Management Accounting System And Its Types

This project report covers various topics such as management accounting system and its reports, planning tools used in budgetary control, various costing techniques etc. Various techniques to deal financial problem that an organisation have to face are also covered under this report.

TASK 1

P1 Management accounting system and its types

Management accounting is the process examining financial data that facilitates the strategic decision making process of managers. It helps to formulate policies that helps to lead the organisation toward success. It direct the managers to perform various functions such as planning, organising, controlling etc. Managers of SDK Jewellers use management accounting system to determine customers needs and provide them such products that may fulfil their demand. Stakeholders can get various information such as cash in the company, its total sales, its account receivables and payables. The management of SDK Jewellers  follow management accounting system to maintain proper status of the company in the market. There are four types of management accounting system, that are explained below:

• Cost accounting system:It is used by various companies to determine the actual cost which is involved in manufacturing process. It is very useful for manufacturing companies because it can provide the detailed information of cost of different departments. It helps the managers to control the cost of production (AlMaryani and Sadik, 2012). Management of  SDK Jewellers use this system to analyse the cost of each segment of Jewellery.  The managers analyse the production activities with the help of this method. It is very beneficial for the management department, as it can provide transparent information of cost which is used to minimise cost.
• Price optimisation system: It is mainly concerned with the pricing strategy of the company. Managers use this system when they are looking for accurate price for their products  that can maximise profits as well as attract customers to fulfil their demand.  SDK Jewellers use this system while they want to analyse customers reaction toward price changing strategy (Arjaliès and Mundy, 2013). The major objective of the managers of  SDK Jewellers, is to determine the best price for their products that will help to meet their organisational goals and mission. It is very advantageous for the company because it provides the ideas to set appropriate prices for the products.
• Inventory management system:It is used to track the products in supply chain of the company. It is mainly concerned with the information of inventory which is may be in warehouse or transportation (Bennett, Schaltegger and Zvezdov, 2013). Management of  SDK Jewellers use inventory management system to determine the quantity of the inventory within the company. It is very important for the organisations like SDK Jewellers, because it helps the managers and owners to keep a track record of inventory whether it is, inside or outside of the company. It is very beneficial for the managers because it provide the information of inventory. There are three types of inventory management system, LIFO, FIFO, AVCO. LIFO stands for Last in first out, it is a method which is used to evaluate the most recently received units first. FIFO stands for first in first out, it is a method which is used to evaluate the earlier received units first. AVCO stands for Average cost method, in this method units are recorded on weighted average basis to calculate the cost of the units.
• Job costing system: It is concerned with the examination of cost which is involved in the job that is performed by the company or its employees. It is mainly used when the jobs are totally different from each other. Managers of  SDK Jewellers use this system to analyse cost of each task of the company. Job costing system helps the management of SDK Jewellers to determine the manufacturing cost which in incurred in various jobs of the organisation. Managers make decision to control the cost of the company if the cost is comparatively higher then competitors (Bovens, Goodin and Schillemans, 2014). This reports is very important for the manufacturing companies because it helps to get the exact information of cost involved in various jobs..

P2 Management accounting reporting and its types

Management accounting reporting system is a method of generating various management reports that helps to analyse actual position and performance of the company. It provides various information to the managers that helps them while decision making (Cardoni, 2012). It contain information of budgets, owed amount by clients, performance of each employee and business, inventory status, manufacturing process etc. These reports are prepared by the management department of  SDK Jewellers to make decisions, formulate strategies and policies, set organisational as well as individuals goals that are based on above mentioned informations. It facilitates the decision making process with the helps of various reports. Type of management accounting reports are described below:

• Budget reports:These reports are mainly concerned with the comparison of forecasted budgets and actual performance of the company. It helps the managers to identify budget for each department and control them accordingly. Financial data is recorded in budget reports, which is analysed by managers of the company to identify fields where the cost can be controlled (Carlsson-Wall, Kraus, and Lind, 2015). The management of  SDK Jewellers design budget reports to identify that how the organisation is performing in market with available resources. The managers try to find out the  reason behind the variation in actual and budgeted figures. These reports are very important for the business because it helps the management to form strategies according to the requirement of the company..
• Account receivables reports:These reports are mainly generated to analyse the owed amount of clients. It is a tool that helps the managers to determine the actual receivables of the company and to whom it relates (Fourie, M. L., Opperman, Scott and Kumar, 2015). Account receivables reports are formed by the managers of SDK Jewellers to get the information of those customers who fails to pay their amount on due date of payment. It helps to get detailed information of actual owed amount of various clients, hence it is very important for every organisation. These reports are very important for the company as well as its managers to determine the total receivables of the company.
• Performance reports:It is generated to analyse the performance of company and various individuals within the organisation. The main objective of these reports is to determine the performance which helps to run business in effective way. It is very important for every organisation to keep the idea to its business operations to ignore future consequences (Hall, 2016). In SDK Jewellers performance reports are created to analyse execution capability of business and its market image. It is a detailed document that provides internal and confidential information of business operation and their performances to the managers and stakeholders of the company. These reports are very important for the business because it helps the managers to get the knowledge of  performance of each individual who is working in the organisation.
• Inventory and manufacturing reports:Inventory reports consists information of inventory of an organisation and manufacturing reports  are concerned with the process of product manufacturing. It provides detailed information related to the stock which is kept by the company to produce products (Leitner,  2013). These reports are generated by the management of SDK Jewellers to keep the actual information related to the material which is used to make jewellery. It also help the managers to reduce the waste in manufacturing process by keeping information of actual inventory. It is very important for the companies like  SDK Jewellers because they have little inventory whose value is very high.

