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Various Management Accounting Systems In Zylla Company

University: ICON COLLEGE OF TECHNOLOGY AND MANAGEMENT

  • Unit No: 5
  • Level: Undergraduate/College
  • Pages: 16 / Words 3973
  • Paper Type: Assignment
  • Course Code:
  • Downloads: 61

INTRODUCTION

Management accounting refers to the process of collecting accounting information, analysing it, preparation of financial reports and then taking day-to-day decisions. This helps in better control over the performance and functions of management. In a simpler form, management accounting assists to manager in effectively and efficiently providing financial information which ultimately aids in the success and growth of the organization. As in the modern era, every organization needs a proper accounting system for management. To explain the concepts of management accounting, Zylla Company has been taken which is a large multinational organization. It is involved in providing services of supplying contractors in the construction industry. Management accounting reports of it are produced by E&Y which is a UK based audit consulting firm.

The main aspects covered in this report are various management accounting systems, techniques, reports, and planning tools (Klychova, Faskhutdinova and Sadrieva, 2014). Apart from this, different cost techniques and financial problems are also discussed. Along with this, application of all these in an organizational context.

TASK 1

P1 Management accounting and requirement of different management accounting systems

Management accounting is a method through which an organization can identify its valuable resources and accumulate important data about them. In addition to this, it helps organization in accurate presentation of information. So that efforts of managers in controlling business operations will be automatically moving towards right direction. After providing information to senior management, they formulate strategies and policies for Zylla Company. Although, these will ultimately leads to organizational in effectively achieving its goal and objectives. In some companies where management accounting has not been adopted yet, faces many problems regarding coordination among different departments. Scope of management accounting is not limited to certain specific areas. Its scope is extended in three areas namely strategic management, performance management and risk management (Mistry, Sharma and Low, 2014). It only concentrates on analysing as well as recording information for internal stakeholders such as employees, board, investors.

Management accounting system is defined as measuring and evaluating various processes of internal management of organization. Requirements of different types of management accounting systems arises due to complexity in structure as there are various departments in Zylla.

Different types of management accounting systems are as follows:

  • Inventory management system: One can say that is a collection of processes, procedures and technologies to monitor as well as maintain stock. This management system includes maintenance of different types of products such as company assets, work in progress, raw materials, supplies, and finished goods (Moser, 2012). Benefits of inventory management to Zylla is that it will be ease in identifying each inventory item through barcode labels, tags etc. These are done with help of software and hardware. It is an important constituent of supply chain management which overlooks flow of goods from manufacturing location to the ultimate consumer. There are several advantages of keeping inventory management system such as improvement in cash flow, reduction in labour expenses, storage costs, as well as it also brings transparency.
  • Cost accounting system: It is a form of management accounting system which develops methods for cost effectiveness. This can only be achieved in Zylla when strategies are made keeping in mind long as well as short term perspectives. There should be planning and controlling of functions related to budget. This system provides information to cope up with challenges arise out in future. Also profitability can be maintained along with competitive advantage. Measurement of performance, deciding reasonable costs, assessing life cycle of goods are some of goals of this system. 
  • Job costing system: It is defined as process of collecting information allocated to a particular job or project. Information can be related to cost, revenue, reimbursement or progress and it is utilized in determination of accuracy in cost estimating system of Zylla. Job costing system accumulates three kinds of information that are about cost involved in direct material, direct labour and overheads (Schaltegger and Csutora, 2012). This system is used in every type of organization whether manufacturing, retail or construction.
  • Price optimization system: According to this system, price is set to that level which is reasonable and consumer has willingness to pay for product or service. Price should not be too much high and too much low. Competitors' prices are also kept in mind before deciding prices. There are four principles of management accounting are influence, relevance, value and trust. Role of management accounting is in every field whether related to budgeting, sales forecasting, trend analysis, product costing etc. This accounting was developed from cost accounting techniques during Industrial revolution.

