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Management Accounting and their Importance and Methods Jupiter plc

Question :
Some of the questions which are needed to be answered are like:
  1. Give the analysis of integrated management accounting system.
  2. Explain the techniques and methods of management.
  3. Gove all the cost marginal techniques.
Answer :

INTRODUCTION

Management accounting is recognised as managerial accounting it is an essential management accounting technique that helps in consolidating the essential information for better decision making and strategic planning process (Dekker, 2016). This report presents the meaning of management accounting system and its integration with management reporting. Cost calculation by using the appropriate cost analysis income statements. Jupiter plc is opted organisation to execute the process of management accounting. Various type of planning tools with advantages and disadvantages also elaborated in this report. Use of management accounting in terms of resolving financial issues for preparing and forecasting budgets in organisations illustrated with practical based examples. 

TASK 1

Q.1 Management accounting and its important to integrate management accounting system within organisation

Management accounting is a form of recording, arranging and consolidating accounting information for better management and control. Managerial accounting directly integrated with the senior management level and authorities.

Job Costing System: Job costing structure of accounting is a process of gathering information subject to expenses of produce and cost of particular job benefit. It also record the activity cost of all items that are produced in organization. This framework is utilized by Junior accountants accountant of Jupiter PLC with the aim of creating objectivity for particular job sections and furthermore, it  helps to cite cost of item which is adequate to consolidated by gathering data about direct material, overheads and direct labour.

Price Optimisation: Price optimisation is a system helps to determine the price of products by evaluating perspective of customers and market position of organisation. Junior accountant of Jupiter PLC utilize this accounting system to deal with marketing scenarios with adequate benefit. This framework is utilized by organization which depends on their opposition's market level, construct cost of items and generating order request.

Inventory Management System: Stock administration is an essential requirement of manufacturing and retail organisations. This accounting framework of helps to manage the inventory level within organisation (Wouters and Kirchberger, 2015). This will causes them to expand efficiency, sales and get higher profit for ventures. It additionally encourages accountant of organization to register the raw materials stocks, advancement of aggregate costs incurred in placing orders. There are following methods are used in organisation.

FIFO: This is an inventory technique in which inventories are sold on the basis of first acquire and first sell out.

LIFO: This inventory technique remain centralised around sale of last acquiring units at initial stage.

Cost System System: Cost accounting framework is the technique utilized by firm to record item cost exercises through various generation process. It is critical accounting framework connected by Junior administration accountant of Jupiter PLC to find out their expense and tasks for better administration and control.

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Integration of management accounting system with evaluating benefits of management accounting system

It is analysed that various type of management accounting information remain crucial for calculating and evaluating benefits for better management and control. The process of managing the changes and valuations are considered with creating the effective decision making process.

Q.2 Various techniques and methods utilised for management accounting reporting

Performance Report:

Performance report is kept up to break down the entire organization execution including workers. By utilizing this report Junior administration accountant of Jupiter PLC evaluate the execution and work of their representatives also settle on strategical choices for organization development. And furthermore by utilizing it association to set criteria to enhance execution level, to show compliances and so on.

Inventory Management Report:

Stock Management report is made to keep up stock and make creation process more powerful. Junior administration accountant of set up this answer to get all data about materials and stocks (Abrahamsson, Englund and Gerdin, 2011). This report additionally give the precise information of organization opening and shutting stock. A few systems which utilized by association is turnover proportion and EOQ. For plan of this report utilizing techniques are LIFO (Last in first out ) , FIFO ( First in first out ) and weighted normal cost strategy for legitimate examination.

Debtor's receivable report:

The record receivable report utilizing as a critical instrument for overseeing income when client provides credit to clients. It remain essential to discover the quantity of unpaid solicitations that are gathering to amid to particular period and furthermore discover to add up to quantities of indebted individuals of the organization on account of Jupiter PLC. With the assistance of this report get ready monetary articulation that are knowing genuine budgetary position of the organization. In terms of financial management it contains asset report, benefit and losses  account. In this also including income proclamation, changes in value.

Budget report

These reports presents a forecasted information that helps in determining the measurable aspects for better forecasting and strategic planning. It is identified with genuine incomes and misfortunes for the benefit of earlier years (Yeshmin and Hossan, 2011). Budget plans reports are set up based on a years ago costs and earnings since it comprehends where to business spend and where acquire. So it will gauge of future Budget plans may need to raise to a more unwavering dimension. Yet, in the report can not make reference to motivating forces gives to organizations.

