Types of Management Accounting Systems - R.L. Maynard

Inventory management systems

• The effective inventory system helps in raising operating performance, which leads to more productivity.
• It protects R.L. Maynard against variations in raw material and delivery time.
• Inventory management system helps to minimise losses that occur due to obsolescence, deterioration, damage, etc as R.L. Maynard is engaged in property construction as it needs to keep their building materials safe from getting damaged.

Job-costing systems

• Revenue generated from each job is known separately in this system.
• It helps managers of R.L. Maynard to estimate cost of job on basis of past records and actual cost of previous job can be compared with those records.
• Ineffective work can be identified with specific job and responsibilities for it can be fixed over individuals.

Price-optimizing systems

• This system helps company to realise reaction of customer for different price beforehand and thus, it can evaluate price that their clients are ready to pay for their work.
• It helps company drive customers to their services and increases their margin growth.

D) Management accounting systems and management accounting reporting are integrated

Management Accounting system are interlinked to management reports. These systems help managers with required information to prepare reports.

R.L. Maynard uses these management accounting systems that are as follows:

Cost accounting systems:

It is a management accounting system that aims to capture a company’s cost of production by assessing the cost of their products for purpose of inventory evaluation, cost control and profitability analysis. They provide required information to manager on whether to make or buy a product in open market. R.L. Maynard is an active company that deals in property construction thus it is important for managers of company to decide whether construction materials can be manufactured within an organisation itself or it needs to buy the raw materials. Managers can used the information to make Purchase Report for different materials (Saeidi, and et. al., 2018).

Further, information generated by cost accounting system helps managers to formulate cost reports. However, at times information generated by these reports are insufficient as past performances are recorded in cost reports. And this is utilised by managers to take decisions for future activities. Moreover, cost is ascertained on basis of utilization of capacity. If capacity is partly generated then cost may not be true.

Inventory management systems:

It refers to using combination of technology and process of moving parts and products of company from their warehouses to different locations of company. Data provided by Inventory Management System helps Managers of R.L. Maynard to formulate Inventory Report showing the needs of different raw materials and other equipments required for construction project. Moreover, the information provided by this system helps to formulate adequate report showing how much stock of particular material is left in the warehouse of company. This helps to minimise capital investments on inventory. It provides scientific basis for planning of inventory needs and help in maintaining reasonable safety stock at time of crisis.

However, managers cannot entirely depend upon the inventory management system as it only reduces business risk and not eliminate it. The process of inventory management is quite complex and time consuming. Company needs to install Inventory management software, which may result in additional cost.

Job-costing systems:

This is a system used to assign manufacturing or job cost to each product while keeping track on expense monitoring. Data received through job costing system helps Manager to create Job Cost Report. This report includes cost related to each job that helps Manager of R.L. Maynard to calculate profit margin for each job. Job Costing System helps to calculate indirect cost such as manufacturing overhead. This help manager to transfer a complex calculation process into simple operations which further help them in faster preparation of Management Report.

The demerit of job costing is that accurate report is not obtained due to large number of jobs are executed at time in job costing. Managers are not able to formulate adequate report. Further, comparison of job costs become meaningless for company at time of Inflation in economy (What are the advantages of Job Costing?, 2018).

Price-optimizing systems:

It helps to create that price which consumers are willing to pay for products/services of a company. This helps company to formulate Sales Report for assessing the sale target and budget. The system helps to set different prices for multiple products used by companies while constructing a building. More over, this help to evaluate competitors’ strategies and pricing which is used by them.

Drawbacks of Price Optimisation System that demands may not fluctuate at different price levels. It is a complicated process and time consuming which affects in preperation of Management Report.

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TASK 2

A) Absorption costing and marginal costing methods.

Absorption costing is a cost accounting method for valuing inventory. In this method, inventory is valued by assigning all fixed and variable manufacturing costs to product. The finished unit in inventory will include direct materials, labour and both variable and fixed manufacturing overhead. Due to this reason Absorption costing is all termed as full costing method. It is required by Accounting Standards to create an inventory valuation. The key cost assigned to products in absorption costing are Direct Materials, Labour, Fixed manufacturing overhead and variable manufacturing Overhead (Wagenhofer, 2016).

Marginal Costing is the accounting principles in which variable cost is charged on units of cost and fixed costs of particular period is written off in full against the aggregate contribution. In simple words, Marginal Costing refers to additional cost involved in producing an extra unit of output.

B) Break-even Calculations:

C) Significance of Task 2.

