • Apply a range of management accounting techniques. • Explain the use of planning tools used in management accounting. • Compare ways in which organizations could use management accounting to respond to financial problems.

Unit Learning Outcomes:

LO1 Demonstrating and understanding of management accounting system. LO2 Appling a range of management accounting techniques.

Assignment Brief Number 1

ABC Co. Ltd. specialises in manufacturing electronic products. The range comprises of 2 products, Personal Computers (‘PC') and Video Players (‘VP'). The company's products have the data shown below.

                    Products                              PC VP

Maximum  monthly demand         Unit 10,000         20,000

    Direct labour hours per unit      hr 2             4

    Selling Price                      $1,200        1,600                   

    Unit variable costs

Direct Material                 $600          800

      Direct Labour                   $200          400

      Other variable O/H          $200          200

The company has adopted the OAR in term of direct labour hour. The total estimated fixed cost and direct hours during the year is $2.4m and 30,000 hours respectively.

The company is planned to manufacture a new product, I-Phone (‘IP') with estimated contribution of $600 per unit.

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP.

Noted: The Production Department is responsible for the planning, organising and control of the manufacturing process while the Procurement Department is responsible for the purchase of all raw materials.

You need to advise the manager the following issues: • Explain the meaning of management accounting, the different types of management accounting and role of management accountants (1.1, 1.2) • Explain the classification of costs that would help the managementdecision-making (2.1) • Calculate the unit costs of PC and VP based on absorption costing and marginal costing methods (2.2) • There is a special order for 10,000 units of PC at $1050 per unit: - which costing method should be used for the accept or reject decision (2.2); - calculate the costs using the costing method recommended above (2.2); • given that direct labour available is limited to 60,000 hours per month, advise the optimum production mix of PC and VP to maximise profit (2.3) • calculate the break-even units of IP and if the manager is confident that a target profit of $1,200,000 is achievable, what would be the corresponding target units sold (2.1, 2.3) • evaluate the proposal to spend an additional $600,000 to promote the IP so that selling price can be increased by $60 per unit to sell 6,300 units per month and discuss the corresponding pricing decisions (2.3)

Prepare a proposal to advise the manager who has no management accountingknowledge and background.

To achieve M1, you have to discuss other non-financial factors that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D1, you have to discuss other pricing strategies that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D2, you have to produce a clear, concise and structured proposal with technical language being accurately used for the manager.

Assignment Brief Number 2

LO3 Explaining the use of planning tools used in management accounting. LO4 Comparing ways in which organisations could use management accounting to respond to financial problems.

Assignment Brief:

Maximum  monthly demand         unit 10,000         20,000

    Selling Price                      $ 1,200        1,600                   

Direct Material                 $ 600          800

      Direct Labour                   $ 200          400

      Other variable O/H             $ 200          200

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively at $200 each. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP. The actual sale and material purchase for last December is 2,500 units and 50,000 units respectively.

Give your advice on the following issues:

Part A: Analyse and evaluating ABC's financial performances by using the various management accounting technique, and make the possible recommendations in dealing with the financial problems and the price strategies in revising its price (3.2, 4.1, 4.2)

Part B: Budgeting Process: • the major functions of budgeting process (3.1) • the advantages and disadvantages in operating a budgetary control system (3.1);

Part C: Budgetary Planning: • whether fixed or flexible budgets should be prepared for the coming January to March (3.1) • based on information provided in question, prepare the monthly budgets as follows: (3.1, M3) - sales budget - cash collection budget from sales (assuming 40% of current month sales being paid within the same month with the remaining 60% payable in the following month) - production budget (assuming monthly production units equals to monthly sales units) - raw material purchase budget (assuming the company purchases the exact quantity of raw material in each month to meet the monthly production requirement) - cash payment budget for raw material purchases (assuming payment being made in the month following the month of purchase) • prepare the monthly cash budget (assuming that the only other item is cash payment of $300,000 in January for the purchase of production equipment and that the projected cash andbank balance as at 1 January is $20,000) (3.1, M3)

Part D: Budgetary Control:

• if the actual purchase and usage of raw material amounted to $435,600 in January, calculate the raw material variance (4.1) • it is found that the actual purchase price of raw material is $66 per unit and the actual purchase and usage quantity is 6,600 units to produce 3,000 units of IP in January. Compute the raw material price and usage variances to analyse the raw material variance in question (4.1) • prepare a cost reconciliation statement reconciling budgeted and actual raw material costs for the month of January (4.1) • it is discovered that raw material was purchased in January from a new supplier not on the company's approved vendor list. Report your findings to the manager in accordance with the responsibilities of the relevant departments and recommend possible corrective actions for theidentified variances (4.1, 4.2, M3 and M4).

Prepare a proposal to advise the manager. To achieve D3, you have to evaluate how the planning tools respond appropriately to solving the financial problems to lead the organization to sustainable success.

unit 5 management accounting level 4 assignment

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Management accounting report

ASSIGNMENT BRIEF NUMBER 1

Executive summary

The management accounting is an important tool for assessing the financial position of the business. The management accounting takes into account the qualitative aspect of the business though undertaking correct pricing and other decisions. The unit cost of the product can be calculated differently using different products. The budgets are very important for the business as they help in controlling and evaluating the performance of the company.

Understanding of management accounting systems

Introduction to management accounting

Management accounting is the process that is related with identification, analysis, recording, and the presentation of the information in regard to financial aspects that will be used by the management of the company internally for the purpose of planning, making decisions and controlling the financial aspects.

It is important to integrate management accounting within an organization due to the following reasons: • It helps in formulation of overall strategies. • It helps in taking decisions in regard to resource allocation. • It helps in planning of costing and the control of the different operations and activities. • It helps in evaluation of the performance. • It helps in meeting different external reporting and legal requirements.

Difference between management and financial accounting

Different types of management accounting systems

Job costing system: This system helps in assigning cost of manufacturing to each and every product in the business and thus helps in recording track of the ordering expenses.