M1 Benefits of management accounting system

D1 Integration of management accounting system and its reporting in organisational success

Management accounting system and its reporting help the managers and stakeholder to analyse performance and market image of the company. It contributes in organisational success by preparing various reports that shows the actual and running condition of the company. It is very important for the company to properly form management reports to achieve organisational goals and to lead the organisation toward success. Managers of an organisation are concerned with the improvements in various fields of the organisation to make the strategies successful that are implemented by them. Account receivable reports helps the managers to determine the actual receivables of the company from different clients which helps the managers to tighten the credit policies. Performance reports help to analyse individual as well as organisational performance which helps to improve efficiency of operations.

TASK 2

P3 Calculation of cost using an appropriate techniques

Cost: It is a monetary value of a product, it includes various expenses like material, overheads, labour etc. It is an amount which is used to manufacture a particular unit. If a company is willing to acquire more market share than it is suggested to the managers to set lower cost for the product so that it will help to attract more and more customers for the company and increase the market share (Schaltegger  and Burritt, 2017).

 SDK Jewellers is a company who deals in jewellery and a producer of different jewellery items, it is mainly based in UK. If managers of the company want to maximise profits then they should set lower costs as compare to their competitors. It will help the company to increase profits and set a positive image in the mind of customers.

Marginal costing: It is a costing technique which is used to analyse the increment or decrement in cost because of extra production unit. The cost for additional unit of production is known as marginal cost. These costs are variable costs that are related to labour and raw material. In this technique the managers try to determine the actual cost of additional production units (Shields, 2015).

Calculation of net profit by using marginal costing method:

Absorption costing: It a costing method which is used by various companies to assure that the cost involved in the production of various units are going to be absorbed from the sales of same units. This methods is used by managers of  SDK Jewellers to determine actual manufacturing cost.

Calculation of net profit by using absorption costing method:

Break even analysis: It is a method which is used to analyse break even point where company earns a profit which is equal to the cost incurred in the production of the units. In this situation company is earing no profits and bearing no loss. It is calculated with the help of fixed cost, variable cost and total sales of the company.

A Total number of products sold:

1. Calculation of break even point in accordnce to sales revenue:

1. Calculation to reach desired profits of 10000:

Margin of safety: It is the difference of actual sales and BEP sales. It is very important for businesses because it can thelp the management to predict  that how much reduction in sales will result in break even (Van der Meer-Kooistra and Vosselman, 2012).

1. Calculation of margin of safety when 800 units are sold:

M2 Various management accounting techniques

Management of  SDK Jewellers use there types of management accounting techniques to produce suitable financial reporting documents. These techniques are standard, marginal and historical costing techniques. Standard costing technique is used to analyse the variation in actual and forecasted budgets, that help to analyse actual performance of the company. Marginal costing techniques is used to measure the increment or decrement in costs for producing extra unit. In other words, it is used to analyse marginal cost that occur when company is producing extra units. Historical costing technique is used to analyse actual amount of assets and liabilities that are recorded in balance sheet.

D2 Data interpretation

As analysed from above calculations, managers of  SDK Jewellers finds that marginal costing technique is most relevant option for the company to determine net profits. While calculating net profits from marginal and absorption costing technique, it shows a difference of £1825 in profits. Net profits from marginal costing technique are £17500 and from absorption costing technique the profits are £15675. The break even sales of the company is  £20000 when the sales is 500 units. As  SDK Jewellers is willing to earn a profit of £10000, to reach the profit it has to sale 1333.33 units. If company is selling 800 units then the margin of safety will be 37.5

TASK 3

P4 Advantages and disadvantages of different planning tools used for budgetary control

Budgetary Control: It refers to how appropriately the managers utilize, monitor and control the costs to run the business operations smoothly. Budgetary control help the managers to compare actual figures and budgeted figures of the organsiation. There are various steps to follow while preparing budgets of the company (an Helden and Uddin, 2016). Budgetary control process involve setting objectives, measuring budget outcomes, preparing budget manuals and forming budget commeetee. Managers of SDK Jewellers are liable to control the budgets of the organisation because it helps to make plan and reserve funds for future risks or events that may occur. Management of  SDK Jewellers use three planning tools in budgetary control:

• Forecasting tools:As its names describes that these tools are concerned with forecasting process of the company. It helps the managers to forecast future expenses such as promotional expenses and, reserve fund for those expenses so that it help to ignore major crisis that might occur in future.  It helps the management to predict future events that are based on past events and current trends.

