Principles of Such methods and Techniques of Management Accounting-ABC Ltd

Organization Selected : ABC Ltd

INTRODUCTION

Management accounting aids in taking decisions for strengthening internal operations of organisation. Present report deals with calculation of marginal and absorption costing for ABC Ltd engaged in manufacturing sector. Furthermore, importance and role of management accounting system is discussed. Principles of such accounting and range of methods and techniques are explained as well. Moreover, planning tools and ways in which financial problems can be resolved by using accounting systems are discussed.

PART ONE

PART A

PRODUCING PORTFOLIO OF CALCULATION FOR FINANCIAL STATEMENTS USING VARIABLE COSTING

1. Budgeted profit statement using marginal and absorption costing

Marginal Costing

Income Statement Under Marginal Costing For The Month Of January

;

Amount

Sales Revenue

(160000*67.60)

10816000

Less Cost Of Goods Sold

; ;

Direct Materials

(190000*10.40)

1976000

Direct Labour

(190000*18.20)

3458000

Variable Production Overheads

(190000*7.80)

1482000

Less: Closing Inventory

;

1092000

; ;

8008000

Contribution

;

2808000

; ; ;

Less: Fixed Selling Costs

; ;

Fixed Production Overheads

;

975000

; ;

975000

Gross Profit

;

1833000

Absorption Costing

Income Statement Under Absorption Costing For The Month Of January

;

Amount

Sales Revenue

(160000*67.60)

10816000

Less Cost Of Goods Sold

; ;

Direct Materials

(190000*10.40)

1976000

Direct Labour

(190000*18.20)

3458000

Variable Production Overheads

(190000*7.80)

1482000

Less: Closing Inventory

;

1092000

; ;

8008000

Contribution

;

2808000

; ; ;

Less: Fixed Selling Costs

; ;

Fixed Production Overheads

;

821052

; ;

821052

Gross Profit

;

1986947

Workings-

Calculation of Fixed overheads absorbed

= Fixed production overheads / Production * Sales

= 975000 / 190000 * 160000

= 821052

PART B

SUPPORTING CALCULATIONS FROM PORTFOLIO

1. Principles of management accounting

The management accounting information is useful for the firm's management so that it may be able to take enhanced decisions to effectively strengthen internal operations. The principles of such accounting are as follows-

  1. Formulating and Compiling-

Information related to past data, records and financial statements are designed and compiled in an effective manner. This means that relevant information is presented by the management accounting system and thus, problems can be resolved up to a high extent (Principles of Management Accounting.;2018).

  1. Accounting by taking inflation-

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The profit of firm cannot be ascertained unless amount of capital invested in real terms are not taken into account by an organisation through implementation of revaluation accounting. In the same manner, inflation rate is considered to effectively analyse successful operations of company in effectual way.

3.Using ROCE (Return on Capital Employed)-

ROCE is also termed as Return on Investment which shows efficiency of organisation in generating sales in the best possible manner. In relation to this, capital employed is computed in real value of money and this is done with the help of management accounting.

  1. Integration-

It is the main essence of such accounting as all information are integrated in that way which can be used up to a high extent and efficiency can be maintained as well. Furthermore, costs are minimised because accounting services are integrated quite effectually.

2. Role of management accounting and management accounting systems

Company is benefited with the help of such branch of accounting in effective way.;The main role of management accounting is to provide clarity about manufacturing insights of organisation so that costs associated with materials, labour and production overheads can be assessed in the best possible manner (Shah, Butt and Tariq, 2011). It helps to reduce costs which are unnecessarily hampering overall productivity and thus, expenditures are controlled in effective way.

On the other side, management accounting system has a main role to provide futuristic information by implementing trend analysis, forecasting techniques and related methods aiding management in taking enhanced decisions. Hence, management accounting information is helpful for ABC Ltd to effectively analyse internal operations and take steps to initiate control on expenses so that expenditures may be minimised and productivity can be maximised.

3. Usage of techniques and methods used in management accounting

There are various methods that are used helping organisation to gain useful insight regarding enhancing production in effective way. One of the important methods is cash flow analysis which is used in firm so that it may be able to gain clarity regarding whether cash is generated or utilised in relation to various activities. These are classified into operating, investing and financing activities identifying surplus or deficit cash balance. Another method is cost accounting which is helpful in analysing costs in effective manner and are minimised so that production may not get reduced (Aykan and Aksoylu, 2013). It is useful method for ABC Ltd as it aids in taking better decisions with much ease.

Budgetary control is a useful technique of management accounting as budgeted and actual output can be matched in order to analyse deviations if any. By finding out variances, corrective action is taken by the management so that improvement may be done and thus, productivity can be increased quite effectually.

Fund Flow Analysis is another useful technique of such accounting which is used to compare two balance sheets and stating reasons for change. It provides clarity regarding inflow and outflow of monetary resources in effective way.

4. Management accounting integration within firm

Management accounting is helpful in enhancing value of organisation in the best possible manner. It is effectively integrated within company by relying on overall production capacity and by considering expenses incurred on manufacturing level and steps are taken to reduce expenditures to maximise production quite effectually (Weißenberger and Angelkort, 2011).

On the other hand, management accounting is in direct relation to planning, output and business is able to assess various costs such as fixed, variable and semi-variable costs in manufacturing and are minimised in that manner by which production is increased. This is how management accounting is integrated in company and provides several benefits.

5. Benefits of function to company

The main benefit of function is that operations can be integrated in effective way. It is achieved by making groups of employee's possessing particular specialisation and as such, they can work with greater efficiency and overall productivity with ease.