P2 Different methods of management accounting reporting

It is essential for an organization to know overall performance of business operations. Thus, reporting should be done after each quarter to gain data about financial and non-financial information. There is no standard format to prepare them as these can be made according to flexibility and requirement. Internal stakeholders needs data on basis of which decision making is done. Thus, from this system Zylla can be aware about profitable and non-profitable areas or departments (Adler, 2013). Manager is responsible as well as accountable to represent information in systematic manner. Management accounting reports smooths way of operating organization in a way that performance of all activities will be tracked and interpreted. Various methods of management accounting reports used in companies are:

  • Performance reporting: These are prepared mainly for evaluation of performance of organization as a whole and separately for different areas. As in large organizations, structure is complex so this method simplify that complexity. Performance reports are prepared to take key strategic decisions regarding with future of Zylla. This reporting method acts as foundation for performance analysis in a way that best performers are awarded and underperformance are suggested to improve. In short, the best solutions of problems can be derived. Deep insights about working of an enterprise is also assessed.
  • Inventory management reporting: This method of management accounting reporting is often used in manufacturing units because they produce physical goods. Thus it proves valuable for these organizations. In Zylla company, there is a need to centralize data for services provided by it to different companies. Inventory management reports includes various stock valuation techniques such as ABC, EOQ, Just in time. Majorly, focus is on reducing inventory holding costs for the organization. Because sometimes costs overlaps revenue and not even management is aware about it. Tracking of expenses at each stage is done to estimate total cost and profitability.
  • Job costing reporting: It is a crucial reporting system that ascertains total revenue and cost derived by a job. Apart from this, it helps in comparing associated cost and expected revenue from a single project (Hoque, 2011). Through this analysis, jobs would be identified according to profitability as Zylla can concentrates on high profitable jobs or projects. Only those costs which are directly attributed to a particular job are reported. This method is useful for the company to maintain credibility, progress evaluation, claiming contractual claims, and for future work.
  • Account receivable reporting: This is used when an organization is providing credit on a large basis (Busco and Scapens, 2011). Account receivable reporting is also called accounts receivable aging reports. Customers who have taken credit from Zylla and has an outstanding credit balance in accounts are tracked. They are categorized in accordance with days in which payment has to be made. This method assists in aligning customers according to their repayment abilities. After maintaining these reports, the amount of bad debts is also reduced.

M1 Benefits of management accounting systems in an organizational context

Management accounting systems includes inventory management systems, cost accounting systems, job costing system, and price optimization system. Contribution of every system cannot be ignored as these are all significant part of management.

Price optimization systems: Brings cost transparency and flexibility in organization.

Inventory management systems: Long term as well as short term objectives can be achieved and Zylla will be prepared for future outcomes. Although a company derive as many benefits as it can depends upon capacity.

Cost accounting systems: Determines current financial position, offer better price options to customers.

Job costing system: organizes stock orders and apply cost controlling systems.

All these are advantages of management accounting systems and in overall sense, these helps in taking informed decisions that ultimately leads to success.

D1 Evaluation of integration of management accounting systems and management accounting reportinge

Management accounting systems integrated with management accounting reporting in Zylla will bring revolutionary changes in overall financial position. Manager has to maintain all the records for this integration. As if information provided by managers in reports will be clear then it will not only denotes ability to convert capital in yielding growth. Management accounting reports represent clear and definite financial picture of company in front of internal stakeholders as well as potential investors. Organizational functions consists of marketing, finance, human resources which can not operate efficiently without management reports. As loopholes and defects in processes are identified with the help of various reports. Activities or functions of business would be better managed by applying budgeting tools, job costing reports, and inventory management reports in Zylla. If reporting and accounting system will be strong then goal setting will become easy. Managers can motivate employees by adjusting goals according to their performance (Scapens, 2006).

TASK 2

P3 Different costing techniques and preparation of income statement

Cost in simplified term refers to money or amount of resources required to purchase or produce a product. There are different methods adopted to ascertain cost of goods in various industries according to nature of output. Costs can be fixed, variable, direct, indirect, incremental, opportunity cost etc. Costing techniques refers to methods of cost controlling, and decision making (Kihn, 2010). These methods can be applied in Zylla company in various ways like whether to make or buy products, price appraisal, evaluating performance of purchasing, negotiation with suppliers. Different costing techniques used in management accounting systems are mentioned underneath:

  • Absorption costing- This technique practised in a way that fixed and variable both costs are charged to business operations. All costs are absorbed in production and processes. This is also known as full costing method. It is more useful than marginal costing because in that only flexible costs are included. Advantage of this technique is that it does not taken into consideration all fixed costs which are incurred even if goods are not sold.
  • Marginal costing: Marginal costing only considers variable costs that are direct material, direct labour, direct expenses, overheads. These costs are allocated to production units. Fixed costs are not included in this costing technique and it is written off against contribution. Marginal cost is extra cost involves in producing an additional unit of output.
  • Standard costing: Pre determined standard or estimated cost is compared to actual cost incurred. If there is any difference among them, it is called variances and corrective actions are taken to reduce these variances. Also reasons are identified by comparing both of them so that solution can be provided in accordance to problem.

