Management Accounting Practices Analysis

Introduction

This study deals with the analysis of different forms of management accounting practices and their significance in the application of attaining sound business performance. It further deals with the manner in which profit fluctuates within budgeted cost and actual costs about marginal costing and absorption costing approach. This will further assist in understanding the use of distinct planning tool in preparing and forecasting budgets. The study proves to be important for management accountant as it offers a holistic approach towards management accountancy and other related concepts.

Task 1: Demonstrate an understanding of management accounting system

Meaning of Management Accounting

Management accounting can be identified as the demonstration of the accounting information in a manner that will help management in the development of policy along with the routine operation of the company. Hence, it is associated with the utilization of the accounting data that has been gathered with the assistance of financial accounting and cost accounting with the objective of creation of the policy, planning, control and decision making by the management of the organisation (Gary & Kulesza, 1996). As per the definition offered by CIMA London, management accounting offers information that management of companies needs to develop about policies, planning and controlling of different types of activities in an organisation. The information is also needed for decision-making purpose on the distinct course of action, the disclosure of the information to the entity and the employees of the organisation (Gary & Kulesza, 1996).

Types of Management Accounting System

It can be stated that the management accounting system alters in their use in different parameters. The systems are developed to offer different management information according to the needs of the management to help in the process of decision making. The different types of management accounting systems are cost accounting system, inventory management systems, job-costing systems, and price-optimization systems (Chenhall & Moers, 2015). Cost accounting systems: A cost accounting system can be considered as the framework that the firm makes use of to determine the cost of the products basically for inventory valuation as well as cost control. The two main essentials related to cost accounting systems are stated below: Cooperation and participation of different executives that is needed by numerous departments: it will ensure that there is adequate cooperation as well as involvement in the creation of the cost accounting system that would permit the management in determining the right cost of the product. Flexible and simple: it can be revealed that the cost accounting system needs to be quite flexible and easy to comprehend and execute. It must also possess the capability to meet the needs and demands of distinct types of users and thus adapt as per the needs of the company (Nagle & Hogan, 2005). For example, these systems mainly utilised for management accounting for event management companies or for airline companies since it applies a separate accounting system for separate departments within the business. Inventory management system: This type of management system takes into account the supervision and management of stock along with the different non-capitalised assets of enterprises. Organisational methods in Jupiter Plc can be coordinated with such systems to attain the effective flow of the inventory in the context of the organisation. The two main essentials linked with inventory management systems are: Forecasting and replenishing strategies: It assists the company in proper management along with planning about the cost needs of the company. Management of the Inventory in A Physical and Monetarily Level: It has been noted that distinct advantages such as cost minimization and adequate inventory management can be attained with it (Noordin & et al., 2017). Job Costing System: under such systems manufacturing cost is assigned to the individual products, and constant monitoring takes place on expenses. Jupiter Plc can make use of such a system in case the products are similar to keep track of order expenses. It can be revealed that job costing accounting methods comprise of attaining inquiry, estimate the price of the job, order receiving, production order and cost recording. Price Optimizing Systems: it can be revealed that price optimisation system monitors the prices of the resources. It is utilised in identifying the prices of multiple products and services. Jupiter Plc can make use of this system to customize the price for the customer segment by replicating their responses at distinct price levels (Novas & et al., 2017).

Explain Different Methods Utilised for Management Accounting Reporting

The management accounting report helps the manager of the organisation with accurate and reliable statistical as well as financial information. There are different types of reports that are prepared by management that has been listed below: Budgeting reports: Kalpan & Atkinson (2015) has stated that this form of budgeting report sets to evaluate the performance of the company when the organisation assesses the performance of the department and regarding controlling the cost of the organisation. It offers incentives to employees that further motivate them so that the required objectives can be easily attained. Accounts receivable aging reports- Such reports are mainly concerned with the administration of accounts receivables of companies that are involved in offering credit facilities to customers. Job Cost Reports- Job costs reports pay due attention to the determination of cost, the profitability of the job. Inventory and Manufacturing Reports- The companies that are engaged in manufacturing methods are supposed to make this type of reports with the objective of making their inventory and manufacturing methods efficient. Performance Reports: Companies identify the differences between the actual result and budgeted performance. The information about this is presented in performance reports (ICAI Knowledge gateway, 2018).

Benefits of management accounting system in the context of Jupiter Plc

There are different advantages of management accounting system in case of Jupiter Plc that has been demonstrated in the table below.