Another benefit of function to ABC Ltd is operational speed, which is enhanced in better way. It is possible because proper allocation of work in accordance to specialisation provides greater clarity which helps to reduce overlapping and duplication of tasks quite effectually (Van der Stede, 2011).

Furthermore, employees' work out their individual duties by relying on work allocated to them. This ultimately eases managerial tasks to direct workers for accomplishing desired production in an effective way. Hence, it can be said that firm is benefited with the help of organisation’s functional structure and thus, productivity is attained quite effectually.

PART TWO

PART A

1. Comparing three planning tools used in management accounting

There are various planning tools which play important role in the company in solving problems in the best possible manner. The tools are variance analysis, NPV and zero-based budgeting which are compared below-

Zero-based budgeting

It is useful planning tool by which budget is prepared with zero base without referring to past data in effective way. In simpler words, no historical data of previous year's budget is taken to formulate current year's budget (Shah, Malik and Malik, 2011).

Advantages

  1. The main merit of zero-based budgeting is that accuracy and transparency is achieved as no reference is considered while formulating budget.
  2. It prepares budget by analysing proper demand of department which leads to effective use of resources and thus, wastage is not found.

Disadvantages

  1. It is not suitable as it is time consuming tool to prepare budget from scratch base.
  2. Another disadvantage is that routine work of employees are hampered as they indulge in preparing new budget without using past data

NPV (Net Present Value)

It is useful tool helping business in carrying out investment decision in that way which will be profitable to invest in. It means that profitability aspect of new project is analysed entirely and as such, decision is taken whether to accept or reject the same. NPV is obtained by taking difference between cash inflows and outflows of project (Qian, Burritt and Monroe, 2011).

Advantages

  1. It is advantageous it utilises concept of time value of money in assessing attractiveness of project.
  2. NPV uses cash flows which help in assessing when gains will be generated by the project and benefits will be provided with much ease.

Disadvantages

  1. It is disadvantageous because it based on estimation regarding future cash flows and which cannot be remain constant and thus, results drawn are inaccurate (Nixon and Burns, 2012).
  2. This method does not take into account size of project and does not measure it which is required for taking decision regarding investment.

Variance analysis

It is used in the organisation to effectively analyse budgeted and actual result and make interpretations thereof. In simple words, it is used to compare two results and find out deviations so that improvement can be made by taking corrective action.

Advantages

  1. It is suitable for organisation as variances can be easily attained and business may be able to initiate improvement in effective way.
  2. Variance analysis is used to eradicate deviations which might incur and thus, variances can be removed by implementing corrective action.

Disadvantages

  1. It is not good as it does not specify causes behind discrepancies and thus, proper investigation is not made limiting use of this planning tool (Christ and Burritt, 2013).
  2. Extracting variances is time consuming process and as such, lot of time is required to analyse reasons for such deviations.

Thus, planning tools discussed above are quite useful for the company as it helps to remove deficiencies and provides clarity regarding the planning so that it may be able to inject productivity and resources may be utilised in a better way.

PART B

1. Ways in which management accounting is applied to deal with financial problems

The concept of management accounting is effectively applied to resolve financial issues and problems in effective way. There are different ways by which organisations can adapt to management accounting for resolving problems. These are discussed below-

  1. Financial governance-

It is required so that roles and responsibilities are to be assigned to managers' possessing skills and capabilities by which they can effectively manage company with much ease. Financial governance is essentially required as without skilful managerial personnels, there will be spoilage of resources and firm will not flourish in that manner. Rules and regulations are imparted so that financial issues could be resolved up to a high extent (Simionescu and Bica, 2016).

  1. Budgetary target-

It is a target made to estimate amount of monetary resources that will be used to achieve operational activities quite effectually. Capital and operating expenditures are taken into account and budgetary target is made. Planned and actual results can be analysed afterwards so that deviations can be removed to attain efficiency. Thus, financial issues may be effectively resolved with the help of removing variances quite effectually.

  1. Balanced scorecard-

Balanced scorecard is used to assess and measure performance of company quite easily. Internal and external operations are effectively assessed which provides feedback to company. This helps to remove weaknesses as feedback can be taken with much ease (Höglund and et.al, 2016). Organisation is benefited by using balanced scorecard technique as well-structured strategies may be implemented quite effectually.

  1. Benchmarking

Organisation should use those strategies which are implemented by industry's best company so that it can also be implemented in organisation and weaknesses can be removed up too much extent. In simple words, company should use strategies of high-end firm so that financial issues can be eradicated with much ease. Furthermore, it helps company to remove shortcomings and problems could be resolved. Hence, above techniques are useful for firm in adapting to financial problems quite easily. Get Do my assignment writing Help by Australian Writers at the lowest cost.

CONCLUSION

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Hereby it can be concluded that management accounting is quite useful for company in carrying out information which helps in aiding decision-making in effective way. Planning tools are helpful for organisation so that resources may not be wasted. Furthermore, marginal and absorption costing are prepared for analysing cost in effective manner. Hence, management accounting information assists firm's management to take better decisions.

REFERENCES

  • Ali Shah, S. Z., Butt, S. A. and Bin Tariq, Y., 2011. Use or abuse of creative accounting techniques.
  • Aykan, E. and Aksoylu, S., 2013. Effects of competitive strategies and strategic management accounting techniques on perceived performance of businesses.;Australian Journal of Business and Management Research.;3(7). p;.30.
  • 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.
  • Höglund, L. and et.al., 2016. Management accounting of control practices: a matter of and for strategy. In the 9TH INTERNATIONAL EIASM PUBLIC SECTOR CONFERENCE, held in LISBON, PORTUGAL, SEPTEMBER 6-8, 2016.
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