Company- Evaluate the management tools which are effective in accounting.
- Define meaning of management accounting system.
- Provide range of management accounting techniques appropriately.
INTRODUCTION
The accounting system is the system that is used for the revenues, expenses, and also for other financial activities of a business. It is helping to track the business financial transactions such as purchases, liabilities, sales, etc. it is capable for generating comprehensive statistical reports that are provided to management and also to interested parties to support decision-making process (Wickramasinghe and Alawattage, 2012). In this report taking company Jupiter PLC, it is a medium-sized manufacturing company.
This report covers different tasks and in each task, first explain the management accounting system and their types. In task 2, calculate the budget with the help of marginal and absorption costing. In task 3, using planning tools regarding to management accounting and in task 4, Jupiter PLC compared to other organisations to solve financial issues.
TASK 1
Management Accounting and Their Types
Management accounting is a tool used to prepare and provide statistical and financial data on time. It also present accounting information, which helps management formulate adopted policies and also to make short-term and long-term decisions. It is internal system used by junior management accountant of Jupiter PLC so that they measure and evaluate their management process effectively. The various management accounting system which are used by them are mentioned below:
Job Costing System:
job costing system is process of collecting data related to costs of manufacture and job service. It also record the job cost of all products that are manufactured in company. This system is used by Junior management accountant of Jupiter PLC so that they can determine quality of estimating system from accumulated information (Van der Stede, 2011). And also help to quote cost of product, which is acceptable to gain profit by collecting information about direct material, direct labour and overheads.
Price Optimisation:
Price optimisation is process of discovering the structures of price which optimise goals like revenues or acquiring customer targets. Junior management accountant of Jupiter PLC use this system so that their products will sell rapidly in market with a sufficient profit. This system is used by company and is based on their competition level, manufacturing cost of products and demand of each product. This helps them to balance the amount and profit of all product.
Inventory Management System:
Inventory management system are accumulation of technology with methods and operations which manage and handle the maintenance of furnished stocks, such as finished products or raw materials and supplies. Junior management accountant of Jupiter PLC using this system so that they monitor stocks regularly and optimise the management process by investing in cloud-based software. This will help them to increase productivity and sales and get higher return on investments (Lavia López and Hiebl, 2014). It also helps accountant of company compute the raw materials closing value, progress of work and total expenses which are incurred during business operation so that they prepare accurate financial statements.
Cost System System:
cost accounting system is the method used by firm to record product cost activities through different production process. It is important accounting system applied by Junior management accountant of Jupiter PLC to ascertain their product cost so that they can analyse the profit, control the cost and examine the inventory. By adopting this system, company gain some benefits, such are valuation of inventory, decisions related to acquisitions and so on.
Methods of Management Accounting Reporting
Management accounting is also known as managerial and cost accounting, which shows internal data obtained from financial accounting. This accounting make the internal reports, which are used by Junior management accountant of Jupiter PLC to plan, regulate and measure the performance (Haustein, Luther, and Schuster, 2014). Accountant analyse the management accounting reports to highlight definite activity and convert them into useful data which helps in organisational growth. The different types of management accounting report used by the company are explained below:
Performance Report:
A performance report is maintained to analyse the whole company's performance, including employees. By using this report, junior management accountants of Jupiter PLC appraise the performance and work of their employees and also make strategical decisions for company growth. And also by using it as an organisation to set criteria to improve performance level, to demonstrate compliance, and so on.
Inventory Management Report:
An inventory management report is created to maintain inventory and make the production process more effective. The junior management accountant of Jupiter PLC prepares this report to get all information about materials and stocks. This report also gives accurate data on company opening and closing stock. Some techniques used by organisations are turnover ratio and EOQ. It pertains to appropriate methods for the analysing and evaluating financial transactions of the company. For the preparation of this report, methods are LIFO (last in first out),, FIFO (first in first out), and the weighted average cost method for proper analysis.
Account Receivable Report:
The account receivable report is used as an important tool for managing cash flow when customers credit customers. It is prepared to find out the number of unpaid invoices that are collecting during a specific period and also find out the total number of debtors of the company in the case of Jupiter PLC. These reports are prepared on a periodic basis to find out of non-paying invoices or debtors of the company (Lavia López and Hiebl, 2014). With the help of this report, prepare financial statements that are helping to know the actual financial position of the company. In financial statement, including balance sheet, profit and loss account. This also includes the cash flow statement and changes in equity.