Price optimizing system: This system helps in the controlling the price of the resources related to the company. This system helps in making decisions in regard to prices of different products at the same time. It will also help in determining the levels of demand of products at changing levels of prices. Hence this helps in determining the structures of pricing in order to undertake promotion pricing, and discounted pricing.

Cost accounting system: This system helps in estimating the cost of the product and also takes into consideration the profitability of the organization, inventory and the process of controlling cost.

Inventory management system: This system helps in supervising the inventory and also the management of the stock. Thus it also helps in the efficient and effective flow of the inventory within an organization. Thus it helps in cost reduction in the business. (Mariam Nawaz, 2013)

Presenting financial information The management accounting information should provide accurate and true information to the managers of the business as the managers undertake critical business decisions with the management accounting reports.

Different management accounting reports • Budgeting reports: It helps in making plans for the company in order to analyze the performance of the company and also helps in evaluating the performance of the departments and cost controlling. • Accounts receivable aging report: This report helps in better management of the accounts receivables. Thus it helps in reduction of the level of the bad debts and thus maintaining efficient level of liquidity in the business. • Job cost reports: This report helps in proper identification of the cost, profits and the expenses in relation to specific job. Thus it provides indication of the aspect of the earning that is related with one particular job or product. • Performance report: This report helps in comparison of the actual performance with the budgeted performance. • Order information report: This provides information in regard to the operations of the company thus helps in managing the operations of the company in order to reduce the ordering cost of the products.

Apply range of management accounting techniques Cost The cost is the expenditure in monetary terms that is to be incurred in order to purchase different factors of production. Classification of cost • On the basis of nature: 1. Fixed cost: This is the cost that does not change with the level of production. 2. Variable cost: This is the cost that changes with every level of production. 3. Semi variable cost: This is the cost which is partly variable cost and partly fixed cost. This is the cost that does not change with the level of production but changes with the change in the facilities of production. 4. Marginal cost: This is the cost that is incurred by increasing one unit of production. • On the basis of expense: 1. Material cost: It is the cost that is incurred for purchase of raw material. 2. Labor cost: it is the amount paid to workers. 3. Overhead cost: It is the cost incurred for other expense of production. • On the basis of control: 1. Controllable cost 2. Uncontrollable cost • On the basis of relevance to decision making 1. Opportunity cost: It is the cost that is incurred for sacrificing the other best alternative course of action. 2. Sunk cost: It is the cost that is already incurred and is not affected by the new business activity. 3. Replacement cost: It is cost incurred for replacement of plant and machinery. 4. Real cost: It is the cost of the factors of production. 5. Conversion cost: it is the cost that is incurred for the conversion of the raw materials into the finished products. 6. Imputed cost: This is the imaginary cost that is being considered in order to make decision and does not involve outflow of cash. (Hasan, Md, 2015)

Special order for 10000 units of PC

The marginal costing method should be used for accepting decision as unit cost is $1000 and absorption costing method is used for rejecting decision as unit cost is $1160.

Cost of special order

Optimum product mix

The optimum product mix involves 20000 units of both PC and VP.

Computation of break-even point of IP and target units

Evaluation of proposal

The proposal should be accepted but due consideration should be given to the following factors: 1. The acceptance of proposal does not affect the production capacity of the company. 2. It does not affect the market demand of existing products. 3. It does not affect the working conditions in an adverse manner.

ASSIGNMENT BRIEF NUMBER 2

Analysis of financial performance

Marginal costing

Absorption costing

Computation of profit

Part B The major functions of budgeting are: • It helps in undertaking proper planning in the business. • It helps in improving the level of coordination in the business. • It helps in improving communication in regard to aims and objectives of company. • It helps in keeping control over the activities of the business. • It helps in evaluating performance of business. The advantages and disadvantages of operating in a budgetary control system Advantages • It defines aims and objectives of the company. • It helps in controlling the activities. • It helps in maintaining proper coordination • It helps in reducing cost by eliminating wasteful costs. • It helps in maintaining centralized control Disadvantages • It is very difficult under conditions with inflation • Involves high cost • The period for which it is period is not certain • Lack of support from top management may lead to failure. (Godin A.M., 2001)

Part C • Flexible budgets should be prepared for coming Jan to March as the flexible budgets can be changed in accordance with the level of sales and production. • Monthly budgets

Part D • Raw material variance= $435600-420000= $15600A • Computation of variance

• Reconciliation of actual and budgeted cost

• Recommendations for corrective actions and responsibilities of manager 1. The manager should purchase the material from authorized supplier after obtaining proper permission 2. The excess use of raw material should be checked by undertaking the regular check in operations. 3. Wastage should be avoided 4. Operations should be carried efficiently 5. Comparison of actual and expected performance should be done regularly in order to avoid financial loss to business. (Zalevsky V.A., 2009)

Conclusions The management accounting is an important tool in the performance of the business. It had been used effectively in order to improve the financial position of the business. The proposal to spent additional amount of fixed cost in order to sale higher units should be accepted. The budgets should be used as the base for the improvement of the financial position. The variances are calculated for the purpose of evaluation and accordingly corrective actions are taken.

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Unit 5 Management Accounting

P1. explain management accounting and give the essential requirements of different types of management accounting systems, p2. explain different methods used for management accounting reporting, p3 preparation of income statement by using marginal and absorption costing.

Management accounting is the process by which financial statistical information are put together. Management accounting is used to produce reports annually which are used by managers on a day to day basis to make decisions for the company.

  • Cost analysis in a company day to day decisions need to be made. For example a company is unsure where to focus and how to sell their products etc then they need to see the financial side of their business. This is where management accounting assignment helps in financial decision making.
  • Management accounting provides a data-driven look at how to grow a small business budgeting. Management accounting is very beneficial to a company in providing the financial side of the business which helps the company to always improve their business by making decisions and changes.
  • Inventory accounting systems are used to plan and track inventory levels and inventory related activities. One of the most common inventory system is bad code tracking this is where each of the item is tagged with a bar code. As the inventory items are brought into a warehouse the bar codes are scanned to add or subtract from inventory. Bar code systems can be also used to track for and account for items as they are moved around the warehouse.
  • Industry-specific accounting- Accounting systems also include industry-specific applications. A retail accounting system, for example, has different requirements than in other industries. Sales are captured at the point of sale using computerized point-of-sale cash registers. When items go on sale, the retail accounting system must track and properly report on merchandise markdowns. Legal accounting software has other specific requirements as well, including the tracking of time spent by attorneys, dollar amount of time billed out based on an hourly rate and the utilization rate of each attorney.

