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Management Accounting Systems Assignment Sample

Introduction:

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This will be described the management accounting method. Types of management accounting methods, important requirements for various types of management accounting systems. The benefits of this system and various types of methods of management accounting reporting will be discussed in this report. Management accounting techniques will be applied in this report such as the technique of cost analysis. Critically evaluate the management accounting reporting and Management accounting system in this report. The benefits and drawbacks of different planning tools, which are used for budgetary control, will be explained and analyzed in this report. How to apply planning tools for preparing the budget forecast will also be analyzed in this report. Financial reports of the company will be made and interpret the data in this report. It will evaluate how planning tools respond to solving the financial problems, which lead to the sustainable success of an organization.

Task 1.

Management accounting technique:

Management accounting system used by the company to provide information to the management. This information is used in operating the business. The main objective of the management accounting system is to provide non-financial and financial information to the company’s management and decision-makers of company.

Different types of management accounting systems:

Product costing: It deals with ascertaining the full cost of production of products and services. Cost can be divided into variable and fixed costs. A cost accounting method is used by an accountant to measure the cost.

Benefit: The main benefit of this system is identifying the cost of the product and can determine the price of the product.

Cash Flow Analysis: Management accountants do cash flow analysis for determining the impact of cash on business and business decisions. Most companies record financial transactions on an accrual basis. Through this method provides a true financial picture of the company. However, transactions on an accrual basis do not provide the correct impact of cash. Therefore, management accountants can implement the strategies of working capital for optimizing the cash flow. It ensures that the organization has enough cash for meeting its short-time obligations.

Benefit: The main advantage of this system dell can identify the flow of cash and cash availability in the organization to meet obligations (short-term)

Cost Accounting method: Dell makes cost schedules for keeping records of manufacturing activities or operating activities. Indirect and direct costs are considered by the Management accountants.

Benefit: The main advantage of this costing system is identifying the per-unit cost of production for Dell company and then accountants can set the prices of a product as per the cost.

Inventory management: companies for valuation of Inventory use this system. Companies use FIFO, AVCO, and LIFO methods for valuation the inventory of an organization.

Benefit: The main advantage of this system is it includes sales price, and Dell Company can find out loss or profit.

Job-Costing: This costing method assigns the overhead cost like depreciation on building, equipment) to the cost pools. At the end of the accounting period. The amount of the cost pool assigned to different opened jobs, which is based on allocation methodology. Dell can use this method for assigning the cost pool to different jobs so that it will not be complicated (Hansen et al. 2021)

Benefit: The main benefit of this system is determining the cost at the completion stage of the job and it helps in controlling the cost. Each job profit can be identified through this method.

Price-optimization: This system is used to ascertain the customer's demand and ability to pay a high price for a particular product. Therefore, that company can increase or decrease their product price according to the demand of the product.

Benefit: The main advantage of this system is that it assists in analyzing and focuses on main areas like sales margin.

Budgeting system: This system is used to identify any deviation between actual cost and budgeted cost so that company can take corrective action if there is any unfavorable deviation.

Benefit: The main advantage of this system is to identify the deviation at the early stage and it helps in controlling the cost of the company.

Essential requirements for management accounting system:

  • Dell must consider these requirements of management accounting:
  • Management accounting techniques should be designed which provide relevant data.
  • Management by exception followed by the company while presenting the information. The standard costing technique and budget system are followed.
  • Dell while using this management accounting technique must consider the time value of money.
  • Dell should consider ROI (Return on investment) as this indicates the efficiency of operating the business. ( Klychova et al. 2014)

Different methods of Management Accounting reporting:

The management accounting method helps to maintain the company's performance. Dell can use various kinds of management accounting methods in their organization.

The various management accounting reporting method that the company can use:

Budget Report:

A budget report is very important for measuring the performance of a company. Dell can create the total budget or the basis of past figures. This report helps the manager to offer the best incentive scheme to employees, negotiate the terms with suppliers, cost-cutting, etc.

Cost management accounting report:

Cost accounting ascertains the cost of products that are produced. All cost - labor, raw material, and overhead considerations. Total cost divides the product-produced amount. This report helps the manager to identify the ability to realize the cost price of the product versus the selling price of the product.

Performance report:

This report is made for reviewing the company's performance and it includes the performance of each employee. Managers of Dell can use performance reports for making strategic decisions for the future.

Account receivables aging report: Dell uses a credit system so this report helps the company to maintain the credit system of the company. It helps the manager to identify defaulters.

Critically evaluation MAS and MAR:

Management accounting techniques and management accounting reporting are interconnected with each other as a company uses this Management accounting technique in the organization and outcomes of this system must report to the managers so that they can take important decisions for business and achieve organization goals.

