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Introduction Of Management Accounting Assignment

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The Report consists a description about the Management accounting systems. The report talks about the main functions of the systems and the importance of them in the organization. It also emphasis on the various accounting systems elaborating its advantages and disadvantages. All the costing methods with the Reports have been studied here consisting the importance of them to be made in the organization. A proper analysis has been drawn on the various types of budgets in the report and the solutions to the OAK Fashions and the targeted amount of units that need to be produced by the company. The report also talks about the problems that are being incurred by the firm financially. Interpretation of the variances has played a vital role in determining the areas need to changed and improved here. Various advantages and disadvantages of the control system has been studied in the later part of the report.

P1

1. Management Accounting- The term itself defines the process of making decisions by the top managers in the organization. These two words also make sure that the work is done by full optimization and efficiently. By properly analyzing the business functions the business goals are achieved within the business by the managers. It also helps in analyzing the statistical data and making conclusions for it, which is beneficial to take managerial decisions. Mainly the decision making part comes within this aspect of Management Accounting and helps in interpreting the results with the positive conclusions and the decisions (Ward, 2012).

1. Main functions of Management Accounting are:

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• Planning in advance and forecasting
• Organizing all the activities which need to be carried on
• Coordination is the main functions which are important in the firm to carry its operations
• A proper analysis and interpretation which is the foremost part before carrying it further
• Then communication the gaps and outcomes to all the employees
• Bridging the gap between the actual and budgeted is the main function of the Management Accounting
• Management Accounting helps in maintaining the contingency also which can be considered as a function of it (Saukkonen et al, 2018). 

Importances of management accounting are:

• It helps in raising the profitability of the firm
• It also helps in the coordination among the various departments among the organization which facilitate the working
• Efficiency is also increased with the help of Management Accounting
• Management Accounting provides reliability for the investors to invest more in the organization.
• Through the help of Management Accounting the service deliver to customers is highly great
• The management Accounting also helps in the decision of the organization with the proper interpretation of the results
• Management Accounting also helps in the achieving the business goals
• Management accounting systems helps in the proper guidance and achievement of goals through this
• The major part of importance of it is that it helps in reducing the wastes which is helpful in resource optimization (Moorthy et al, 2012).
• Management Accounting analyses can be used in the future to prepare various other reports which are used as a reference purpose.

1. Cost Accounting Systems: The cost Accounting System aims at reducing or eliminating the cost in the business. It provides a broader picture of all the expenses incurred in the production of goods and also try to figure out the profitability by reducing the amount from the sales. It helps in the reduction of cost and eliminating wastes, identification of the reasons for the profitability or the losses in the organization. It also helps in making decisions of what to buy and what to not and it also helps in deciding the way which the company should go to reduce the costs i.e. make or buy. Cost Accounting Systems does not have any of the assumptions for future and all decisions are based on the past performances and the cost rates keeps on fluctuating from time to time and therefore proper ascertained could not be there. The Cost Accounting Systems incurs a lot of expenditure on installation.

Inventory Management Systems: It is one of the important parts in the organization to manage all the inventory related decisions such as the amount of raw materials that need to be purchased. It is beneficial for the enterprise as it helps in determining the shortage of inventory and various strategies are also implemented in inventory control. The main advantage of the IMS is that it keeps a record of the inventory cycle and creates purchase orders. But the system has a proper time to order the quantity which is not suited every time and EOQ level is also not optimized every time. The inventory is that part of the business through which profit cannot be earned and the receivable should not be in the category of bad debts (Hoque, 2011).

Job Costing Systems: It is another important part in the organization which helps in determining the cost of a particular part. Job Costing System is beneficial as it helps in determining the cost and the profits of the contracts as well. It also helps in finding out the performance from each job in the organization and help in the trend analysis also. It is too expensive when compared to other systems because a lot of clerical work is done here which incurs cost. A close supervision is required here which also leads to the increase in the cost. There is also a great disadvantage of cost assumption because the activities or the decisions are taken once there is a need. Majorly it has also been seen that the cost is ever changing factor when compared with the other factors and proper care is to b e taken in this system (Soudani, 2012).

Price Optimization Systems: Price Optimization Systems helps in the determining the price at which the customers are willing to spend at the price level which will lead to the maximization of the profit. It mainly includes the pricing strategy and the price which is convenient for both buyers and sellers. The main advantage of this system is to determine the initial pricing and promotion pricing level with the markdown or discount pricing at some level whenever it is needed. The main drawback here is to maintain and retain it. And apart from all these it is very difficult to determine the price level using all the assumptions. The price can be marked according to the market scenarios and through this the customers are also attracted towards the business.