The use of Absorption costing is beneficial for Company. This can be interpret from the Income statement produced. It identifies importance of fixed cost involved in production of each unit. The pricing based on absorption costing ensures that all cost is recovered. Absorption costing takes into account the cost of production and not just direct cost unlike variable costing. The absorption costing shows less fluctuations in Net profits in case of constant sales.

Marginal costing helps determining and controlling cost of production. It prevents arbitrary allocation of fixed cost which helps management to concentrate on achieving and maintaining a uniform cost. As fixed overheads are not charged to cost of production each units produced have standard cost assign to it.

D) Produce financial report.

It provides specific details of producing and selling a single product. In the above case, it has applied two methods i.e. Absorption and Marginal Costing. By considering Absorption costing production variable is not considered so the cost of production represented by 9400 per unit. Where as, in marginal costing along with all the variables it given outcome of 3200 which gives production cost as 9600. By evaluating Income statement, Absorption cost has given more profit margins i.e. by 200 pounds. This means this costing method should be applied in the Company.

In above case, break Even point analysis, new product has been introduced in the market whose selling price per unit is 40 and variable is 13. This shows contribution of 27 per unit and altering adjustment of fixed cost is also used. The extracting number of products, which are sold The use of Absorption costing is beneficial for Company. This can be interpret from the Income statement produced. It identifies importance of fixed cost involved in production of each unit. The pricing based on absorption costing ensures that all cost is recovered. Absorption costing takes into account the cost of production and not just direct cost unlike variable costing. The absorption costing shows less fluctuations in Net profits in case of constant sales.

Marginal costing helps determining and controlling cost of production. It prevents arbitrary allocation of fixed cost which helps management to concentrate on achieving and maintaining a uniform cost. As fixed overheads are not charged to cost of production each units produced have standard cost assign to it. As break even, is 222 whose sales revenue is 8888.89. In same series desired profits are about 10000 there is a requirement for selling 592.60 products. If you are seeking assignment help Malaysia please contact our experts.

TASK 3

A) Advantages and disadvantages of different types of planning tools for budgetary control 

Activity based budgeting

It refers to planning system under which costs are related with activities and budgeted expenditure is then compiled depending upon the expected activity level. This perspective is very different from traditional budgeting system. An ABB system permits high degree of refinement in cost planning, focuses attention on the volume, and types of activities occurring within an organization. Benefits of using this system to reduce the activity levels required to generate revenue, which in turn improve profit (Van der Stede, 2016).

Advantages

All sorts of activities are eliminated by activity-based budgeting.

The activity-based budgeting method evaluates each and every cost drive of unnecessary activities.

Disadvantages

Activity-based budgeting requires a more sound understanding.

It is complex in use.

Zero-based budgeting:

This refers to method of budgeting, which starts from zero. In Zero-based budgeting, budgets are prepared with fresh data. As the name suggests, it starts from zero or clean slate. In other words, New budget is not linked with figures of previous budget but it is prepared on the basis of new estimates, analysis and latest data.

It is different from Traditional Budgeting where all the expenses of new period are calculated on basis of actual expenses that are to be incurred and not on incremental basis that involves increasing of the expenses incurred in the previous year.

“Zero Based Budgeting can be defined as a method of budgeting whereby all activities are revalue whenever each time a budget is set” .

Advantages

• Allocation of resources according to the priories.
• Justification of each activity.
• It helps in efficient allocation of resources as it do not take historical numbers and look at actual figures.
• Zero Based Budgeting help in improving coordination and communication within the department and motivates employees by involving them in decision making.

Disadvantages

• Expensive methods and it may require the involvement of large employees as budget is made from scratch. Further, many departments in the organisation may not have adequate time and human resource to make this budget.
• Short term benefits and explaining every line item and every cost is a difficult task which requires trained managers to formulate zero based Budgeting.
• Zero Based Budgeting is very time consuming activity for a company in compare to incremental budgeting which is far easy .

Incremental budgeting

In this method, budget is prepared by using a previous budget or actual performance as a basis and incremental amounts added for a new budget period. Resources are allocated on basis of allocation from the previous period. Moreover, it encourages ' spending up to the budget ' to ensure reasonable allocation next period. Incremental budgeting is an essential part of management accounting system. It is based on hypothesis of making a small change to the existing budget for arriving at the new budget.

Advantages

• The budget is stable and a change is gradual .
• The system is relatively simple and easy to understand.