Budget Report:
This report was mostly prepared by the small business for analysis of business performance as well as manager analysis of their department's performance and control costs. Budget reports are prepared on the basis of last year's expenses and incomes because it helps to understand where businesses spend and earn. It is related to actual revenues and losses on behalf of prior years. If the small businesses was considerably in the budget in last years and methods can not find to clean-cut costs. So it will help to estimate how future budgets may need to be raised to a more faithful level. But the report cannot mention incentives provided to companies. It is including bonus funds that are given to achieve selected financial goals (Accounting Management Reports, 2018).
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View Samples Order Now Assignment helpBenefits of Management Accounting System
When company apply management systems, they accomplish many benefits. Every things has two sides so as well as management accounting system have merits and demerits. It is important to proper recording, smooth functioning and analysis of data and is overall critical for business growth. The Jupiter PLC, UK-based, has adopted a management accounting system and related techniques in order to present business report in systematic way to ascertain it properly. There are several benefits related to accounting system and their types:
|
Types of accounting system |
Benefits of accounting system |
|
Cost accounting system |
This system is used by companies to maintain proper record of the company because it helps to measure costs that are incurred related to specific items and is helpful for determining and finding out the profit of the company. |
|
Inventory management system |
This system helps to maintain proper inventories or stock in accurate way. With the help of this know-opening and closing stock. These are basis of the company because, on the basis this, we know inventories. |
|
Job costing system |
With the help of this system, we know that particular cost and generate income are related to specific job. That helps to determine the profit from the job or operation. This system mainly identifies direct material, direct labour and overhead of the company. |
|
Price optimisation |
It helps to determine the actual price of each product of the company. The particular job also determines the profit as well as operations. |
Evaluation of Accounting Aystem Integration and Reporting Method
It is true that in the organisation to conduct business activities, management accounting systems and management reports are applied. These are useful for recording and transferring the operational information of the business (Banerjee, 2012). The company of Jupiter PLC used two tasks relating to management accounting that are helping to fill gap between the formulation, combination and movement of performance information for the business. In the business, operational information are shown by the methods and these are reports of the management according to their nature. One of the type of reporting system is that performance report are based on the overall performance of the company. In this, including business operations and performance of employees are working in the organisation in a direction of achieving objectives and goals. accounting receivable report is also useful for the company because most information are provide by this report. This report shows information related to unpaid invoices, debtors and creditors. For showing overall performance related to this, prepare financial accounts of the company that are financial situation. For preparing this, including balance sheet and profit and loss account.
TASK 2
Marginal costing
It is a costing technique that is used for charging to cost units on related to variable cost and fixed cost. It is written off to related period for the against of contribution. It is applied to the relationship between volume and profit output to clearly bring out (Bouten and Hoozée, 2013).
Absorption costing
It is a method that applies to all of the manufacturing costs that are en-wrapped by the units produced. In other words, cost of finished goods includes inventory and in this involve direct materials and direct labour and both are divided in variable and fixed. As an output, absorption costing is also mentioned as full costing.