The benefits of management accounting systems

  • Management accounting is very beneficial to every business JJD gets many benefits from management accounting. Management accounting helps JJD carry out planning for its future. Management accounting reports contain detailed reports of specific products, market research and regional information therefore JJD knows which area of their business they were to invest in.
  • Management accounting is also beneficial because it gives JJD greater control over their business. Due to the analyzed report, JJD knows which area to focus on and which areas they need to improve in.
  • Management accounting helps JJD lower their operational expenses. JJD uses management accounting information to review the cost of economic resources. In the past JJD has used valuable information from JJD accounting and changed the way of shipping in order to cut down on shipping costs. In the past JJD had only one warehouse from which it had to ship all over the u but now it has 5 warehouses which cuts down on their petrol usage and saves their shipping costs.
  • JJD has also used management accounting in order to improve cash flow. Their management accounting reports created have given them a superb budget for their entire company. This has helped JJD to save some of those extra unnecessary expenses that are not really needed in the company.
  • Cost accounting is an approach to evaluate the overall costs that are associated with conducting business. Cost accounting is used in general by managers in order to utilize to determine what type and how many expenses with maintaining the current business model.
  • Performance reports are calculated every year however some companies create it monthly and quarterly as well. Managerial accountants use budgets to compare actual budgeted amounts. The differences calculated are analyzed calculated when determining new budgets and all information regarding these amounts is listed in a performance report.
  • Throughput accounting is a new concept relating to the basic principles of management accounting. Throughput accounting concept was developed by Eli goldrath an Israeli business management guru and originator of theory of constraint.

Accrual accounting- If a company uses   accrual accounting,   it records revenue when the actual transaction is completed (such as the completion of work specified in a contract agreement between the company and its customer), not when it receives the cash. That is, the company records revenue when it earns it, even if the customer hasn’t paid yet. For example, a carpentry contractor who uses accrual accounting records the revenue earned when he completes the job, even if the customer hasn’t paid the final bill yet.

Expenses are handled in the same way. The company records any expenses when they’re incurred, even if it hasn’t paid for the supplies yet. For example, when a carpenter buys lumber for a job, he may very likely do so on account and not actually lay out the cash for the lumber until a month or so later when he gets the bill.

Marginal and absorption costing system both are important for the company. By using both of these approaches, profit calculation can be done by the business firm. Income statement refers to the statement where cash inflow amount which is revenue and outflow elements like varied sort of expenses are included. From revenue expenses values are subtracted to identify whether company earn profit or loss in its business. Usually, from sales revenue direct expenses are subtracted and in this way, gross profit value is computed. Thereafter, from gross profit amount, indirect expenses are subtracted and by doing so, net profit amount is calculated (Zimmerman and Yahya-Zadeh, 2011). Thus, it is assumed that income statement have significance for the firms. In management accounting, income statement can be prepared in two ways which are marginal and absorption costing method. There is large difference between both approaches because calculation method vary in case of these methods. It MC method,out of FC and VC exclusively expenses that are not stable in nature are taken in to account. Apart from this, in absorption costing,all sort of expenses are considered for costing purpose and profit calculation. Due to this reason, profit amount revealed by both these approaches are also different from each other. Marginal costing method reflects higher amount of net profit then absorption costing method. However, this does not mean that specific calculation approach is more effective than other approach.This is because fixed expenses are not incurred directly in production of goods (Macintosh and Quattrone, 2010). Hence, manager is always interested in knowing whether variable expenses have high, low or moderate impact on the firm profitability. On other hand, manager would like to use absorption costing method. One of the main reason behind such kind of belief is thatall sort of expenditures are included in the calculation process. Fixed expenses are directly not related to production of goods and services but fixed assets are used by the business firms for production of goods. Hence, it can be said that it is very important to take in to account fixed expenses in profit calculation. So, there is significance of both marginal and absorption costing methods for the business firms (Baldvinsdottir, Mitchell and Nørreklit, 2010). It depends on the manager requirements and discretion that which approach of profit calculation it think is more appropriate for the company. It means that there are advantages of using both approaches to managers in respect to making business decisions. However, most of times managers prefer to use marginal costing method in the business. This is because they give much importance to the expenses that are directly related to the production of goods and services at workplace.

Table 1: Profit by absorption costing method

It can be observed that in case of absorption costing method, net profit amount to 900. Under this, first of all sales revenue amount is recorded which is 100000 and thereafter, from cost of production closing stock amount is deducted. From sales cost of goods sold value is subtracted and in this way gross profit amount is calculated. Variable expenses are listed in the calculation table and it can be observed that variable sales indirect expense amount to 6000 followed by fixed cost production overhead value which is 8000 and administration expenses whose value is 7000 followed by selling cost whose value is 100. On this basis, it can be said that systematic approach is followed for calculation purpose. From gross profit amount, all expenses are subtracted and by doing so, net profit is computed whose value is 900.

Table 2: Profit by marginal costing method

In case of marginal cost method, sales value again is 100000 and like absorption costing method from cost of production closing stock amount is subtracted in marginal costing method. Fixed overhead expenses are subtracted from newly computed value. In this way, overall production cost of sales is calculated. From sales revenue amount 85900 value is subtracted and in this way gross profit amount is calculated. Finally, from gross profit variable expenses are subtracted and in respect to fixed cost only, fixed cost administration cost is subtracted. Here major, difference comes between fixed and marginal costing method at a point where fixed production expenses were subtracted along with variable expenses in absorption cost but in marginal costing, fixed production overhead are directly deducted from sales (Lukka and Modell, 2010). Hence, profit amount vary for MC and AC method as it may be observed that in MC method, profit amount is 1000 and same in case of AC method is 900. Thus, it is clear that there is difference in the profit amount that is computed by using marginal and absorption costing methods. Managers must use both these methods for profit calculation and must use both of them to make business decisions. Like financial models, calculation models in respect to marginal and absorption costing can be developed and by changing values of fixed and variable expenses, it can be identified that with change in these expenses, what sort of variation comes in profit amount. Such kind of models can assist firm in making business decisions in respect to setting of target for fixed and variable expenses which assist firm in earning determined amount of profit in the business. It may be assumed that MC and AC method have significance for the firms and managers because by using these approaches in different manner profit calculation can be done and performance can be accessed. Hence, managers must use both these approaches to make business decisions.

