MANAGEMENT ACCOUNTING
Higher Nationals
Assignment Brief – BTEC (RQF)
Higher National Diploma in Business
|
Student Name |
|
ID |
|
|||
|
Unit Number and Title |
Unit 5 – Management Accounting |
|||||
|
Academic Year |
2019/2020 |
Cohort |
Jun 20 |
Term |
Block 3 |
|
Unit Leader |
Seethalakshmy Nagarajan |
Assessor |
Joseph Olaniyan, Syed Ahmed, Raju Saginala |
|
|||
|
Assignment Title |
Management Accounting Concepts and Techniques for Decision Makers |
|||||
|
Issue Date |
18/12/2021 |
|||||
|
Submission Start Date (Formative) |
22/02/2021 |
|||||
|
Submission Summative |
07/03/2021 |
|||||
|
IV Name |
Syed Ahmed |
|||||
|
IV Date |
17 Dec 2020 |
|||||
Table of Contents
List of figures
Introduction
Being the trainee management accountant at Pearl Chartered accounting the report will be prepared for Connect Catering services by showing the management accounting, its use and importance in the organization. The report will not only address the management accounting importance but it will focus on different types of reporting and the system of the management accounting will also be covered in it. To Connect Catering services the advice will be given for implementing the concepts and approaches of the management accounting in order to benefit the business (Ahrens & Chapman, 2007). Also in order to overcome and financial problems of the business, the suggestion will be done and the use of differential planning tools will be done by covering its advantages and disadvantages. In the report, the following task will be addressed and it will include critical evaluation of the reporting and management accounting system, as well as its integration within the business, will be explored. In task two of the report the income statement will be prepared by using different methods and in task three of the report planning tools evaluation will be done so that response will be given to the financial problems and thus attainment of the sustainable success will take place for Connect Catering Services (Kaplan & Atkinson, 2015).
Connect Catering Services
Connect Catering services is the family-owned business and the business operations are carried out since the last 30 years. The business is offering fresh food with fabulous services. Over the years they are focusing towards development of the highly skilled and trained team so that quality of food, as well as services, will be maintained with it. They believe that cooking by making use of the fresh ingredients will increase the loyal customer base and investing in the people has supported in the business in ranking on 2nd position in the Sunday Times among the 100 best companies in the year 2020.
Body
Task 1 critically evaluating the management accounting system and reporting by integrating within the organizational process
Management accounting
The term management accounting is used in the business in order to manage the internal operations of the business as well as to make the best use of the available resource and thus it leads to effective decision making in the organization. As the name suggested management accounting it means that it acts as the controlling function in the business so that the better decision will be taken in the organization and the attainment of the sustainable success will take place from it (Kaplan & Atkinson, 2015).
The role of management accounting
In every organization, the role of management accounting is crucial because it takes the organization towards the attainment of the success and it helps the business organization in the attainment of the competitive advantage (Turner et al. 2017). Below is the detailed understanding of the roles that are played by the management accounting:
Efficient planning
In the organization when the concepts and approaches of management accounting will be applied then it will lead the business towards efficient planning as well as operations of the business will get positively affected (Ahrens & Chapman, 2007).
Efficient control
The most crucial role played by the management accounting is efficient to control because by having proper control over the operations of the business the attainment of the success takes place and it also helps in increasing the business profitability (Ameen et al. 2018).
Communicating
This role is also important because proper communication of the information will take place and it will affect the motivation level of the staff and in the business proper decision making will be done (Kaplan & Atkinson, 2015).
Management accounting system
In the business, there are several types of a management accounting system that aids the performance of the organization and employee as well as management gets positively affected with it. By implementing the management accounting system in the workplace the flow of information and resource utilization will be done as well as in the business there will be proper decision making regarding various things such as information flow, production, inventory, sales etc
Below are the types of management accounting system
Cost accounting system
In the management accounting, this system covers the aspect of the cost that is directly and indirectly related with the products as well as services of the organization. Therefore it can be said that adopting a cost accounting system will not only examine the cost but it will result in an effective tool towards controlling the cost. The in-depth study can be done with the cost accounting system regarding the cost of the product and thus the business profitability can be raised by eliminating the extra cost (Dierkes & Siepelmeyer, 2019).