(a) Marginal costing
Calculation of net profit by using marginal costing method
|
Particulars |
|
Amount |
|
Sales revenue = ( No. of goods sold * selling price = 50 * 16000) |
|
800000 |
|
Marginal Cost of Goods Sold: |
|
560000 |
|
Production = ( Marginal cost per unit * Produced units= 35*18000) |
630000 |
|
|
closing stock = ( Marginal cost per unit * Closing Stock Units = 35 * 2000) |
70000 |
|
|
Contribution |
|
240000 |
|
Fixed cost |
|
100000 |
|
Net profit |
|
140000 |
Absorption costing
Computation of net income by using absorption costing method
|
Particulars |
|
Amount |
|
Sales = (Price of selling * no. of units sold = 16000 * 50) |
|
800000 |
|
Cost of goods sold: |
|
560000 |
|
Production = ( Marginal cost per unit * Produced units= 35*18000) |
630000 |
|
|
closing stock = ( Marginal cost per unit * Closing Stock Units = 35 * 2000) |
70000 |
|
|
Gross profit |
|
240000 |
|
Less: under absorb fixed production cost |
|
10000 |
|
Net profit/operating income |
|
230000 |
(b) In the end of September, actual production unit: 19000
Closing stock: 3000
Calculation of net profit by using marginal costing method
|
Particulars |
|
Amount |
|
Sales revenue = ( No. of goods sold * selling price = 50 * 16000) |
|
800000 |
|
Marginal cost of goods sold: |
|
560000 |
|
Production = ( Marginal cost per unit * Produced units= 35*19000) |
665000 |
|
|
closing stock = ( Marginal cost per unit * Closing Stock Units = 35 * 3000) |
105000 |
|
|
Contribution |
|
240000 |
|
Fixed cost |
|
100000 |
|
Net profit |
|
140000 |
Computation of net income by using absorption costing method
|
Particulars |
|
Amount |
|
Sales = (Price of selling * no. of units sold = 16000 * 50) |
|
800000 |
|
Cost of goods sold |
|
560000 |
|
Production = ( Marginal cost per unit * Produced units= 35*19000) |
665000 |
|
|
closing stock = ( Marginal cost per unit * Closing Stock Units = 35 * 3000) |
105000 |
|
|
Gross profit |
|
240000 |
|
Less: under absorb fixed production cost |
|
5000 |
|
Net profit/operating income |
|
235000 |
After the calculation of budgeted and actual Profit and loss accounts profit are same by using marginal and absorption costing method. In marginal costing, Profit is the same but in absorption costing, there is a change of 500.
TASK 3
Budget
It is an estimation of the company that is the basis for preparing budget to forecasting of revenues, expenses, resources and costs of the company. It is prepared for the particular time to on behalf of future conditions (Maas, Schaltegger, and Crutzen, 2016).
Budgetary control
It is the process to controlling the management system because, according to this, when company conduct business activities. So these activities are compared to related budget because, in this process, they compare to standard output with actual output for the future period.
Advantages and Disadvantages of Planning Tools
Planning tools are important part of the organisation that are using for future periods, and they are as follows:
Contingency Tool:
It is the tool are used for assessing to those market changes that are suddenly changes or business delays might have on a situations. These tools are described to those factors as helping to timely and accurately identify areas that are effective for humanistic. It is planned to help Jupiter PLC to relate different types of risks to moving from performance (Cuganesan, Dunford, and Palmer, 2012).
Advantages -
It is designed in effective way to reduce all types issues that suddenly arise in the market. So this planning tool help to create strategies according to risks and also for that difficulties that happen in future.
Disadvantages -
This approach of contingency is good in practicality, but it is very complex and related to some situations. It is to avoid the dangers of simplistic or liner thinking.
Scenario Tool:
It is the focus of the Jupiter PLC according to future outlook. It is used as a method of the organisation that they are using to predict future possibilities in the future, like as budgets that are effected to strategic objectives. It is not easy to predict future possibilities of the organisation; that's why creating variety of future scenario would be possible.
Advantages -
The scenario tool will have to work closely with the scenario of the business. But in this tool, I found many strategies that are helping to make effective decision for the coming period.
Disadvantages -
It is critical to estimate accurate occasion related to any situation. Regarding to future growth, I found several problems that are not implemented.
Forecasting Tool:
In this planning tool, we are using internal and external factors that are for estimate of future trends of Jupiter PLC (Chenhall, Kallunki, and Silvola, 2011). For the growth of the business, we are using strategies to analyse existing data. Mostly this tool is used regarding to budgetary control that is helping to decide allocation of budgets for up-coming expenses in future. At the end of in this tool, actual outcomes are compared with estimated results.
Advantages -
With the help of this tool, estimate future financial information of the company. It is helping management take long-term and effective decision on the basis of future predictions.
Disadvantages -
This tool applies only to qualitative approach that is any time change according to situation. So easily no believe on that for future trends and not taken properly.
Analysis of Various Planning Tools and Their Application
In Jupiter Plc, using different methods of controlling the budget, the manager is using various types of planning tools. There are specific plans being used by company. The first one is contingency tool for controlling those risks that are growing in business. It is identified that total expenses and costs are received by the company (Lachmann, Trapp, and Trapp, 2017). In scenario tool, predict future risks that are rising when activities happen. In forecasting tools, prepare strategies for internal or external factors that are changes according to future trends. For the effective budget process using different type equipment that are already examined.