What are common concepts and techniques of managerial accounting?

 http://www.investopedia.com/ask/answers/062915/what-are-common-concepts-and-techniques-managerial-accounting.asp

In-text:   (Tarver, 2017)

Your References:   Tarver, E. (2017).   What are common concepts and techniques of managerial accounting? . [online] Investopedia. Available at: http://www.investopedia.com/ask/answers/062915/what-are-common-concepts-and-techniques-managerial-accounting.asp [Accessed 30 Oct. 2017].

HE IMPORTANCE OF MANAGEMENT ACCOUNTING FOR PROFESSIONAL ACCOUNTANTS IN BUSINESS – GAA ACCOUNTING

 Drilling data Much of management accounting focuses on the analysis of data, experts say, and how that data is acquired and analysed differentiates the management accountant from the auditor. As K.M. Wong, Group Manager, Finance and Accounting, at Power Assets Holdings and an Institute Council member, points out, “one of an accountant’s essential functions is providing useful information to company management.”

In-text:   (Gaaaccounting.com, 2017)

Your Bibliography:   Gaaaccounting.com. (2017).   The Importance of Management Accounting for Professional Accountants in Business – GAA Accounting . [online] Available at: http://www.gaaaccounting.com/the-

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.

Lukka, K. and Modell, S., 2010. Validation in interpretive management accounting research.   Accounting, organizations and society .  35(4). pp.462-477.

Macintosh, N.B. and Quattrone, P., 2010.   Management accounting and control systems: An organizational and sociological approach . John Wiley & Sons.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.   Issues in Accounting Education .  26(1). pp.258-259.

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Unit 5 Management Accounting Assignment

Unit 5 Management Accounting Assignment

1. Principles of management accounting

Management accounting is a profession that includes integration of financial and non-financial statements to provide useful information to the management so that the management can take effective decision for the organization. Management accounting plays a very major role in providing information to the people of management. The scope of management accounting is very wide as it contains all types of accounting information that are related to the particular organization. The principles of management accounting are as follows.

a) Influence:

Communication provides insight that is influential. The role of management accounting begins as well as ends with communication. The utilization of management accounting is depending upon how well the information has been communicated so the major principle of management accounting is communication as the influence of management is depending upon the communication and better communication leads to good decision making so it is very necessary for every organization to focus on communication of management accounting information in proper way so that it can influence the management.

b) Relevance:

Information is relevant. Management accounting can lead to better decision making when the information provided to the management is relevant. Management accounting includes all type of information that is related to the organization whether they are financial or not, whether they are relating to the social and cultural issues of the organization. In other words all the information that are related to the organization and can affect the decision making must be included in the management accounting as all these information are relevant for the organization (Zaman & Akbar, 2013).

c) Analysis:

This principle is also known as value. Impact on value is analyzed. Management accounting helps the management to analysis the provided information properly so that management can evolve better decision making for the organization so right analysis is very necessary for every organization as analysis of the management accounting information reflects the decision making of the organization. Management should analysis the information properly so that they can understand the environment of the organization and can take better decisions.

Stewardship build trust. This principle focuses on the working of management accountants that these persons must be ethical and accountable to the organization. Management accountants must be trust worthy person that they should analysis the management accounting information in right ways so that they can take effective decisions for the organization. Management accountants must consider the trust of stakeholders and also they should be responsible for betterment of the organization through better decision making. They should fulfill all their responsibilities so that this could have a positive impact on the growth of the organization.

2. Role of management accounting and management accounting systems

Management accounting refers to the effective use of all those information which is related to management and which evolves the efficient decision making of the organization and management accounting systems refers to the process of collection of relevant data from the business operation and then converting them into management accounting information. Role of management accounting and management accounting system is as follows.

a) Planning:

Planning is preparation for the achievement of the objectives in advance. Planning is done with a view to achieve short term as well as long term goals of the organization so management accounting helps in forecasting the budgets so that estimations for the expenses and incomes can be done in advances and through this management accounting systems helps in analyzing the relevant information so that goals of the organization can be achieved.

b) Organizing:

organizing refers to the proper organization of people in the organization so that a proper framework can be established and roles and responsibilities of each department can be assigned. Management accounting helps in taking those decisions in regard to assignment of roles and responsibilities so that a proper hierarchy of the work can be maintained in the organization and in this management accounting systems also plays a very major role in measuring the performance of the people of management so that operations of the organization can be adjusted in proper ways.

c) Controlling:

Control is the process of measuring the actual performance and then comparing it with estimated performance so that control can be established in the organizations so that the overall performance of the organization can be improved and this could be done through management accounting and management accounting systems as management accounting helps in providing relevant information to the organization so that measurement of performance can be done properly and management accounting systemhelps in defining the information which is relevant for this purpose (Yakshibaev, 2011).

d) Decision making:

The main role of management accounting and management accounting system is providing effective decision making to the organization so management accounting helps the management to take better decisions for the organization.

3. Use of techniques and methods used in management accounting

There is various type of management accounting systems such as cost accounting systems, inventory management systems, job costing systems, price-optimizing systems etc.

4 Calculation of income statements

A) comparative absorption income statement.