Figure 1 cost accounting system
Source: (Dierkes & Siepelmeyer, 2019)
By adopting the cost accounting system at Connect Catering services will effectively control the variable cost such as transportation, equipment's etc., on the other hand, the cost controlling will definitely increase the profitability of the business and thus competitive advantage will be accomplished. Also with the cost accounting system at Connect Catering services the revenue of the business will increase additional cost in the product and service will get eliminated (Dierkes & Siepelmeyer, 2019).
Inventory management system
As the name suggests inventory management under this system there will management of the stock so that flow of funds will become easy and liquidity position of the business will be maintained from it. Managing inventory in the business requires expertise because many times it becomes important to make use of the software. With the inventory management system, the stock level we are reduced and it will effectively meet the demand of the customer as well as control over the excess stock will be done. By using the inventory management system it can be said that in the business there will smoothness in the business operation and the profitability of the business will improve (HR & Aithal, 2020).
When the inventory management system will be adopted at Connect Catering Services then the need of the customer will meet effectively as well as the in the business there will be a smooth flow of the information and the business will be able to meet the expenses effectively. On the other hand, there will be no excess stock in the business and thus the overall health and position of the business will improve. Thus it can be said among the various tools of management accounting system inventory management is crucial because it supports in unblocking the money of the business (HR & Aithal, 2020).
Price optimization system
In the price optimization system, it supports the business in setting the fixed price for the product so that decision making for the business and customer can become easy with it as well as it increases the chances for increasing the business profitability. With the increase in the level of competition, it is becoming important for the business to adopt the price optimization system and thus the business will be able to understand the behaviour of the customer in the most effective manner (Qu et al. 2017).
At Connect Catering Services the implementation of the price optimization is important because this system will help in increasing the business profitability and thus the customer behaviour understanding will become easy with it. On the other hand with this system there will be stability in the pricing strategy and the revenue generation will take place (Qu et al. 2017).
Reporting in management accounting
in the management, accounting reporting reflects the health and position of the company and by working on different types of reports better results can be gained for the business as well as the chances for the attainment of the success are high. On the other hand with the reporting, the organization can make better decision and formulation of further strategy in the business becomes easy with it (Smith, 2017).
Below are the types of reporting in management accounting:
Account receivable report
As per the account receivable report, the business can determine its financial health and decision regarding improving the health can be taken. With the identification of the firm's creditors, detailed analysis can be done towards reducing the creditors and thus the smoothness in the business operation can be carried out (Abdusalomova, 2019).
For Connect Catering Services it is important to work on the account receivable report because it will help in enhancing the financial performance and chances for the risk in the business will increase will decline (Smith, 2017).
Budget report
In the management accounting budget report shows the planning of the entire business as well as it shows the expenses that can be made by the business. The report is important because it affects the long term as well as short term growth of the business and the chances for the deviation becomes less and the goal attainment becomes easy (Abdusalomova, 2019).
At Connect Catering Services the use of budget report will help in the attainment of the set goal and control over the business expense will be done. On the other hand budget report will help in analyzing the detailed planning of the business and thus the further steps and activities will be carried out accordingly for the business (Abdusalomova, 2019).
Cost accounting report
Irrespective of the size of organization the cost accounting report is important because it reflects the entire cost incurred during the production of the goods and services, thus with this report the decision of the business is getting affecting. On the other hand, cost accounting report will give a summary of each and every expense that is related to the product of the organization (Abdusalomova, 2019).
At Connect Catering services the cost accounting report will result as an important tool in order to reduce the extra cost and make a better decision for the entire business. Therefore it is good for the business to work on the cost accounting report and the profitability of the organization will increase as well as the operational effectiveness will be gained with it (Smith, 2017).