P2

Budget Reports: Budget Reports are one of the main reports which is part of the internal reports which help in the comparison between the assumed or the budgeted performance to the actual performance in the organization. The performance of the company is measured with the help of this report only. It also helps the management to cut short the costs whenever required by the business to increase its profitability. These reports also take into account the unforeseen situations or the contingency reserves are also made while preparing these reports. These reports are only made when all the expenses and the income are taken into consideration and then the estimates are made accordingly based on the previous performances. A budget is always made at the starting of the financial year to carry all the activities n compliance with these reports. After these reports are analyzed the points of improvement are carefully studied and actions are taken thereafter.

Job Cost Reports: Job Cost Reports are other important reports in the organization which helps in determining the overall costs incurred by the labor, materials, overheads etc. It helps in the proper allocation of funds in the respective areas and shows where the improvements are needed. Financial analysis is also done accordingly in the organization with the help of these reports and by analyzing the costs the profit margins are also studied and levied upon. Job Cost Report also helps in the proper summarization of all the costs incurred by the organization and the resources are also fully and efficiently used because these reports help in the resource optimization among all the departments in the business. A proper comparison is being made when it comes to the cost incurred of the product and the selling price of the product. So, these reports play a vital hole when it comes to growth and sustainability of the organization (Brown et al, 2017).

Performance Reports: Performance reports are of due importance in any business because these reports tell the management and the outside parties and investors how the business is doing as compared to its competitors. These reports helps in measuring the actual performance to the assumed performance and then taking corrective measures if there are negative deviations. These reports also help the management to take corrective measures against the actual performance to increase the efficiency of the business. Performance Reports also help in the review of the performance of the organization in the whole year. These reports also help us in the analysis of the performance of each and every individual working in the organization. There are various departments in the organization whose reports are also generated within these reports. In addition to this, flaws can be easily known with these reports stating the importance of these reports(Tesic, 2011).

Account Receivable Aging Report: These Reports are of vital importance because it helps the business to know the defaulters in the overdue payment. Account Receivable Aging Report is also important to measure the flow of cash in the organization. There should be a proper time period of the receivables as the cash flow is dependent on it. The report also shows the financial health of the customers and the organization and help in optimizing it. The report also shows the amount due by the recievables to the business and tries to clear it as soon as possible. Account Receivable Aging Report includes all the information related to the customers about the goods and services purchased. The accounts receivables should be critically analyzed so that there is proper liquidity of funds and revenue is optimized through the sales.

P3

3.1

The company here is earning good amount of profit in the financial year 2019-2020 as compared to the previous year and the client here which is OAK Fashions Ltd should minimum produce the above levels to earn a minimum amount of profitability. The BEP here in the financial year 2019 is 3000 units and the year 2018 is 5400 units which states that now the firm can sell less and can earn more in the future if it continues to manage its operations like this only. This is the point where the company is earning no profit but only manages to cover its costs. It has also been observed that the fixed expenses plays a vital role while calculating the absorption costing amount and not in the marginal costing method. From negative profit to covering the losses and then earning a good profit the company shows a well balanced growth and sustainability in the future. The gross profit in the year 2019-2020 is far more than the previous year and also more when the absorption costing method is used here in this. The financial analysis is also done by the experts in the organization with the use of these methods. It has also been seen that the variable costs include the material costs, labour costs and other variable costs which total leads to the contribution amount.

3.2

Here in this part of the question it has been seen that the contribution is Rs 6 and the targeted profit is 360000 and the fixed costs come to the 70000 and by calculating this minimum amount of shirts which is need to be sold to earn the profit level mentioned. The targeted profit aims at achieving the goals by the employees and the activities are also directed towards it. And the fixed cost that is to be incurred for achieving the aimed profit is also of due importance. The formula that has been used here is of the formula method of the minimum number of shirts that need to be produced. Without the targeted point no firm can grow and plan the activities.

