Management Accounting for Optimisation of Financial Resources

TASK 1

Explaining The Principles of Management Accounting And Stating Its Importance Pertaining to Integration Within An Organisation

Management accounting may be presented as a process of offering financial information and resources to the managers for decision making aspects (Weetman, 2019).

Principles of management accounting

• Cost reduction
• Presents solution considering both controllable and non-controllable cost
• Optimum utilization of resources

Importance of management accounting

• Helps in setting budgets or financial plans for upcoming time period
• Assists in setting prices for the products or services
• Provides management team with timely information for planning & decision making purpose (Otley, 2016).

Explaining Different Techniques And Methods Used For Management Accounting Reporting

Manger of Nisa prepares managerial reports for providing the team of higher management with suitable information about internal performance. This in turn helps in several aspects regarding panning, decision making as well as measuring and evaluating performance. Reports which can be prepared by Nisa for decision making purpose are enumerated below:

Job cost report: This report furnishes information about expenditure incurred while performing specific job. It helps in doing evaluation of existing performance over estimated revenue and thereby highlights profitability related to each job. Through this, business unit can make efforts on the profitable areas and thereby improves performance level.

Budget report: It assists manager in doing assessment of departmental performance and controlling cost. Further, variances found in the actual performance also help in setting budget for the near future (Types of managerial reports, 2020). In addition to this, owner of Nisa can also use this report for offering incentives to the employees.

Inventory report: By preparing and using this report manager of Nisa can make manufacturing process more efficient. It contains information about wastage, cost level and overhead expenses in relation to inventory usage and management (Cooper, Ezzamel and Qu, 2017). Along with this, inventory report also helps in doing comparison of different assembly lines and thereby helps in setting bonuses for the best performing areas.

Accounts receivable ageing report: By this, cash flow can be managed and monitored by Nisa prominently. Moreover, it presents time period from which debtor’s payment is due. Through this, manager can ascertain customers who are facing difficulty in paying their balances. In this way, such report helps in assessing problems that take place in company’s collection process. Referring all these aspects, firm can take decision pertaining to allowing credit extension to the customers.

Evaluating the benefits of MA systems and their application within an organisational context

Applicability And Benefits of Varied MA Tools in The Context of Nisa is Enumerated Below:

Job costing

According to this, cost of production is determined referring to the number of completed jobs. By applying this, manager of Nisa can identify whether production cost exceeds overheads and price of material. Thus, referring this, resources can be used in the profitable areas for improving overall performance.

Cost accounting

Such system of management accounting assists in determining cost of production (both fixed & variable). In other words, by accumulating both direct and indirect expenses manager of Nisa can assess production cost. Further, by adding mark-up or desired profit margin in the unit cost product’s price can be ascertained (Maas, Schaltegger and Crutzen, 2016). By using following formula manager of Nisa can set suitable price:

Price = unit cost + (cost * profit%)

Inventory management system

Company can track stock level more effectually by using inventory management software or system. Moreover, it furnishes information about orders, sales and deliveries aspects. Further, it also helps in preparing documents in relation to work order, material etc. Manager of Nisa can do appropriate valuation of stock by taking into account various methods such as LIFO, FIFO etc (Hopper and Bui, 2016). In addition to this, methods such JIT (just in time), EOQ (economic order quantity) etc is highly significant which assists in maintaining enough stock within an organization and reduces cost level.

Price -optimization system

In the context of Nisa, by using this system manager of Nisa can monitor or track customer’s responses or behavior at varied price eve. Hence, by taking into account price optimization system manager can set suitable prices of the products or services in line with the customer’s expectation.

TASK 2

Calculating Cost And Preparing Profitability Statements as Per Absorption & Marginal Costing

Specifically absorption and marginal costing are the two methods which Nisa undertakes for assessing profitability aspect.

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Cost assessment, as per absorption and marginal costing, pertaining to Alpha is enumerated below:

Profitability Statement as Per Absorption Costing:

Computation of COGS

Income Statement According To Marginal Costing Method Is As Follows:

By doing assessment, it has found that business unit should follow absorption costing system for cost and profitability assessment. Moreover, absorption costing method presents highly suitable view of production cost as it considers both fixed and variable expenses (Geddes, 2020). This in turn gives clear indication about profitability aspect.

TASK 3

Explaining The Advantages And Disadvantages of Different Types of Planning Tools Used For Budgetary Control

There are several tools which Nisa can employ for the purpose of budgetary control includes investment appraisal tools, cash and operating budget. By undertaking such budgeting frameworks organization can monitor or compare expenses and thereby take suitable measure for improvement (Ax and Greve, 2017).