Integration of management accounting within the organization
At Connect Catering services the integration of management accounting reports and system is important because it directly enhances the performance and it increases the chances for higher profitability in the business. On the other when the use of cost accounting system will be done at Connect Catering Services then it will reduce the extra cost for the business as well as resource utilization will be done and attainment of the growth will take place. It becomes important to integrate the system within the organization so that the attainment of competitive advantage will take place and thus risk in the business will reduce with it (Abdusalomova, 2019).
Task 2 preparation of income statement with absorption costing and marginal costing, and calculation of BEP
Particulars |
April |
May |
Selling Price per Unit |
£8 |
£8 |
Variable Manufacturing cost per unit |
£4 |
£4 |
Fixed Non-Manufacturing Cost |
£4000 |
£4000 |
Fixed Manufacturing Overhead |
£15,000 |
£15,000 |
Units Produced |
2500 |
3000 |
Units Sold |
2000 |
2000 |
Opening Stock |
Nil |
500 |
Closing Stock |
500 |
1000 |
Preparation of income statement by using the marginal cost method
For the Period ended of April and May
|
April |
May |
||
Particulars |
£ In (000) |
£ In (000) |
£ In (000) |
£ In (000) |
Sales (£8*2000 units) Sales = selling price * number of units 8*2000 = 16000 |
|
16.00 |
|
16.00 |
The marginal cost of sales
Opening Stock
Variable Cost of Production 4 * 2500 = 10000
Less: Closing Stock (500 * 10000 / 2500) |
0.00
10.00
2.00
|
(8.00) |
2.00
12.00
4.00
|
10.00 |
Contribution |
|
8.00 |
|
6.00 |
F.C.
O/H fixed manufacturing
Fixed Non-Manufacturing Cost |
15.00
4.00 |
(19.00) |
15.00
4.00 |
(19.00)
|
Net Loss |
|
(11.00) |
|
(13.00) |
Working notes
|
April |
May |
|
8 * 2000 = 16000
4 * 2500 = 10000
4 * 500 = 2000
|
8 *2000 = 16000
4 * 3000 = 12000
4 * 1000 = 4000 |
The income statement by using the absorption costing method
For the Period ended of April and May
|
April |
May |
||
Particulars |
£ In (000) |
£ In (000) |
£ In (000) |
£ In (000) |
Sales (£8*2000 units) Sales = selling price * number of units 8*2000 = 16000 |
|
16.00 |
|
16.00 |
The marginal cost of sales
Opening Stock
Cost of Production (10000 + 15000) (4 * 2500 = 10000)
Less: Closing Stock (500 * 25000 / 2500) |
0.00
25.00
5.00
|
(20.00) |
5.00
27.00
9.14
|
(22.86) |
Contribution |
|
(4.00) |
|
(6.86) |
F.C.
Fixed Non-Manufacturing Cost |
4.00 |
(4.00) |
4.00 |
(4.00) |
Net Loss |
|
(8.00) |
|
(10.86) |
Working notes
|
April |
May |
|
8 * 2000 = 16000
10000 + 15000 = 25000 (4 * 2500 = 10000)
10 * 500 = 5000 ( 25000 / 2500 = 10 )
|
8 * 20000 = 16000
12000 + 15000 = 27000 (4 * 3000 = 12000)
9.14 * 1000 = 9140 ( 32000 / 3500 = 9.14 ) |
2 a)
1. Variable and Fixed Costs
Variable Costs |
Fixed Costs |
|
|
2.
3. Margin of Safety if the Organization Sells 2500 Pizzas
Calculation of Margin of Safety
Margin of Safety = Sales – BEP Sales
Margin of Safety = (9.5 * 2500) - (9.5 * 3000)
Margin of Safety = 23750 - 28500
Margin of Safety = - £4750
4. If manager’s salary is increased to £6,000, how would this affect BEP
Break even point (BEP is calculated by division of fixed cost by contribution (i.e. Sales – Variable Cost)), therefore any increase in fixed cost would lead to increase in BEP in units and BEP in sales value and any increase in variable cost would decrease the BEP as it would increase the contribution value,
Therefore, the increment in manager’s salary would lead to increase in BEP as it is contributing to the fixed cost.