Calculation of net profit by using marginal costing method:

Particulars

Amount

Sales revenue

40000

Marginal Cost of goods sold:

16000

Production

14000

closing stock

2000

Contribution

24000

Fixed cost

1000

Net profit

23000

Computation of net income by using absorption costing method:

Particulars

Amount

Sales

35000

Cost of goods sold

20000

Gross profit

15000

Selling & Administrative expenses

4000

Net profit/ operating income

11000

Interpretation: Income statements are prepared on the basis of absorption costing technique and marginal coating technique. Firstly, sales revenue is taken which is calculated with the help of selling price and number of units sold. Then in above marginal costing method, marginal cost of goods sold is determined by deducting closing stock from production cost. After that, contribution is ascertained by reducing marginal cost of goods sold from sales revenue. Ultimately, net profit is derived subtracting fixed costs from contribution.

In income statement prepared through absorption costing method, sales revenue is calculated as above. Thereafter, cost of goods sold is determined by per unit expenses and number of units sold. Selling and administrative expenses are then reduced from gross profit to arrive at net profit.

M2 Management accounting techniques to produce financial reporting documents

There are various types of accounting technique which can be used in order to analyses financial data that further support in taking effective decision (Kurunmäki, 2009). Following are the common accounting technique that can be used:

  • Marginal costing tools:-  It is a kind of variable cost which consists of labour and material cost along with an estimated amount of fixed cost. Marginal costing help in determining the profitability of company. Hence it provide with required information that can be use to take effective decisions related to future investment done by a company.
  • Absorption costing:- This tool help in identifying the cost of product by taking into consider all types of fixed and variable cost to evaluate where they are accounted for using absorption rate. Absorption costing method helps in ensuring that incurred cost must recover from selling prices of product. This provide company with required information that can be used to take further action related to minimizing the cost of company during production process.

D2 Interpretation of data produced from financial reports

There are various issues that a company faces while performing its operations that may affect its performance. These issues can be rectified using several accounting tools and technique. As it help in determining the cost that may be incurred by company during execution of its operations (Hansen and Mouritsen, 2006). Net profit by marginal costing as shown by income statement is amounting to 24700. This makes a reliable aspect to company that support in decision making by using marginal costing, the company will be able to make a sufficient amount of profit. In case the company uses absorption costing that company will be profited by amount 14200. These variation are being evaluated using total fixed cost consideration.

TASK 3

P4 Advantages and disadvantages of different types of planning tools used in budgetary control

Budget is the list of all expense and revenues incurred by Zylla company during a specific period of time. It is being prepared according to need such as quarterly or annually. For this purpose, a budget statement is being prepared. Budgetary control can be said as a management control system that determines various actual results through planning and cost controlling. In this process, budgeted figures are set for a certain period and then these are compared with actual performance to identify discrepancies. So that remedial actions or measures can be taken on proper time. Budgetary control is a process which never ends because planning, coordination, controlling are never ending processes. Process of budgetary control includes several steps as it starts with establishing standards, then evaluation of actual performance is done (Ratnatunga and Alam, 2011). After that actual outcomes are compared to budgeted performance. If any variances or differences are found then remedial measures are taken on immediate basis. Main objective of this is to eliminate waste and increasing profitability. Planning tools that are used in budgetary control are:

Contingency: These plans are generally made for organisation to cop up with future uncertainties. Strategies are developed to deal with impact of quick market changes or disruptions. It is a process of risk mitigation for Zylla company.

Advantages: Back-up plans are made through future anticipation which removes hindrances in continuous planning process (Sykianakis and Bellas, 2005). In this way, it becomes smooth.

Disadvantages: This planning tool often avoids risk of being simplistic and one dimensional.

Scenario: According to this scenario planning, management explores various set of alternatives or situations. Then they examines expected results under established set of alternatives. It concentrates on three types of questions that arise while planning such as what can occur, what will be affect on budgets, how would deal with them.

Advantages: High level of organizational learning can be achieved through this planning tool. Also everyone have clear picture or view about future.

Disadvantages: Sometimes aspect of linear thinking is being avoided and management is pressurized to execute test-plans.

Forecasting: In this, organizations often relies upon information collected from future as well as past. Process of this planning tools begins with developing plans on the basis of knowledge, experience and assumptions. 