Q.3 Calculation of cost using appropriate techniques for cost evaluation with marginal and absorption

Marginal costing

Marginal costing is the determination of total variable cost and the effect on profit of changes in volume or kind of yield by isolating between and variable cost and fixed costs (Contrafatto and Burns, 2013). It is a standard whereby variable costs are charged to cost units and the fixed costs attributable to the critical period is made off in full against the dedication for that period. In marginal costing, costs are conceiver into fixed and variable costs.\

              Income Statement (Marginal Costing)

 

 

PARTICULARS

PRODUCT  X

PRODUCT  Y

Production (Units)                                          (A)

5000

3500

Sales (Units)                                                   (B) 

4600

3200

Selling Price per unit                             (C)

180

150

Sales in value  (B*C)                            (D)

828000

480000

Unit cost :                                                      

 

 

Direct Material

30

24

Direct Labour

36

24

Variable Production Overhead

24

16

Variable Selling Overhead

2

2

Total                                                      (E)

92

66

Total variable cost of production (A*E)                         
                                                                        (F)     

460000

231000

Opening stock of finished goods           (G)

0

0

Closing stock of finished goods           (H)

36800

19800

Total variable cost of goods sold (F+G-H)   
                                                                         (I)

423200

211200

Contribution in value   (D-I)                   (J)

404800

268800

Total contribution                                  (K)

673600

Fixed Cost:Production Cost (                  (L)

210000

                   Administration cost(in £)            (M)

54000

Profit (in ï¿¡) (K-L)                                                           

409600

 As per the above calculation it is analysed that profit from marginal costing was calculated as £128800 for products X and the profit for the product Y was calculated as £140800. total variable expenses are considered in this costing method for analysing profitability.

Absorption costing

 It is a method of  calculating cost and profitability of products by consolidating fixed  production overheads and overall variable cost. These costs are not seen as expenses in the month when a substance pays for them. Absorption costing gives an extensively more broad and exact view on the sum it genuinely costs to make stock then the variable costing system. Products may adjust a wide extent of settled and variable costs (Zainun Tuanmat and Smith, 2011). It not simply clarify the cost of materials and work, yet furthermore both variable and settled gathering overhead costs.

     Income Statement (Absorption Costing)

 

 

PARTICULARS

PRODUCT  X

PRODUCT  Y

Production (Units)                                                   (A)

5000

3500

Sales (Units)                                                             (B) 

4600

3200

Selling Price per unit                                     (C)

180

150

Sales in value  (B*C)                                      (D)

828000

480000

Total of sale                                                             (E)

1308000

Cost of sale :                                                       

 

 

Direct Material

138000

76800

Direct Labour

165600

76800

Variable Production Overhead

110400

51200

Fixed Production Overhead

300000

140000

Variable Selling Overhead

9200

6400

Total of above cost                                         (F)

723200

351200

Total of (F)                                                      (G)

1074400

Gross Profit   (E-G)                                        (H)

233600

Administration Cost                                        (I)

54000

Net Profit  (H-I)

179600

The above information shows the calculation of profit and loss of products by implementing absorption costing. Calculations are made by considering total variable cost as well as fixed production overheads. There is a loss calculated of -£26892 for product X and £110030 profit for product Y.

TASK 2

Q.4 Explain the use of three planning tools in management accounting

Planning tools are reckoned as a supporting methods that helps in decision making, strategic management, planning, forecasting and controlling process. There is a vital use of planning tools found in budgetary control. There are different types of budget which is essential to prepare in order to execute business activities in an effective and efficient manner. Such kinds of budget includes:

Production budget: It includes the cost and expenses which are incurred during producing products and services depends on the market demand. For example, direct material, direct labour etc. which is used to manufacture products. It can also be classified as direct or indirect cost as to a factory department. Jupiter Plc is engaging in manufacturing sector due to which it is important for management to prepare such budget to facilitate production team to produce products without facing any interruptions.

Cash budget – It is defined as an estimation of inflow or outflow of cash with in an organisation, it is estimated for a particular time period. With the help of this, Management of Jupiter Plc can know about their financial efficiency for doing a particular operation.

Financial budget – This kind of budget provide prediction of income and expenditure to the organisation for short time or long time period. It also gave assistance to the Jupiter Plc in handling the cash flows through which, they can achieve their targets in allotted time period.