• Contingency tools:These tools are mainly concerned with negative events that may occur in future. It is used by managers of SDK Jewellers to determine any unfavourable event that have posibility to happen. It helps the managers to pre plan for the events that can affect the operational activities and execution process of the company.

• Scenario tools:This tool is concerned with the identification and evaluation of possible future events and than make a professional framework to explore those events. The managers of SDK Jewellers make assumptions on the basis of past and current data for upcoming events that impact on business environment. It is used in SDK Jewellers  to identify specific set of consequences that might happen in future.

M3 Uses and applications of planning tools for preparing and forecasting budgets

The managers of SDK Jewellers use three planning tools, that are forecasting, contingency and scenario tools. These tools help the managers to forecast future events and consequences. Planning tools are used to determine favourable and unfavourable events of future. It also help the managers to be ready to face any kind of uncertainty in future. These tools help while preparing and forecasting budgets because, they provides valuable informations to the managers that help them to make decision according to the situations.

TASK 4

P5: Responses of management accounting system to deal with financial problems

Financial problems are related to lack of funds in company's activities or operations. Many organisation are facing several financial issues like high debt level, insufficiency of funds, improper money management, insolvency etc. in its operations. SDK jewellers is a small scale company and wish to expand in future. So, for expansion company needs more finance. It is also suffering from financial issue like inadequacy of funds, large number of creditor and too much of unnecessary expenses. These problems are discussed below in detail:

• Large number of creditors: Continuous credit sales lead to more credit customers. SDK jewellers offer credit option to buyers but not able to recover the due amount.
• Inadequacy of funds: As company wants to expand but not have sufficient funds for expansion. Therefore, they need finance in order to increase their capital.
• Unnecessary expenses: Marketing manager of  SDK jewellers spent unnecessary on promotional activities. It amount of expenses are more then revenue that negatively impact on company's income.

Company follow key performance indicator, benchmarking and financial governance techniques to deal with it's financial problems. These tools are explained below:

KPI(Key performance indicator): Company's performance is examine and measure under this tool within a specific time period which assist in decision-making. SDK jewellers evaluate its production and financial performance which negatively influence its operations. Company is facing financial problem related to unnecessary spending over expenditure. SDK jewellers use types of key performance indicators for resolving this issue (Wouters, and Kirchberger, 2015).

• Leading KPI- In this tool organisation estimates future events and evaluate changes at marketplace. SDK jewellers use leading indicator for identifying and measuring unnecessary expense on promotion which are unrelated to present period. Company control this expenditure and estimates related expense accurately which assist in enhancing income.
• Lagging KPI- In this tool company increase its jewellery sales in way to generate revenues. SDK jewellers use lagging indicator for measuring its output in order to achieve success.

Benchmarking: This approach help in comparing company's performance with other organisation in similar industry. Many companies are using this technique in order to increase productivity and performance. SDK jewellers follow benchmarking to compare its performance with competitors and resolve issue related to customers. Company set credit standards as its successful competitor is using and recover due amount from creditor (What is Benchmarking, 2018).

Financial governance: This technique assist in collecting, managing and controlling financial information of an organisation. SDK jewellers follow financial governance in order to respond on financial issue i.e. inadequacy of funds. Management prepare a report with detailed information about it's performance, financial data, production and sales practices. This information helps in attracting investors which improve company's financial status and resolve the problem related to inadequacy of funds. This tool assist in future expansion of business.

M4: Management accounting lead to sustainable success in responding to financial problems

SDK jewellers faces financial problems such as unnecessary expenses, large number of credit customers and inadequacy of funds impact on company's performance. Company follow Key performance indicator for resolving problem related to unnecessary expenditures. It use benchmarking technique for reducing its credit customers with the help of establishing credit standards. At last, company follow financial governance tool for solving issue related to insufficiency of funds. These three tools assist in improving company's financial problems.

D3: Planning tools respond appropriately to resolve financial problems

 SDK jewellers use forecasting, contingency and scenario planning tools which assist in resolving financial problems that might be occur in coming years. Company use forecasting tool for estimating jewellery future demand in order to generate revenue. It also use scenario planning tool for analysing market trends which effect on company's working. At last, company is using contingency tool for evaluating uncertainties that occur in future and negatively impact on it's operation.

CONCLUSION

In above report, it is concluded that several management accounting systems such as inventory management, price optimisation, cost accounting and job cost system and its reporting are important for the organisation because it can help to evaluate performance of the company, cost involved in the manufacturing process and it also help in strategic decision making. Companies can use marginal and absorption costing technique to  evaluate net operating profit. Organisations can use planning tools like forecasting, contingency and scenario tool to deal financial issues and also use them in budgetary control to forecast various future events. Manufacturing companies can use three techniques to resolve fianncial problems. Those techniques are benchmarking, key performance indicators and financial governance.

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REFERENCES

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