                                                                  

b) The differences in the profits is due the method that is used for the costing as both the profits are calculated with different methods of costing as in absorption costing method all the expenses are segregated and then are deducted from sales so this leads to increase of expenses and thus it lowers the profits where in marginal costing method expenses are deducted into two categories which is into fixed and variable expenses. In this method first of all fixed costs are deducted from the sales which gives the contribution and then variable costs are divided from the contribution which provides the profit and through this the expenses are segregated into two heads (Schmidlin, 2014).

c) FIFO refers to first in first out system of inventory valuation where the inventory is valued in such way that the first come inventory must be sold first and the records of inventory are made in such a way that inventory first come are recorded first and they are recorded for the sale first. The main focus of FIFO system is that the oldest inventory must be sol first without considering any other inventory. This method is the most used method of inventory valuation s it provides a clear picture of inventory. AVCO refers to Average cost or weighted cost method where inventory valuation is done by dividing the total cost of good that are available with sum of total purchases and inventory. This method is also applied in periodic inventory system and perpetual inventory system. Both the methods FIFO and AVCO are used for inventory valuation.

5. Integration of management accounting to the organization and its benefits.

Management accounting plays a very major role in an organization management accounting helps in supporting controlling, planning, organizing, decision making of the organization. Management accounting is a process of evaluating the information relating to the organization so that they can use that information in effective decision making of the business. Management accounting integrates in each and every level of the organization as all the information which are related to the organization whether they are financial or not, they are related to internal environment of the organization or external environment of the organization, whether the information are related to the social and cultural issues of the organization. In short all the information that is related to the organization and can affect the decision making is included in management accounting (Robnson. et al, 2012).

Management accounting is very useful for the organization as it impacts the decision making and decision making of the organization leads to the success of the organization so there is a direct link between management accounting and growth of the organization so the benefits of management accounting in an organization are as follows.

  • Management accounting helps in increasing the efficiency of the functions of management.
  • Management accounting helps in fixing the target, fixing the prices of the products.
  • Management accounting helps in forecasting and preparing the budgets so organization can estimate its income and expenses.
  • Management accounting helps in providing tools and techniques that increases the reliability of functions of business.
  • Management accounting helps in establishing the planning and control in all the levels of organization.
  • Management accounting helps in evolving better decision making for the business.
  • Management accounting helps in finding ways to reduce the cost of production so that higher profits can be generated.
  • Management accounting helps in establishing proper communication among all the levels of the organization.
  • Management accounting helps in identifying the overall performance of the organization.
  • Management accounting helps in cutting the extra costs of the organization so that the benefits could be earned by the organization.
  • Management accounting helps in integrating the individual efforts of the people of the organization towards the achievement of organizational goals and objectives.
  • Management accounting helps in implementing the expansion plans in the organization.
  • Management accounting helps in defining the process for achieving the goals of the business.

There are several abovementioned benefits of management accounting in an organization so an organization needs to utilize its management information in right ways in order to achieve its long term as well as short term goals.

A) A budget is a forecast of what is expected to happen in a business during the next year.’

Budget is a statement which is prepared with a view to estimate the income and expenses of future year on the basis of present financial performance of any organization. One of the director of Nero Limited has raised a query with regard to this statement so this statement of director is partially right as the budget is prepared to estimate the income and expenses of Nero Limited for upcoming years but it cannot be determined what is expected to happen in next year as the budget only considers the financial values so the cash flows of Nero Limited can be forecasted so that the company can estimate its incomes and expenses but except financial terms what is doing to happen in next year cannot be forecasted through budget. The main purpose of preparing is the budget is to estimate the cash inflows and cash outflows of Nero Limited for next year.

b) ‘Activity-based budgeting is an approach that takes account of the planned volume of activity to .deduce the figures to go into the budget.’

Activity based budgeting is a type of budgeting where budgets are prepared on the basis of each activity. As the comment raised by the director of Nero Limited Activity-based budgeting is an approach that takes account of the planned volume of activity to deduce the figures to go into the budget is right as the main aim of activity based costing is to prepare budgets on the basis of the activities as well as the overall cost is also deducted from each activity. The approach which is used for activity based budgeting is that the planned volume of activity is deducted from the particular activity and through this the budget is prepared. In activity based budgeting overhead costs plays a significant role in total costs. In activity based budgeting activities and their costs are identified and then the cost from that particular activity is deducted (Morana, 2014).

Scenario 2 (i)

A. cash budget is a plan that shows the inflows and outflows during the period for which it is calculated. it helps in evaluating if the business has sufficient cash to operate its day to day activities or not. it includes revenues and expenses paid by the business and reflects the position as surplus or deficit..

Cash budget is significant for a business.

  • Opportunities – By evaluating the business’s liquidity position opportunities of expansion, acquisition or merger can be known.
  • Strategy – If the business is planning launch of a new product or expansion but it has insufficient funds then it can make plans or strategies for borrowing money and the source as well.
  • Decision making – It helps the management make decisions.
  • Tax planning – It helps in estimating the profit that will be earned by the business for the period for which it is calculated thus making it easier to plan for taxes and penalties, fines and additional payment of tax can be stopped (Hall & Westerman, 2013).

b. The cash budget is as follows:

C .information required by the banker for granting overdraft for further expansion:-.

  • The amount to be granted – The banker will consider the amount that is to be granted. In case a huge sum is involved it will affect the standing of the bank.
  • Purpose – The banker will analyses the purpose for which the loan is to be granted and will further analyses if the expansion program to be carried out by the organization is profitable or not as that will affect the repayment of the loan amount.
  • Security and mortgage – The banker will consider if the security that is offered or mortgaged is easily saleable or not and its worth is more than the loan amount or not.
  • Repayment tenure – The banker will also consider the tenure of repayment as the bank would want the repayment in easy and quick installments.

Scenario 2 (ii)

  • If the quantity of other two services cannot be expanded to use the spare capacity, the fixed costs allocated on the standards services will be a sunk cost and thus it is not relevant for decision making since even of the standard services are not offered, the fixed costs will be incurred. Hus the report prepared by accountant includes fixed cost which cannot be used for identifying the profit from standard service for decision making. There is a contribution of £15 (90 -75) from standard services and therefore it is advisable to offer these services next year also.
  • If the spare capacity can be used to render a new service Nova, then standards services shall not be rendered net year since the contribution from Nova services will be £25 (85 – 60) which is higher than the contribution from standard services.
  • In such case the opportunity cost of not offering the standard service will also be added to the variable cost. Thus, the minimum price acceptable will be £35 + £15 = £50.
  • If a resource is scarce ad restricting sales then in such case profit can be maximized by utilizing the resource for selling only those products or services which results in maximum contribution. The ranking shall be given to each category on the basis of contribution per unit from each category since fixed cost is a sunk cost and therefore in this case highest contribution will result in maximum profits.

i) ‘Afavorable direct labor rate variance can only be caused by staff working more efficiently than budgeted.’