Calculation of BEP in Units
Total of Fixed Cost _ = 13000 _ = 3250 Units
(Selling Price Per unit – Variable Cost Per Unit) (9.5 -5.5)
There is an Increase in BEP Units from 3000 to 3250 Units.
Calculation of BEP in Sales Value
Total of Fixed Cost _ = 13000 _ = £30875
(Selling Price Per unit – Variable Cost Per Unit)/ Selling Price Per unit) (9.5 -5.5)/9.5
Task 3 evaluating the planning tools in order to respond appropriately and solving the financial problem to get sustainable success
Planning tools
In the organization, the use of planning tool is important because it will show the direction and everyone in the organization will work on the plans of the business as well as the chances for the successful attainment will increase. In the management accounting use of various planning tools is done which helps the business in analyzing as well as in controlling the business acitvitie3s and thus the profitability of the business gets increases (ALIN et al. 2019).
Budgetary control
In order to work on properly on the planning tools, the use of budgetary control is done where the budget shows that the summary of the activities that will be carried out for the organization. The tool of budgeting will help the organization in coming up with better results and thus the attainment of the success will take place in the organization (Saputra & Putrayasa, 2018).
Below are the types of tools in order to enhance the business performance
Sales budget
As the name suggests sales budget in the organization the use of this tool is done so that proper forecasting and plans can be made in order to attain the set target for the sales. Also, it helps the business in increasing the revenue and thus with the use of sales budget employee motivation takes place so that they will carry the necessary steps to accomplish the set goal (Saputra & Putrayasa, 2018).
Advantages and disadvantages
For Connect Catering Services this tool is important because the attainment of the set goals for the sales will directly increase the revenue of the business and thus the position of the business will improve. On the other hand, this tool may affect the employee motivation level because employees in the organization are not involved during the preparation of the sales budget (Saputra & Putrayasa, 2018).
Cash flow budget
The cash flow budget is also important because it will help in controlling the expense of the business and there will be more inflow of fund which will show good liquidity position of the organization. This budgeting tool will require more efforts because it is the most crucial tool in planning as it directly impacts on the organizational performance (ALIN et al. 2019).
Advantages and disadvantages
The cash flow budget is important for Connect Catering services because it will improve the liquidity position and it will control the expense of the business. On the other hand, this tool may affect the management because controlling over the business expense is done by using this tool and thus the motivation of the employee gets affected negatively (ALIN et al. 2019).
Comparing the ways in which financial problem is solved
In every organization, the problem of finance is taking place and therefore it is affecting the business operation negatively. To gain better results in the business as well as to solve the financial problem the comparison of the different organization will be done so that the ways of responding the financial problem will be taken out and for Connect Catering Services performance enhancement will be done.
Key performance indicator
The businesses are making use of the KPI because with this tool evaluation of both financial and non-financial performance is done and it leads to overcome with the financial problem. Tesco is making use of KPI so that in turn they effectively manage and solves the financial problem by making better decision and strategies for the business (Al Dakheel et al. 2020).
Financial governance
In the organization to overcome with the financial problem, the usage and implementation of the financial governance are increasing because it works on the financial position of the business and thus the business analyses the area where the development can take place. All such activities not only control the unnecessary activities but it supports in managing the problem related to the finance (Grabel, 2017).
Activity-based costing
At AstraZeneca, the use of activity-based costing is done in order to solve the financial problem of the business and it can be said that this tool gives a detailed understanding of the expenses that are taking place in the organization. With the activity-based costing at Connect Catering Services, there will be increased chances for better productivity because higher revenue will be generated and thus the financial problem of the business will be managed (Turner et al. 2017).
Thus the different types of organization are facing different financial problems and it includes that profit-making organization is facing higher tax problem which leads to the poor financial health of the company. On the other hand, nonprofit making organization are facing a shortage of funds problems therefore it also leads to financial problem in the business. The governmental organization is having increased expenses therefore it leads to the problem of finance in the business (Turner et al. 2017).