Various type of planning tools are used in planning process, some of are as follows;

Scenario tool

It is a method of creating different type of images and framework of tasks and projects. This tool presents wide range of scenarios and alternate options regarding planning. There is a qualitative perspective and quantitative data is used for creating scenarios. These sections not only helps in determining the required changes and variations but also helps in managing the complex business scenarios for better forecasting and planning process (Arjaliès and Mundy, 2013). It produced basic idea and approach to set up future planning and maintain possibilities for better evaluation and process in order to determine relevant sources and variations. There is a vital use of this planning tools in multinational organisation. For instance Jupiter plc utilise scenario tool to predict future feasibility and products sale graph in more effective way.

Advantages

  • It is essential to analyse the particular scenario for specific task and projects
  • Possible risk and conflicts can be easily determined through implementing scenario tool.

Disadvantages

  • It is difficult to determine best option among various alternatives.
  • Contingent decisions can not clearly determined by evaluating the futuristic aim and objective of organisation.

Forecasting tool

It is a tool that presents the forecasted results on the basis of past and current trends. Various type of electronic tools such as computers, AIS system and graphical representations of information (Chang, 2013). It is a process of estimating future activities and fluctuations of work. The process mainly helps in analysing these project for facilitating changes in organisation. Internal and external communication channels with in organisational time limits are evaluated on the basis of effective forecasting process. The changes in various transactional changes and valuation mainly affect the process for better change and development of business. Retail organisations such as Tesco uses forecasting tools to evaluate the forecasted sales records for upcoming time span.

Advantages

  • This helps in analysing the predictions for better estimation and changes.
  • It is beneficial for retail and manufacturing organisations deals in consumer products.

Disadvantages

  • Lack of consistency and management is one of the main negative point that crate complexity.
  • Results are not considered completely reliable due to uncertain conditions and situations.

Contingency tool

Contingency is a state of unidentified scenarios or position. Contingency tools are use to ascertain the accurate aspects and position among different alternatives (DRURY, 2015). There is a situation specific evaluation is done for clarifying expected results for better change and development. Contingency tool also helps to determine the viability of various situational tools for managing the case scenarios and management decisions.

Advantages

  • A fixed analysis and control is used for better evaluation and control of business operations.
  • Various type of contingent situations can be easily sorted out through this scenario tool.

Disadvantages

  • Accountants various type of challenges in order to determine particular scenario and challenges.
  • There is no any specific change determined with creative management and operational change with in organisation.

Q.5 Case studies and comparison to management accounting applied to address financial problems

 Financial issues and challenges are the part of business operations and management. Management accounting system is formed to absorbed these challenges for better forecasting and analysing process. Management Accounting plays vital Role in overcoming the financial challenges in better and effective way (SEAL and et al, 2014). Various type of financial issues like lack of financial resources, inappropriate use and authorisation of financial instruments and channels occur in normal day to day business operations. These issues are rectified and managed by implementing management accounting system with in organisation.

Management accounting and the Calvin Company: a case study

As per the case study of Calvin company there was a financial issue regarding the recognition of historical cost was occurred with in organisation. Accountants were unable to consolidate the contingency of accounting practice for non monetary funds and elements. The environmental factors was also analysed for better change and development with in organisation (Management accounting and the Calvin Company: a case study, 2018). It is clearly mentioned that there is  direct relation found between the Canadian firm market and introduction to management accounting information. Management accounting provided new dimensions and the changes for better management and experience for evaluating better and possible outcomes. Benchmarking accounting measures was implemented to overcome these financial issues.

Jupiter plc faced financial issues regarding managing the product line and increasing the profitability of organisation. An effective management accounting practice enabled the process of completing the process for better staff engagement and enforcement process. Proper record formation process helped to maintain the good flow of accounting information with in organisation.

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CONCLUSION

From the above discussion, it is concluded that management accounting one of the major element adopted by every organisation. Management accounting system as well as managing reports are important part that are describes performance of the company and and helping for preparing strategies. Marginal costing and absorption costing techniques are helping to know actual profit and loss that are acquire by company that are helping to taking effective decision. Planning tools are helping to prepare and allocation of budgetary control that are recognise of standard and actual result and comparison between them. Financial issues are inner problem that are effected to growth of the company so solving this using KPIs and benchmarking and also comparison with other organisation.

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