3.3

In this part of the question there is a column for all the budgets and the other shows the actual amount in the each section. The comparison is drawn from the budgeted one and the variance are calculated from it to know the Favorable and the adverse value. The material, labor, Marketing, Administration and the total overheads are totally adverse and instead the production, the total Cost of Sales is favorable in nature. It gives a fair and true picture in the organization by setting up the budget through various reports and then comparing the actual performance of each department. Apart from this it has also been seen that all the budgets are prepared for this comparison only. The adverse part in this not at good for any of the business because its states the under working or underperformance of the employees to attain the business goals and aims. It is seen that is working up to the budgeted in some areas and need to improvise its working in some other areas. Some areas are at par too in compliance with the standards set by the organization.

P4.

1. Budgetary Control: It is a term and measurement which helps in the comparison of the income and expenditure. It is a process by which the management makes budgets for the future time period and then tries to compare with the actual performance of the business. It is also seen that by making a proper analysis it is easy for the management to find out the variances and try to make changes accordingly to achieve the goals. Budgetary control also helps in the formulation of the objectives and planning the activities after this and then coordinating the activities after these activities are planned in the organization. It also helps in the correction of the variances from the budgeted performance is done with the help of this. A proper analysis of the goals, objectives, and activities is made with the help of the budgetary control. A target fixation is also done with the help of the control in the management for all the departments. This also helps in the finding of areas to improve and the areas which can be ignored and the time can be given to the important areas of improvement .

• Operating Budgeting: It is one of the main budgets which are prepared in the organization to keep the track of all the expenses incurred in the daily business. It includes all the costs related to the business, expected costs, Estimation of the incomes, with the performance also taken into consideration. While preparing the budget the past performance is taken into account and in addition to this the macro environment factors are also considered. These factors also aim at the challenges that are faced when any new product is launched in any organization. These budgets also aim at the future reports to plan the work accordingly. All the expenditure and the revenue are the main part in the business to grow which are covered in this budget. The major disadvantage here is the cost included and incurred in making the budgets daily. Various expense rae incurred by the organization daily to carry out business activities and make it visible to all the customers also and this budgeting keeps a record of such activities and expenses.

• Capital Budgeting: Capital budgeting states that it is important in the business to analyze, interpret, and select the most appropriate investment project. It also helps the companies to decide the best long term investment projects which can earn a good profit in the future. It includes all the decision which are related to the investment which includes the major decision to choose the project which will earn a major profit and whose the internal rate of return is more than the other projects. Capital Budgeting also includes are totally irreversible in nature so the decision need to be taken very crucially. The main aim in the capital budgeting is to maximize the shareholders value and wealth. The process of strategic choosing investments is included in the will include the dependency on the other major decisions of the firm too. This area is of due importance like other budgeting as investments tell the creditworthiness of the company or the organization to the investors and third party.

• Flexible Budgeting: It is one the budget which includes the expenditure appropriate to the various levels. It is one of the easy methods adopted by the management to prepare the budgets and also helps in comparing the actual performance with the budgeted performance at a particular level. Flexible Budget helps in drawing the comparison and performs the range of activity. It helps in the performance measurement and cost control is also done with the flexible budgeting. The name itself suggest that it is highly flexible than any other budget. But a great time is incurred in this as performance is measured and analyzed at various levels which require accuracy as well. Sometimes it is very difficult to ascertain the revenues and expenditures also when compared to the budget. Flexible Budget also does not take into account the macro environment factors responsible for the performance.

• Zero Budgeting: Zero Budgeting is also called Zero Based Budgeting which includes the budget that is prepared in the business but from the scratch at from the zero bases. It is somewhat similar to the traditional method which is also made new at the starting of each financial year. There are many advantages that are related to the zero budgeting method as it is very flexible in nature and the operating costs are very low when compared to the other budgets. The managers find easy to analyze various things and the execution is also very accurate and precise as there are no carry forwards from the previous year. There are many disadvantages which are related in this budgeting as there is biasness in the short term planning and the resources are used more than needed. Apart from this the time consumed here is very much more than the other budgeting, a lot of expenses are incurred here as new budgets are made for which the managers require a proper outlay to be made every year. Zero Budgeting involves a lot of paper work to be done by the management.

• Cash Budgeting: It is another kind of budgeting method which includes all the cash inflows and outflows for a particular time period. A proper reality check is made through this as whenever there is a need for more fund the amount can be arranged through various modes. It is very important for a business to carry on its operating activities. It also determines if the business has the surplus or the deficiency of funds and how much liquidity the business has in its operating activities. Cash Budgeting has various advantages such as a proper estimation is made through this and a proper reality of cash flows are also known. There are some drawbacks to this method as only cash transactions are recorded and not other various expenses. A limit to spending of money is also levied through this and it does not always reveal the profit amount of the organization.