The entire financial problem in the business can be tackled with the option of proper planning as well as control over the business activities. Also, the use of management accounting system and reporting will support the business in solving the financial problem and thus the chances for sustainable success in the business will be high. On the other hand, the use of benchmarking, key performance indicators and activity-based costing can be done so that effective strategies can be made and thus the finance-related problem can be tackled properly in the organization (Turner et al. 2017).
Gaining sustainable success by using different tools of management accounting
At Connect Catering services with the use of various management accounting system and tools, the attainment of sustainable success can take place because it enhances the entire business performance and it controls the activities of the business. The use of inventory management system and cost accounting system will also lead the organization towards the attainment of sustainable success and it can be said that the management will be able to make a better decision, as well as entire business profitability, will increase (Ameen et al. 2018).
Thus management accounting reporting is also important towards gaining the sustainable success and it can be said that effective use of the resource will take place because the management will work on different reports and it will make a good decision for the business. Overall it can be said that with the management accounting implication in the organization the attainment of sustainable success will be there because it leads to effective resource utilization and it also works on planning as well as on the controlling of the business activities (Kaplan & Atkinson, 2015).
Conclusion
It can be summarized that by adopting the management accounting tools and system in the organization it will give better results in terms of success attainment and thus the operational efficiency will be gained in the business. Also, the business will make effective use of the resources and there will be the attainment of the competitive advantage. Therefore management accounting use is important in the organization and it will not only increase the effectiveness but it will support the business in solving the financial problem as well as proper planning and decision making will take place in the organization. Thus it is suggested to Connect Catering Services that they should implement management accounting in the organization because sustainable success attainment will take place.
References
Abdusalomova, N. B. (2019). DIRECTIONS FOR DEVELOPMENT AND IMPROVEMENT OF A MANAGEMENT ACCOUNTING SYSTEM. Economics and Innovative Technologies, 2019(3), 6.
Ahrens, T., & Chapman, C. S. (2007). Management accounting as practice. Accounting, organizations and society, 32(1-2), 1-27.
Al Dakheel, J., Del Pero, C., Aste, N., & Leonforte, F. (2020). Smart buildings features and key performance indicators: A review. Sustainable Cities and Society, 102328.
ALIN, M. I., COSMIN, G. B., & IOANA, M. L. (2019). Cash-flow budgeting and avoiding risks within companies. Agricultural Management/Lucrari Stiintifice Seria I, Management Agricol, 21(3).
Ameen, A. M., Ahmed, M. F., & Abd Hafez, M. A. (2018). The Impact of Management Accounting and How It Can Be Implemented into the Organizational Culture. Dutch Journal of Finance and Management, 2(1), 02.
Dierkes, S., & Siepelmeyer, D. (2019). Production and cost theory-based material flow cost accounting. Journal of Cleaner Production, 235, 483-492.
Grabel, I. (2017). When things don't fall apart: Global financial governance and developmental finance in an age of productive incoherence. MIT Press.
HR, G., & Aithal, P. S. (2020). Integrated Inventory Management Control Framework. International Journal of Management, Technology, and Social Sciences (IJMTS), 5(1), 147-157.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Qu, T., Zhang, J. H., Chan, F. T., Srivastava, R. S., Tiwari, M. K., & Park, W. Y. (2017). Demand prediction and price optimization for semi-luxury supermarket segment. Computers & industrial engineering, 113, 91-102.
Saputra, M. D., & Putrayasa, M. A. (2018, May). Analysis of sales budget and actual sales at CV Sumberjaya. In Proceedings (Vol. 1, No. 1, pp. 141-146).
Smith, S. S. (2017). Integrated Financial Reporting & Management Accounting An Opportunity for Strategic Leadership. Journal of Business & Economic Policy, 4(1).
Turner, M. J., Way, S. A., Hodari, D., & Witteman, W. (2017). Hotel property performance: The role of strategic management accounting. International Journal of Hospitality Management, 63, 33-43.