Advantages: Internal and external factors that can affect functioning, Zylla can forecast them to increase profitability.

Disadvantages: Forecasting does not have high level of accuracy and it may lead company to face financial or non-financial issues.

M3 Use of planning tools in preparation and forecasting budgets

It has been determined that planning tools such as contingency, forecasting, and scenario are often act as foundation for budgetary control. Contingency tool defines all situations that can occur to Zylla while preparing budget. Forecasting assists in calculation of revenue, expenses that would be incurred by organization (Abrahamsson, Englund and Gerdin, 2011). Scenarios are identified and tested for examining desired situations. Apart from this, there are many other planning tools which are used for effective budgeting.

D3 Evaluation of planning tools in solving financial problems

It is clear that planning tools plays a major role in budgetary control but along with this, they also resolve critical financial issues arise within organizations. Forecasting, contingency and scenario tools are used for budgetary control and all financial problems related to budgeting are solved. These can be related to cost allocation or appropriation, cost controlling, arrangement of funds, revenue generation etc.

TASK 4

P5 Comparison of organizations adapting management accounting systems to solve financial problems

Financial problems if increases then it may also lead to difficulties in business operations. These are uncertain cash flow, increases in debts, issues in credit policies, and complexity in tax structure etc. Management accounting systems that can be used in solving financial problems are as follows:

KPI (Key Performance Indicators): These are majorly used by managers and senior management in analysing factors which are crucial for business success of Zylla. KPI are quantifiable in nature and concentrates on significant functions and processes which are directed towards achieving strategic goals or objectives (Key Performance Indicators, 2018.). These are categorised as financial and non-financial KPI. Financial indicators are based on components included in financial statements such as alteration in growth of sales, earnings, return on assets, profit margin etc. While non-financial indicators are based on qualitative aspects such as customer relationship, employee satisfaction, quality of operations, market share, growth, innovation, technology, skills and knowledge of workforce, degree of competition, criteria for performance evaluation etc.

Benchmarking: It is defined as a way to compare metrics of Zylla with other competitors or peers in same industry. Businesses achieves best practices in operations while adopting this system (Purpose and use of Benchmarking, 2018). This assists in gaining competitive advantage. It focuses on continuous improvement, fulfilment of customer needs. Different types of benchmarking are internal benchmarking, competitive benchmarking, strategic benchmarking etc. A very long process is followed to undertake benchmarking. 

Comparison has been given below:

Zylla company

Skanska UK

This company is involved in providing contractors and sub-contractors for construction so job costing will be more useful for it. As there are different projects and jobs are undergone so it will be easier to identify cost associated with particular job or project. Also profitable and non-profitable areas are determined easily. All relevant costs are accumulated to calculate total costs. So, it helps in solving problems of cost classification.

It is among top ten companies of UK in construction industry. Main focus is on eco friendly and green construction. Ratings of buildings made by this are very good, so revenue will be high. Thus, financial indicators will be more efficiently applied. Financial indicators are cash flow, balance sheet, income statements, financial ratios. These shows correct financial position and solves financial problems of meeting financial obligations and maintaining level of credit.

M4 Management accounting deals with financial issues to achieve success

It is understood that for smooth running of an organisation, there are many factors which contributes. But, it is impossible to forecast financial problems which occurs suddenly. Thus, management accounting helps to cop up with unfortunate business events that can cause harm (Hussain and Gunasekaran, 2002). Management reporting and accounting systems develops a proper structure for measuring financial performance so that reward system can be established accordingly. Organisational structure of Zylla, sometimes can cause problem due to complexity of different departments. It eases handling issues related with each of them which ultimately leads to sustainable success. Sustainable success is overall development of organisation which can only be achieved if management accounting is applied properly.

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CONCLUSION

From the above discussion in this report, it is concluded that adoption of management accounting systems proves as an advantage. Financial stability is considered as important factor for measuring overall performance of Zylla which can only be achieved through this system. Thus, manager has to adopt various reporting and accounting systems to ensure sustainable success. Along with this, costing techniques are useful in determining costs as well as cost controlling which are absorption costing, marginal costing and standard costing. Planning tools of budgetary control helps in resolving financial problems which can lead to obstacles between achievement of organisational long-term objectives. Also future risks or uncertainties are reduced. Lastly, all the above aspects will ultimately leads to effective decision making, efficiently implementation of policies and strategies.

You may also like to read: Management And Leadership - Marks And Spencer

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