• Functional Budgeting: It is another important budgeting control as it determines the overall budget that is related the various functions in the organization which can be of the sales department, Production department, Expenditure Budgets etc. Without these budgets proper function cannot be done in the organization. There are many advantages to it as there is a proper coordination among all the activities in here and all the departments work in a strategic way to achieve the goals that are being aimed. Some disadvantages that are related to it are there is a lot of cost incurred to maintain all other reports and the forecast is also not correct every time while preparing all other reports.

P5.

1. Benchmark: The process of comparing the performance of the business with the other competitors with the business standards is termed as benchmarking. The basic assumption to this is that both the firms should be of the same industry. For example we take the Paint industry then all the companies here will be compared to each other rather than some other automobile company. The SMART objectives and goals also come under this bench marking only. Various things are included in this when we compare two companies and all the things should be taken into account ( Bernardo et al, 2015).

1. Key Financial Performance Indicators: There are some important financial indicators which help the management to know what it has achieved so far in the current financial year when compared to the previous years and what all it can plan for the future. Some of the important ratios are being calculated in the financial reports. These ratios include the Profitability ratios, Leverage Ratios, Efficiency Ratios and many more which are also beneficial for the investors and outside party to know the credit worthiness of the company and can think whether to invest or not. The Key Financial indicators also help to determine the company’s success against the set targets for the growth of the business. Mainly the Net Profit and Gross Profit margin plays a vital role in every industry to determine the profitability which is required for sustainability of it. Apart from all this it has also been seen that the retention rate of the customers are also of due importance in measuring the growth and determining the stage. The KPI’s are very important to figure out the various important areas in the organization which need to be taken care of. All the organizations in the UK also need these KPIs to have a close look on the various functioning of the activities. So if we look at the company.Tesla we can see that the customer satisfaction is the main factor which is there in the KPIs here whereas when we look at BMV the main factor here is the profitability ( Alawattage et al, 2012).

1. There are various Financial Problems that are being tackled by the organization with the help of the Management Accounting Systems such as if we look at the ever-changing dynamic era the companies need to modify their working level and way accordingly. There are many problems including the budgeted targets, the benchmarks which need to be completed and all the activities should be planned accordingly only. Apart from all this it has also been seen that planning tools, the reports, and the budgets together work in achieving the goals set for the growth. If we look at the company Biz Solutions there are many financial problems that are need to b eared by the company such as the cost of running the business and making it different from the competitors by recruiting the best workforce which involves huge cost. On the other hand, if we look at the company Mondelez it has been seen that the cost of production is too high to handle which creates a problem sometime financially to the company.

1. Financial Problems can be resolved by using the accounting methods such as if we take the Variable costing method all the expenses incurred in the management or the organization are taken into account and they are recorded to find out the profit earned. And if we look at the absorption costing method all the expense including the fixed expenses play a vital role in this. If we look at the broader picture here the absorption costing gives a fair idea of the business as a whole. Different organizations adopt different method as convenient and feasible for it. Without determining the cost of the product there cannot be the determination of the profit. Such as if we look at the manufacturing industries the main method adopted by them are the Marginal or the Variable Method. And if we look at the Automobile industries they prefer the Absorption Method as there is lot of fixed expenditure that is incurred in this. It has also been seen that that conducting Marginal Method is easy than the other method. These are those problems that the business cannot ignore because of the finances are being considered as the blood of the business and without the proper inflows and outflows of finances no business can grow in the future. Some organization keeps a close look on the finances to prosper in the future and maintain a differentiation between them and the competitors (Abdusalomova, 2019).

CONCLUSION

The report has summarized all the aspects of the term Management Accounting. All the aspects related to this have been explained in the report and various requirements of this system have also been covered in the report. All the management systems are being studied in the first part containing its advantages and disadvantages also. Later different reports in the management Accounting is being studied in depth. All the various costs are also been studied in the two methods and Income statement also determines the profit of the organization. The targeted units which the company should be telling the OAK fashions have also been determined and the various variances have been drawn out from the budgeted performance. All the benchmark that the industry uses has been covered with the financial problems occurring in the business organization. Different business has different problems which need to be taken care and hence has been studied here, and the various tools which are required by the business has also been closely monitored in this report above.

References:

• Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO SOLVE THEM. International Finance and Accounting, 2019(3), p.2.
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