Cash Budget

It may be presented as financial framework which includes both estimated cash inflows and outflows pertaining to the specific time frame (Weetman, 2019). By preparing cash budget manager of Nisa would become able to know whether company has enough funds for performing business activities or not.

Operating Budget

It implies for the forecast of both revenue and expenses with regard to specifically one or more future period. At the beginning of year, manager of Nisa can draft operating budget which in turn exhibits expected activity levels for the concerned period (Burney and Malina, 2019). Thus, by undertaking this budget manager of Nisa can monitor operational performance.

Investment Appraisal Tools

Nisa can undertake this tool for planning purpose when it has investment or growth options. It mainly includes payback period, net present value, average and internal rate of return. This helps in analyzing the viability of capital project and thereby aid in effectual planning.

Analyzing The Use of Different Planning Tools And Their Application For Preparing And Forecasting Budgets

Cash budget for the period of 6 months is enumerated below:

The above depicted cash budget shows that sales and profitability of firm will increase significantly in the upcoming time period. Manager of Nisa can undertake cash budget for evaluating and monitoring performance level. On the basis of this, deviations can be assessed timely which helps manager in taking corrective measure for performance improvement.

Applicability of Investment Appraisal

For instance: Nisa has two investment proposals with varied initial investments. In this regard, company can select the most suitable option over other one by employing investment appraisal technique. Through evaluation, it has assess that manager should focus on investing funds in project A. Moreover, it shows higher and positive net present value or return as compared to option B.

Computation of NPV

Comparing How Varied MA Tools Can be Used For Responding Financial Problems

With regards to business unit, bottleneck in the performance is usual which in turn directly impacts organizational performance. Thus, there are several tools which can be undertaken by Nisa for dealing with financial problems pertaining to reduction in productivity, profitability, market share and increase in cost.

Benchmarking: Now, for assessing and getting information about performance trend business unit emphasizes on setting benchmarks. It offers input to Nisa for performance evaluation in the context of sales etc.

Key performance indicators: In the recent times, company lays emphasis on setting KPI’s pertaining to sales, profit, market share etc. Thus, by comparing actual performance in against to the KPI’s manager of Nisa can identify reason takes place behind performance deterioration.

Variance analysis: This is another most effectual tool which assists in responding monetary problem. Moreover, it clearly exhibits deviations take place in the existing performance over standards along with the causes (Quattrone, 2016). Thus, referring causes manager of Nisa can take significant measure for performance improvement.

Balance scorecard: It measures company’s performance by taking into account both financial and non-financial measures. This includes mainly four aspects pertaining to customers, financial, internal business, innovation and learning. In this way, balance scorecard offers opportunity in relation to evaluating performance from such perspectives and enables to take measure for performance enhancement.

By doing assessment, it has identified that Nisa undertakes benchmarking technique for identifying and resolving monetary problems. In the case of decrease in productivity and profitability business unit can do comparison of existing performance over benchmarks. Referring causes Nisa can take action pertaining to practicing intense promotional strategies and cost control measures. By this, Nisa can maximize sales and thereby profitability as well (Ax and Greve, 2017). On the other side, Qbic hotel undertakes balance scorecard model as it assists in measuring performance from several perspectives. Moreover, for gaining competitive edge over rivals firm is required to monitor performance from all perspectives. However, in comparison to Qbic, MA technique undertaken by Nisa is highly effectual. Moreover, it clearly indicates both variance and causes associated with the same.

Also Read :- Importance of Finance Management in A Company

Analyzing How Management Accounting Can Lead Organizations To Sustainable Success

Management accounting tools such as benchmarking, variance analysis etc gives timely indication to the firm about the areas where improvement requires. For instance: variance analysis system provides Nisa with suitable reasons pertaining to non-achievement of predetermined goals or objectives. In this way, by doing modifications in the existing strategic framework within suitable time company can avoid deficiency takes place in performance and thereby leads sustainable success.

CONCLUSION

By summing up this report, it has been articulated that through undertaking MA systems manager of NISA can get suitable information about cost, profit, stock level etc. Besides this, it can be inferred that by preparing reports management team of the organization can take strategic decisions and thereby gets desired level of outcome or success. It can be summarized from the evaluation that MA tools are highly significant which helps in doing and making financial forecast effectually. It can be seen in the report that by using benchmarking NISA resolves monetary problems and thereby ensures sustainable success.

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