Direct laborrate variance includes elements of rate of labor wages and time consumed by labor. Thus a favorablelabor rate variance occurs when either he staff works more efficiently than planned or the staff is replaced with cheaper labor force with low wage rates. Thu the above statement is partially correct.

ii) ‘When calculating variances, we ignore differences of volume of output, between original budget and actual, by flexing the budget. If there were a volume difference, it is water under the bridge by the time that the variances come to be calculated.’

While calculating variances, the differences of volume of output are ignored between actual and budget by flexing the budget. The variances in the volume or output are calculated separately. Thus, this helps in the estimation of effect on the level of activity and is not the water under the bridge by the time variances are calculated.

iii)‘ Most businesses do not have feedforward controls of any type, just feedback controls through budgets.’

Feedback controls refer to as the implementation of controls after performance whereas feed forward controls are those which are implemented before the performance of business operations. Budgets are not the feedback controls but are feed forward controls since they help in controlling the business operations before their performance. However variance analysis is conducted afterwards to monitor the deviations.

a) Cash flows are used in the IRR, NPV and payback back period as all these theories includes the present value of cash. In all those theories cash is included and also during consideration of the expansion plans all these theories are to be considered as this provides a fair view of choosing any project as well as it calculates the present value for a future cash so through this the present value of the project is also considered.

These theories helps in selecting the project as the project with positive NPV is beneficial for the business and the project having negative NPV is not beneficial for the business so if a project has to choose any project on the basis of NPV then it should go with the project which is having higher NPV. IRR refers to the internal rate of return which helps in choosing the suitable project for the business on the basis of IRR so if a project is to be chosen on the basis of IRR then the project having higher IRR must be choose.Payback period refers to the present value of future cash. Profit flows of the business are circulated within the profit and loss statement of thee business and cash flows are used in these theories because these theories includes the value of cash.

(I) Calculation of NPV, IRR and payback period

Payback period: There is no payback period in the projects as the payback period defines the time period in which the investment of the whole project will be recovered or can be said as the time period in which the amount that is invested in the project is equal to the inflows that are achieved from the project so in both these projects the cash inflows of the year 2 are negative that represents that both the projects have earned loss in this year and also both the projects have not earned much profits in the year so that the initial investment of the projects can be covered. So there is no payback period of both the projects.

ii) Selection of a project

If Nero limited want to choose one project on the basis of calculation of NPV and IRR then if Nero limited chooses a project on the basis of NPV then none of the project is profitable for the company as both the projects are having negative NPV but if Nero limited has to choose one project between both projects then Nero limited should go for the project 2 has it is having higher NPV in comparison to project 2 and if Nero limited has to choose a project between both the projects on the basis of IRR then Nero limited can choose both the projects as the IRR of both the projects are same so overall Nero limited should go for the project 2 on the basis of NPV and IRR.

Cost plus pricing is a strategic tool for determining the price of a product by adding fixed costs, variable costs and a markup percentage to arrive at a final cost of the product.

The drawbacks of using cost plus pricing approach are:-

  • Limits innovation – This approach limits creativity or distinctive features that can be added to the product as keeping a low price is difficult.
  • Low satisfaction to value for money – This pricing technique is quite unrealistic and the target group might not find the price of the product satisfactory or they may find it to be overpriced.
  • Loss of revenue – By adopting cost plus pricing method, competitive aspect is lost.
  • Decrease in gross profit – Suppose if the cost of a product is coming down to 40 per unit and after markup it comes to 50 per unit, gross profit of 10 per unit is earned, but if the material cost increases causing the product to cost 42 per unit then the gross margin will be significantly reduced.
  • Overpricing - This method takes into consideration sunk cost and historical cost also which increases the price of the product thus makes it overpriced (Grimm, 2016).

B. It is important to hold inventories.

  • To meet unexpected demand – The business is considered to be successful when the demand is easily met by the supply. In times of crises when the demand suddenly increases the supply can be made smoother if sufficient stock of inventory is held.
  • Seasons – Holding inventory based on seasonal changes is generally followed in businesses which are on boom seasonally. For instance, holding inventory of woolens in winters, raincoats and umbrellas in rainy season.
  • Discounts – When inventory is purchased in larger quantity more discounts is offered which is lucrative as it will have a direct impact on reduction of cost and rise in profit margin.
  • Hedging – If rise in price is expected then more quantity of inventory is held for deriving benefits from increased price and in case taxes are to be levied in future those could be saved and hedging can also be done.
  • Saving of freight and transportation expenses – If large quantities of inventories areordered at once, transportation cost can be saved.

c. (i) Calculation of ratios to measure efficiency of working capital management for two years

Current Ratio = Current assets/ current liabilities             2015    = 579/195 = 2.97             2014   = 732/225 = 3.25 Acid test ratio = Current assets – Prepaid expenses – inventory/ current liabilities             2015    = 579 - 200/195 = 1.94             2014   = 732 – 250/225 = 2.14

(ii) The method which can be used by the management of this company to exercise control over its inventories and receivables includes inventory management tools such as ABC method of Inventory Valuation, factoring of receivables, controlling bad debts etc.

