Question :
The scenario in this given report is about to solve problems in which trainee management accountant is analysing business situation of their store.
- Explanation regarding management accounting and their essential requirements in order to frame decisions.
- Analysis of various types of cost along with budget of the given organisation.
- Understanding advantage and disadvantage of budgets and explanation regarding process of budget preparation.
Answer :
INTRODUCTION
Management accounting play a valuable in helping management to make an effective decision and suitable plans to execute future business activities in such an effective manner that will help in getting profitable result in near future. The manager of accounting department are held liable to prepare financial statements which includes balance sheet, Profit & Loss a/c, Cash flow statement with the help of collecting information available through various management accounting system. The present assignment report is based on Tech (UK) Ltd. which is engaged in providing special charger for mobile telephones and other various gadgets for the retail outlets. The project includes the comparison between management and financial accounting along with the benefits of management accounting and different reporting systems. Financial tools which help in resolving financial issues faced by company during accounting period are also covered under this report (Garrison and et. al., 2010).
TASK 1
P1 Management accounting concept and its essential requirements
Management accounting: One of the important system which is used within the organisation is to record the performance of different departments. It is big concept which includes the provision of cost and managerial accounting. Application of the provisions of different systems provides financial and statistical data which improves the decision making power of internal parties to make their organisational activities more effective and efficient. It helps the organisation is to accomplish their objectives within given period of time frame. Through implementation of management accounting systems large number of benefit are ascertained by Tech (UK) Ltd. Like risk management, planning of future actions, appraisal of performance of employees etc.
Difference between management and financial accounting
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Management accounting |
Financial accounting |
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Behind the application of the concepts management accounting is to make the different kind of reports according to the performance of departments for the purpose of operating different organisational activities smoothly. |
The main objective behind the application of the methods of financial accounting is to assess the financial position of organisation. |
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It contributes in formulation of future plans to accomplish desired objectives and improvement of the decision making of internal parties |
This can be further used by the external parties to make decisions regarding investments within the organisation |
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These accounts are formulate as per the needs of organisation |
It is prepared at the end of the year to analyse the profit and loss of organisation. |
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It is used regarding assessment of performance of each and every department |
This will helps in assessment of the financial performance of whole organisation |
Importance of management accounting
- Appraisal of performance: One of the important function in which these system contributes their efforts includes appraisal of the actual performance of employees through comparison with standards. Different budgets are prepared as per using the provisions management accounting which contains standards. This comparison helps to identify the deviations and providence more accurate solutions to attain desired results.
- Formulation of future plans: There is huge role is played by the management accounting to make the better future plans. This will be possible because use of management accounting provisions helps to gather information from the different departments. On the basis of such information future strategies are formulated which directs the employees of organisation.
- Determination of aim: The management of organisation uses the information to set their targets and objectives which are need to achieve through their business functions. These targets are set through identification of the working capacity of each and every department of organisation.
- Assessment of risks: Application of the management accounting systems not only helps in identification of the risks which are faced by the organisation while providing their activities but also helps to assess the future risks which are associated with the business transactions (Fullerton, Kennedy and Widener, 2014). It provides the opportunity regarding formulation contingency provisions.
Different management accounting systems
There are different management accounting systems with having different roles and functions within the organisation. There are many benefits are achieved by organisation through use of these systems. The different systems which are adopted by Tech (UK) Ltd. Are defined below:
Cost management system: The main role of this system is to identify the total cost of products which is incurred by organisation. It is important for manufacturing organisation is to adopt these systems to ascertain the profitability which is associated with their profit. Tech (UK) Ltd. Uses this system to calculate the total cost of their products and make efforts for reduction of the wastages which contributes in improvement of their profit margin. The costs are further classified into three different types which are mentioned below:
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Actual costing |
Standard costing |
Normal costing |
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Through application of this method actual cost are apportioned to the different aspects like aspects direct material, labour and overhead |
This will includes the setting of budgeted cost of different items which work as standards need to achieve while consider actual cost of product |
This will include first analysis of direct material and labour cost which is going to incurred in future period of time. On the basis of such evaluation actual cost identified. |
Inventory management system: One of the effective method which is needed to implement by every organisation for effective management of the level of stock and non capitalized asset within the organisation. This will provides the management of organisation is to maintain the minimum level of stock to grab the future opportunities and satisfaction of the different needs of customers. This system further used in the effective allocation of inventories to different departments according to their needs for attainment of optimum results. There are many techniques which contribute in valuation of stock are defined below:
FIFO: This method is called as first in first out method.
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