Evaluation of Planning Tools for Responding to Rinancial Issues
It has been identified that Jupiter PLC faces many inner problems that are relating to develop. In order to control several evince are connected to to the budgets of the company. For solving to financial issues in the company using planning tools are contingency tool, scenario tool and forecasting tool. Contingency tool is applied for the one of the reliable tool which are using to control to business risk for moving over all performance of the company. In forecasting tool is using for predicate to future issues that are effected to performance and for this solution using key performance indicator. Scenario tool predict to future trends that are suddenly changes and creating problem to conduct business activities so for this using KPI.
TASK 4
Comparison with other Organisation Financial Issues
Jupiter PLC regarding to management accounting, has many financial problems that are easily found. When it rises up, businesses face to critical situations, so they have to manage financial resources. In this system, there are several types of financial issues, such as increase in cost, customer satisfaction and decrease in income. These issues can resolved by using following tool are as -
KPI ( Key Performance Indicator )
It is a technical tool that we are using to measure the value that is established to know how effectively a company is achieving key business objectives. It is used by Jupiter PLC on the various levels to evaluate their success to reaching targets (Baird, Jia Hu, and Reeve, 2011) . It will be divided in to two parts: the first is a high level that is related to the overall performance of the company and second is a low level that focuses on employees processes related to different departments. It is helping to Jupiter PLC for taking effective decision-making. Because of in organisation have complex nature of the structure that is helping to reduce it and cover over all performance of the company.
Bench Marking
It is the process of measuring performance of company's processes, services and products compared with those industries that are considered the best in the country. It is used to Jupiter Plc for identifying the internal possibility for improvement (Wanderley and Cullen, 2013). The objective of bench marking are: (1) to determine where and what improvement are called; (2) Analysis of other leading organisations to achieve higher performance level; (3) after analysis, getting information is used in the organisation to improve performance.
Comparison between Jupiter PLC and
|
Jupiter PLC |
Cornmill limited |
|
This organisation based on medium-sized manufacturing. It is adopted job costing system for manufacturing process to evaluate direct material, direct labour and overhead. It will applied after that to improve efficiency of the company and the cost of each job and project will be ascertained and allocated properly. With the help of this system, we identified profitable and non profitable areas in the company. |
This is a small manufacturing company that adopted management accounting system. In this system, we are taking inventory management system that are used for the minimum expected result. So solving problem relating to this using benchmarking. It is helpful to company to achieve set targets and achieve to best practices. In this system, we are using many technologies to evaluate the objectives. In the benchmarking, take leading company to compare so Cornmill limited takes leading company and compares with them. With this comparison, bring effectiveness in working. |
|
Jupiter Plc is using Key performance indicator but it is divided in to two parts: the first is financial and second is non-financial so they are mostly preferred to financial indicator. Because job costing system mainly related to costs that are major by these indicators. It is helping to solve financial problems. |
Financial issues when origin in organisation at that time face many inner problem. So for the solution prepare budgets and according to this, follow business activities. This will help to keep track of revenues and expenses. And after analysis, compare standard and actual outputs. |
Management Accounting leads Organisations to Achieve Sustainable Success
Even if an organisation is conducting all the business activities properly, financial problems are of the origin due to uncertainties in the organisation. For solving these problems, we are using management accounting system in the organisation for conducting properly business activities. In management accounting, there are many systems, along with reporting system which helps in constant judgement of financial performance (Busco and Scapens, 2011). Here, sustainable success refers to total growth of all the departments in Jupiter PLC. This can be achieved as management accounting is practical in every division, whether finance or human resources. In management accounting define Success that are directly related to proper decision making and reports are equipped to performance analyse. Decisions are taking on the basis performance that is needed to be evaluated.
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CONCLUSION
From the above report, management accounting is important part of the organisation that are using in Jupiter PLC to improve the financial condition and also for effective management. It is not necessary to acquire by all organisations but internal stakeholders want to proper information about the company that is provided by the analysis of overall performance of the company. It is used to prepare a management report that shows the activities of the business and, with the help of costing techniques, prepare budget. To know financial issues that are related to the company that are compared with other organisation and identify that other company how to solve these problems.
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