(iii) Operating cycle provides the information to the management accountants about the period in which the funds invested in the business operations will be recovered from passing through all the stages of operating cycle. The operating cycle of the company for two years can be calculated as follows:

Operating cycle = Days Inventory outstanding + Days Sales Outstanding + Days Payable Outstanding 2015 = (200+160/2)/ (1,080/365) + (375/1,800)*365 – (195/1,120)*365             = 60.83 + 76.04 – 63.55 = 73.32 2014 = (200+250/2)/ (1,125/365) + (480/1,920)*365 – (225/1,175)*365             = 73 + 91.25 – 69.89 = 94.36

  • Abazari, Y., Hosseini, S.E., Mohemi, M., Goldani, H. & Shakiba, H. 2013, "Analytical study of application of capital budgeting techniques in the food industrial of Mashhad Tous industrial units and to identify existing bottlenecks",Advances in Environmental Biology, , pp. 2048.
  • Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data", Agricultural Finance Review,vol. 72, no. 2, pp. 262-272.
  • Baker, H.K. & English, P. 2011;2013;, Capital Budgeting Valuation: Financial Analysis for Today's Investment Projects, 1. Aufl.;1; edn, Wiley, Hoboken.
  • Barth, M.E., Konchitchki, Y. & Landsman, W.R. 2013, "Cost of capital and earnings transparency", Journal of Accounting and Economics, vol. 55, no. 2-3, pp. 206-224.
  • Blanco, B., Garcia Lara, J.M. & Tribo, J.A. 2015, "Segment Disclosure and Cost of Capital", Journal of Business Finance & Accounting, vol. 42, no. 3-4, pp. 367-411.
  • El-Dalabeeh, A.K. 2013, "The Role of Financial Analysis Ratio in Evaluating Performance: (Case Study: National Chlorine industry)", Interdisciplinary Journal of Contemporary Research In Business, vol. 5, no. 2, pp. 13.
  • Grimm, S.D. & Blazovich, J.L. 2016, "Developing student competencies: An integrated approach to a financial statement analysis project", Journal of Accounting Education, vol. 35, pp. 69.
  • Hall, J.H. & Westerman, W. 2013, "Basic Risk Adjustment Techniques in Capital Budgeting" in .
  • Longinidis, P. & Georgiadis, M.C. 2011, "Integration of financial statement analysis in the optimal design of supply chain networks under demand uncertainty", International Journal of Production Economics, vol. 129, no. 2, pp. 262-276.
  • Mendes-da-Silva, W. & Saito, R. 2014, "STOCK EXCHANGE LISTING INDUCES SOPHISTICATION OF CAPITAL BUDGETING", RAE : Revista de Administração de Empresas, vol. 54, no. 5, pp. 560-574.
  • Moehrle, S., Stober, T., Jamal, K., Bloomfield, R. & Christensen, T.E. 2010, "Response to the Financial Accounting Standards Board's and the International Accounting Standard Board's joint discussion paper entitled 'Preliminary Views on Financial Statement Presentation.'",Accounting Horizons, vol. 24, no. 1, pp. 149.
  • Morana, C. 2014, "Insights on the global macro-finance interface: Structural sources of risk factor fluctuations and the cross-section of expected stock returns", Journal of Empirical Finance, vol. 29, pp. 64-79.
  • Mukherjee, T.K. & Al Rahahleh, N.M. 2013, "Capital Budgeting Techniques in Practice: U.S. Survey Evidence" in .
  • Puri, A.K. 2014, "Financial Statement Analysis and Security Valuation", Abhigyan, vol. 32, no. 2, pp. 74.
  • Radu, S.C. 2013, "Initial Public Offering – Finance Source of Stock", Finance : Challenges of the Future, vol. 1, no. 15, pp. 206-213.
  • Robinson, T.R., Broihahn, M.A., Henry, E. & Pirie, W.L. 2012, International Financial Statement Analysis Workbook (CFA Institute Investment Series), 2. Aufl.;2;2nd; edn, Wiley, Hoboken.
  • Ruckova, P. 2015, "Dependency of return on equity and use of finance sources in building companies in V4 countries",E+M Ekonomie a Management, vol. 18, no. 3, pp. 73.
  • Schmidlin, N. 2014, The Art of Company Valuation and Financial Statement Analysis: A value investor's guide with real-life case studies, 1st edn, John Wiley & Sons Inc, GB.
  • Yakhshibaev, G. 2011, "Sources Of Short-Term Finance And Investment Opportunaties", European Journal of Business and Economics, vol. 2.
  • Zaman, H. & Akbar, M.I. 2013, "Exploring non-traditional sources of development finance: The case of remittance in Bangladesh", Progress in Development Studies, vol. 13, no. 2, pp. 105-116.

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Unit 5: Management Accounting

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This unit discusses management accounting. Accountancy is more than just calculating profit and loss. Management accountants help larger and more mature companies make tough financial decisions that shape their future.

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BTEC Unit 5 Accounting Principles HNC Level 4 Assignment Sample, UK

Pearson BTEC Higher National Certificate in Business

The purpose of the BTEC Unit 5 Accounting Principles at HNC Level 4 is to provide students with a comprehensive understanding of the fundamental accounting principles that are essential for financial operations and effective decision making within organizations. Throughout this unit, students will gain both theoretical knowledge and practical skills in various financial and management accounting techniques.

By the end of the unit, students will be equipped to support senior colleagues in tasks such as budget preparation, analysis of financial statements, and interpretation of performance using financial ratios. Additionally, students will explore broader aspects of accountancy, including ethics, transparency, and sustainability. This unit serves as a foundation for students to progress to a higher level of study in the field of accounting.

Overall, the unit aims to develop students’ competence in financial reporting, control, and analysis, enabling them to contribute to an organization’s strategic formulation and implementation through the provision of accurate and relevant financial information.

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Assignment Brief 1: Examine the context and purpose of accounting

Accounting plays a crucial role in the functioning of organizations by providing financial information that helps stakeholders make informed decisions. The context of accounting encompasses the economic, legal, and social environments in which businesses operate. It involves recording, classifying, summarizing, and interpreting financial transactions to generate useful reports and statements.

The purpose of accounting is to provide reliable and relevant information about an organization’s financial position, performance, and cash flows. This information aids various stakeholders in making important decisions. 

Internal users, such as management, use accounting information to plan and control business activities, assess profitability, and make strategic decisions. They rely on financial statements and reports to evaluate the company’s performance, identify areas for improvement, and allocate resources effectively.