There are mainly four forms of management accounting systems, and each of them has their advantages. Jupiter Plc can benefit from the implementation of management accounting systems as it will assist the company in minimising the cost of the product ultimately reducing the pricing structure. It also offers major information that is needed for the purpose of planning. This can further be regarded as time and cost efficient. However, despite several advantages, management accounting is not free from limitations. One of the main disadvantages of management accounting is the analysis of financial statements where it is dependent upon the capability of the interpreter to get a positive outcome. Hence, such biases and prejudices of the individual might have an impact on the objectivity of the conclusion attained.

Critically evaluate how management system and management accounting reporting integrated into organisational processes

Management Accounting Reports and Their Integration with Jupiter Plc

Task 2: Apply a Range of Management Accounting Technique

2.1. Interpretation of the Case

Marginal Costing Techniques: Marginal costing that is considered to be the main source for decision-making method is identified as accounting systems where variable costs are owed to the cost units. However, it is identified that the fixed cost for a particular period is written off completely towards aggregate contribution. This costing method proves to be simple to ascertain the cost information by the companies making efforts to determine the effects on profitability because of alteration in the level of production (Collier, 2015). Absorption costing: It can be revealed that the absorption costing takes into account the resources and expenses that are associated with the cost of production. It treats the cost of production as product cost. It comprises costs related to direct materials, direct labor, fixed and variable overhead cost. The production cost per unit has been 5 pounds per unit. Furthermore, it has been found that total production cost has been 720000 pounds. This shows that the company has been producing at a high-end cost with 5 pounds per unit that is further bound to influence the overall pricing altogether. It has been identified in the table given below.

Standard profit under absorption costing method has been 160000 pounds. It has been noted in the table demonstrated below.

It is noted that the budgeted profit has been 150000 while the actual profit under absorption costing has been 155000. It is a well-known fact that profit under absorption costing be more than the profits that take place under marginal costing in case the closing stock is more than opening stock. The main reason behind this fact is that in case of absorption costing some portion of fixed overhead rather than being charged to current period is charged to closing stock and carried over towards the next period. The profit that is shown under absorption costing is less than the profit that is demonstrated under marginal costing in case the closing stock is less than the opening stock. The main reason for this is that in case of absorption costing towards the current period, a certain portion of the fixed cost about the previous year is charged. The effect of this particular aspect can be in the form that the profitability depicted for the business will be not at par with what the actual figure is, rather it will show profitability more than that of the actual income of the business (Delis & et al., 2014).

2.2. Variable Costing: Budgeted profit and loss

Budgeted profit under variable costing has been 140000 pounds. It has been identified from the calculation that both the management accounting methods such as marginal costing and absorption technique make use of the different costing methods to compute the cost of the products and services. In the case of marginal costing, the fixed cost is written off towards contribution and in case of absorption costing it makes use of all the cost for computing per unit cost.

Task 3: Explain the use of planning tools used in management accounting

The companies utilise budget planning tools to administer, plan and forecast the budget of the company that would be implemented and administered to attain the actual objectives as well as results. In the present times, the companies make advance steps to plan their strategies where it is evident that companies instead of making use of traditional budgeting tools make use of cloud-based budgeting tools as well as software. Different online budgeting tools offer companies with numerous options so that the budgets are managed in an organized manner. It is noted that the planning tools demand less supervision and training (Ernst & Young, 2008). The different types of planning tools and its application to prepare the budgets have been detailed below: SCORO: Such planning tools combine the distinct features of budgeting with other tools so that the overall company can be managed in one system and thus offer a coordinated plan for the entire company. SCORO offers the company with the facility to administer numerous expenses and resources that are made available with the company while administering the project budget.

Advantages and disadvantages

Planning as well as forecasting budgets can be considered as significant features of the tools.

It doesn’t possess any limit over the budget of the project.

It offers automated revenue stream from invoices that assist in proper planning

Disadvantages

It takes some time to understand the program as it is quite complex.

Prophix: This is a software solution for most of the corporate enterprises so that the corporate performances can be administered. It implies the fact that the tool comprises of distinct smaller tools basically for the administration of the resources possessed by the company and for planning the budget (Baker, 2006).

Advantages and disadvantages

It assists the company in planning and forecasting.

It helps in proper planning of cash flows which further ensures proper liquidity aspects in enterprises.

Disadvantage

It takes some time to understand the program as it is quite complex.