Disadvantages

• No incentive to reduce cost.
• No incentive for developing new ideas.

B)Planning tools for preparing, forecasting and analysing budgets.

The Management or Planning Tools assist managers of R.L. Maynard in effective preparation and forecasting of Budget.

These tools are as follows:

Management by Objectives:

This tool helps in improving performance of an organisation by clearing defining objectives agreed by the management and employees. This process involves participation of both managers as well employees that helps to formulate proper and effective budget (Senftlechner and Hiebl, 2015).

Read also: Roles and Responsibilities of the Human Resource Manager

SMART:

The term SMART stands for Specific Measurable, Achievable Relevant and Time bound. As objectives of company is designed on basis of SMART criteria helps the manager in preparing and analysing budget. Manager provides incentives to employees by rewarding them when they meet goals of company. Further, it helps to review the budget and analyse what are the loopholes for effective performance.

Benchmarking:

It refers to review performance level of an organisation when compared to their competitors in particular industry. R.L. Maynard uses this planning tool to review their budget and evaluate their performance with their rivalries. Further, Company can adopt Internal Benchmarking to compare performance of different departments within organisation.

C) Role of management accounting systems in reducing financial problems

Management accounting system is an effective tool in minimising financial problems faced by R.L. Maynard in the following ways:

• It helps in reducing various kinds of wastage and production defectives. This will help in reducing duplication of efforts and improve efficiency of finance departments.
• Financial issues can be resolved as management accounting uses proper planning, organising, co-ordination and control of business activities.
• Various tools and techniques of Management Accounting provides reliability and authenticity in conducting business function.
• It helps in controlling cost of production (Otley, 2016)
• Tools used within management accounting system are reliable. Thus, it helps in improving financial performance of R.L. Maynard.

D) How Management Accounting System respond to Financial Problems.

• Benchmarking: It is used in measuring performance and progress of one business with other businesses in the same industry. Benchmarking is used for evaluating financial analysis and compares the results to excess the R.L. Maynard overall efficiency and productivity. It is an effective tool to analyse the financial performance with the help of financial statement and financial ratios. This statement is used to calculate different financial ratios like current ratio profit, margin revenue ratio etc. This financial ratio helps in comparing financial performance of R.L. Maynard.
• Financial governance: It refers to set of certain rules and regulations in company to ensure better functioning. A good reporting capability of a company is an important part to regulate financial governance like auditing, internal control, financial control. The better management of all the financial process and transparency in accounting practises is core of financial governance of any company. Financial governance in an organisation helps to solve credit crises, cost deduction and to gain the trust of stakeholders. To ensure good financial governance, R.L. Maynard needs to keep updated data on the basis of company's regulations, conduct internal and external auditing.
• Key performance indicators: Every organisation sets its core business objectives. Key performance indicators act as a measurable value to see how effectively a company is working to achieve its business objectives. KPI can be used at any level of organisation to evaluate the performance in reaching selected targets. It depends upon R.L. Maynard to consider which activities of company as Key performance Indicators .For instance Key performance Indicators for R.L. Maynard is Client satisfaction, Actual Working Days vs Available working Days, etc. Company can use these Key Performance Indicators to evaluate and resolve financial problems. There are different types ofsoftware to create, manage and analyse the data collected from KPI. This software allows business to analyse the data from KPI from different departments of organisation(Otley, 2016)
• Benchmarking: The term benchmarking refers to evaluating performance of company with their competitors. It helps company to resolve their financial issues as R.L. Maynard can use internal benchmarking to evaluate loopholes. This will help company to estimate its financial crisis and take required amount of actions to reduce down or to eliminate these problems.
• SMART: The objectives based on criteria of SMART tool are specific and measurable. If R.L. Maynard prepares its financial goals using SMART criteria then it would be able to resolve its financial issues. This will help to reduce duplication of efforts and to focus on important areas.
• Variance analysis: It is the process to analyse differences between expected or planned cost with actual cost. This planning tool helps R.L. Maynard to keep control on its operational performance. Further, it helps in cost deduction and control. Variance is the mathematical term that shows differences between standard cost and actual cost (Nitzl, 2016)

E) How Planning tools help in resolving financial problems

CONCLUSION

The report concludes that Management accounting is an essential tool that helps in planning and coordinating activities of the organization. There are different management systems like Cost Accounting, Job Costing, and Price Optimisation System that helps in evaluating the best price for products/services of any organization. Further, the report shows how tools and techniques of management could help in reducing the financial problems of a company.