External users, such as investors, creditors, and government agencies, utilize accounting information to assess the financial health of an organization. Investors rely on financial statements to make investment decisions, evaluate the profitability and growth potential of a company, and assess its risk profile. Creditors use financial information to determine creditworthiness and assess the ability of an organization to meet its financial obligations. Government agencies use accounting data to enforce tax regulations and ensure compliance with accounting standards.

In summary, accounting serves the purpose of providing financial information to internal and external users for decision-making, planning, control, and evaluation of an organization’s financial performance.

Assignment Brief 2: Prepare basic financial statements for unincorporated and small business organizations in accordance with accounting principles, conventions, and standards

To prepare basic financial statements for unincorporated and small business organizations, you would typically follow these steps:

  • Gather financial information: Collect all relevant financial data, including transaction records, bank statements, invoices, receipts, and other supporting documents.
  • Record transactions: Apply the double-entry bookkeeping system to record transactions in the appropriate accounts. This involves debiting and crediting accounts to reflect increases and decreases in assets, liabilities, equity, revenues, and expenses.
  • Prepare trial balance: Create a trial balance by listing all the accounts and their balances to ensure that debits equal credits. This step helps identify any errors before proceeding to the financial statements.
  • Create financial statements:
  • Income statement (also known as profit and loss statement): Summarize the revenues and expenses over a specific period to determine the net income or net loss of the business.
  • Balance sheet: Present the financial position of the business by listing its assets, liabilities, and owner’s equity at a specific point in time.
  • Statement of cash flows: Report the cash inflows and outflows from operating, investing, and financing activities to provide information about the organization’s cash flow position.
  • Apply accounting principles and conventions: Ensure that the financial statements adhere to generally accepted accounting principles (GAAP) or relevant accounting standards applicable to the jurisdiction. Follow accounting conventions, such as the accrual basis of accounting, unless otherwise specified.
  • Review and finalize: Review the financial statements for accuracy and completeness. Make any necessary adjustments or corrections before finalizing them.

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Assignment Brief 3: Interpret financial statements

Interpreting financial statements involves analyzing and understanding the information presented in the financial reports. Here are some key steps to interpret financial statements effectively:

  • Review the income statement: Analyze the revenue and expense figures to assess the profitability and performance of the business. Look for trends and changes in revenue, gross profit margin, operating expenses, and net income over time.
  • Examine the balance sheet: Evaluate the organization’s financial position by analyzing its assets, liabilities, and owner’s equity. Pay attention to liquidity ratios (e.g., current ratio) to assess the company’s ability to meet short-term obligations. Assess the debt-to-equity ratio and leverage to understand the company’s financial risk.
  • Analyze the statement of cash flows: Assess the cash inflows and outflows from operating, investing, and financing activities. Look for positive cash flow from operating activities, as it indicates the business generates sufficient cash to support its operations. Analyze investing and financing activities to understand how the company is investing in assets and raising capital.
  • Compare with industry benchmarks: Benchmark the financial statements against industry averages or competitors to gain insights into the company’s performance relative to its peers. Identify areas where the business outperforms or lags behind industry standards.
  • Consider non-financial factors: While financial statements provide valuable information, they may not capture all aspects of a business’s performance. Consider non-financial factors, such as market conditions, industry trends, competitive landscape, and management expertise, to develop a holistic understanding of the organization’s financial health.
  • Identify strengths and weaknesses: Use the financial statement analysis to identify the company’s strengths, such as high profitability, strong liquidity, or efficient asset management. Also, identify weaknesses or areas for improvement, such as low profitability, excessive debt, or slow inventory turnover.

Assignment Brief 4: Prepare budgets for planning, control, and decision-making using spreadsheets

To prepare budgets using spreadsheets for planning, control, and decision-making, follow these steps:

  • Identify budgeting objectives: Determine the purpose and scope of the budget. Clarify whether it is for the entire organization, a specific department, or a particular project. Define the time period and the level of detail required.
  • Gather relevant information: Collect historical financial data, sales forecasts, cost estimates, and other relevant information that will form the basis of the budget.
  • Create a spreadsheet: Use spreadsheet software like Microsoft Excel or Google Sheets to build a budget template. Set up columns for different budget categories such as revenues, expenses, and capital expenditures.
  • Estimate revenues: Based on sales forecasts, estimate the revenue for each period. Consider factors such as pricing, sales volume, market trends, and customer behavior.
  • Determine expenses: Identify and categorize the various expenses associated with the business. Estimate the cost of goods sold, operating expenses, and other relevant costs. Consider historical data, market conditions, inflation rates, and any planned changes in operations.
  • Incorporate non-financial factors: Consider non-financial factors that can impact the budget, such as changes in technology, industry regulations, or market competition. Factor in any known external influences that may affect the organization’s financial performance.
  • Calculate subtotals and totals: Use formulas and functions within the spreadsheet to calculate subtotals and totals for each category. Ensure the calculations are accurate and linked to the appropriate cells.
  • Review and adjust: Review the budget for accuracy, completeness, and alignment with organizational goals. Make necessary adjustments to ensure the budget reflects realistic expectations and objectives.
  • Monitor and control: Once the budget is in place, regularly monitor and compare actual financial performance against the budgeted figures. Identify any significant variances and take appropriate corrective actions when necessary.
  • Use for decision-making: Utilize the budget as a tool for decision-making. Assess the financial feasibility of new projects, evaluate the impact of strategic initiatives, and make informed decisions based on the budgeted financial data.

Spreadsheets provide a flexible and efficient way to create, modify, and analyze budgets. They allow for easy adjustments, “what-if” scenarios, and the ability to track actual performance against the budgeted figures.

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Management Accounting

University: Regent College

  • Level: High school
  • Pages: 18 / Words 4476
  • Paper Type: Homework Help
  • Course Code: H/508/0489
  • Downloads: 20436

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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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.

services

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.

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.

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:

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

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:

Sollatek have to use proper and relevant management homework help 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).

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.

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:

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.

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.

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. Are you worried about homework help from expert writers at an affordable budget? Contact our experts.

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.

Check More:  Accounting Information System Sample

  • 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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