3.1. Analysis use of distinct planning tools and their application for preparing and forecasting budgets

Task 4: Compare Ways in Which Organisation Can Make Use of Management Accounting to Respond to Financial Problems

4.1. Compare how organisation are adopting management accounting systems to respond to financial problems

New business conditions taken place and information has been considered as a significant resource to evaluate the performance of an entity. This resource also assists in identifying the financial issues that are linked with a variance that is noted in the standardized set of performance indicators. Under such cases different management accounting methods are utilised basically for setting different benchmarks, makes use of the financial and non-financial indicators to ascertain the performance of the company thereby reflecting the manner in which it pays attention towards long-term sustainability aspects.

Financial Indicators

Non-Financial Indicators

4.2. Analyse how in responding to financial problems, management accounting can lead the organisation to sustainable success

The role that the management accounting plays in the context of the sustainable success of the business organisation can be discussed below:

It will become essential for the manager of the company to support the strategic as well as sustainable objectives with different strategies and policies that need to be developed. The different management accounting tools and methods such as standard costing, marginal costing, and break-even analysis and among others would permit in the integration of sustainable matters in distinct decision-making methods. Management accounting will assist in the generation of the reports that would comprise information on sustainability impacts that will assist in understanding numerous pricing and strategic planning. Management accounting assists the companies in the creation of the reporting strategy that would coordinate numerous sustainability issues. It further allows the reporting of financial and non-financial related information in the organisation (Drury, 2013).

4.3. Evaluate how planning tools for accounting respond appropriately for solving financial problems to lead the organisation to sustainable success

There are distinct planning tools that assist the management in the determination of financial issues with the assistance of the management accounting methods. The information that the firm gathers from these planning tools can help them in making strategic direction and in taking a financial decision that can lead the company towards financial success. The tools permit in controls to be implemented. Furthermore, companies such as Jupiter Plc can take investment decisions also accordingly. Once the financial data are analyzed and interpreted, it permits in external reporting thereby ensuring sustainable growth of the company. The company in this regard needs to make use of appropriate tools and techniques to evaluate the sustainability issues and likewise make proper execution of the strategies to deal with the same (Chenhall & Moers, 2015). The management accounting contributes to distinct levels of planning in the organisation along with strategic decisions in the manner that has been demonstrated in the paragraphs below: Planning and Controlling: It is one of the key elements of management accounting that needs to be considered by the business. Jupiter Plc needs to make plans to set the direction for organisation control systems for ensuring the fact that the operations are executed as per the plans. Competitive Edge: Most of the well-administered companies make their strategies and objectives on developing competitive advantage of the company. Hence, the organisation strategies along with the utilization of the management accounting methods are focused on attaining competitive advantage in the market thereby paying attention towards the low cost and brand image (Colbourneycollege, 2018). Implementing Plans: with the assistance of the management accounting methods, the managers of the organisations collect different types of information such as budgets, performance reports as well as product regularly cost so that the plans can be implemented that has been prepared in the process of budgeting. This would assist the management of Jupiter plc to allocate the resources as per the needs of different departments and divisions (Collier, 2015).

Conclusions

It can be concluded from the report above that the different management accounting principles and techniques assist the organisation in attaining and retrieving the information that the manager needs so that the function of the organisation is conducted properly. It becomes essential for Jupiter Ltd to implement these strategies so that they can survive in their sector. It offers the managers of the company with data-driven input so that they can take decisions and thus enhance the quality of the decision-making process. With the assistance of absorption costing and costing the companies can prepare financial reports as per the set of preferences that the company has set. The implementation of different management accounting tools as well as systems can offer the management of the company to set business strategies that are concentrated towards the attainment of long-term sustainability of business and thus attain profitability as well.

References

Atrill, P & McLaney, E 2009, Management Accounting for Decision Makers, 6 th edn, Prentice Hall Financial Times, Pearson Education

Chenhall, R. H.& Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, Organisations and SocietyVolume 47, Pages 1-13

Delis, M. & et. al., 2014. On the estimation of the marginal cost. Operation research. vol. 62, no. 3, pp. 543-556.

Hart, J. & et,. al., 2012. Management accounting: Principles & Application, New South weales: Pearson higher education, AU.

Nagle, Thomas T., & Hogan, J., 2005. The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, 4th ed. Prentice Hall. .

Novas, J. C. & et. al., 2017. The role of management accounting systems in the development iof the intellectual capital. Journal of intellectual capital, vol. 18, no.2, pp. 286-315.