 

 

Task 2:

 

2. A.

1. Fixed cost and variable cost:

  • Fixed cost:
  • Manager’s salary
  • Rent
  • Insurance
  • Advertisement
  • Utilities

Variable cost:

  • Direct material cost
  • Direct labour cost
  • Overhead cost

2. BEP and BEP graph:

Units

FC

VC

TC

Revenue

 

BEP

3000

0

12000

0

12000

0

500

12000

2750

14750

4750

1000

12000

5500

17500

9500

1500

12000

8250

20250

14250

2000

12000

11000

23000

19000

2500

12000

13750

25750

23750

3000

12000

16500

28500

28500

3500

12000

19250

31250

33250

4000

12000

22000

34000

38000

 

3.  Margin of safety when sell become 2500 Units:

Margin of safety = Actual sales - BEP

 

 

 

-4750

 

 

4. If the manager’s salary will increase then BEP:

Units

FC

VC

TC

Revenue

 

BEP

3250

0

12000

0

12000

0

500

12000

2750

14750

4750

1000

12000

5500

17500

9500

1500

12000

8250

20250

14250

2000

12000

11000

23000

19000

2500

12000

13750

25750

23750

3000

12000

16500

28500

28500

3500

12000

19250

31250

33250

4000

12000

22000

34000

38000

 

B.

Sales volume variance:

(Budgeted sales price – Budgeted variable cost) * (Actual unit sold – standard budget unit sold)

(9.5 – 5.5) * (12000-10000)

4 * 2000

= 8000 (F)

Flexible budget:

Actual budget – budgeted

(5*12000) – (4*10000)

(60000 -15000) – (40000 – 12000)

= 17000 (F)

 

Task 3.

Merits and Demerits of Planning tool used for budgetary control:

Planning tools are the tools that help in monitoring the organizational achievement stages like the implementation of a program, initiative, or intervention. Dell managers need to use the planning tools as it helps in achieving the goals of the company.

Planning tools:

Budget: Budget needs to be used as a planning tool by dell as it helps in budget forecasting and future planning related to business. An annual budget helps in estimating the income and expenses of production. Dell can make a budget for estimating the cost of a product or other expenses of production so that they manage the cost of the organization.

Advantages:

  • The company can make future planning.
  • It helps in maintaining the cost of the company.
  • It helps in controlling the cost of the company.
  • Manages money effectively.
  • Monitor performance.

Disadvantage:

  • Time - Consuming.
  • It can be inaccurate sometimes.
  • The budget only considers the financial outcomes.

Budgetary control process:

  • Preparation of different types of budgets.
  • Identify the actual performance of the company.
  • Compare the actual performance with budgetary performance.
  • Identify unfavorable variances.
  • Take corrective actions.

This process of budgetary control helps in managing the activities of a business and also helps in controlling the cost. (Lambovska et al. 2019)

Financial Budget: This budget helps in planning or maintaining the income and expenses of a company.

Financial Budget includes:

  • Cash Budget
  • Budget of balance sheet
  • Capital expense budget

Operating budget: This budget helps in planning for the operating activities of a business.

The operating budget includes:

  • Revenue Budget
  • Expense budget
  • Project budget

Non- Financial budget: This budget helps in planning the non-monetary activities of a business.

Analysis of planning tools:

  1. Pricing: Price can be set by Dell by considering the historical price of the product and can make a budget according to that.
  2. Strategic planning: Dell Company must use strategic planning as it helps in obtaining some long-term and short-term goals. Strategic planning could be done by SWOT analysis, PESTLE analysis, creating the balanced scorecard, Analysis of Porter's five forces.
  3. Goal setting: Dell company needs to set their goals first and then prepare budget according to that so this planning tool helps in preparing budget correctly.
  4. Contingency planning: The future is uncertain. This tool helps in planning contingency that can be occurred in the future. This planning tool also helps in preparing a budget.
  5. Organization Timeliness: Dell Company needs to set a time goal and prepare a budget according to that like cash budget for 6 months, quarterly budget, and annual budget as it helps in maintaining the cost of the company and increasing profit of the company (Odar et al. 2015)

 

Comparison between Lenovo and dell about MAS:

Both the companies sell the same products like computers, mobiles, laptops and other different types of electronic products. Both companies use different management accounting techniques for making the decision and achieving their business goals.

Lenovo uses the traditional system of accounting. They calculate different activities cost then these costs divide into various activities. This method of management accounting is not much authentic or reliable as some activity costs can be low or can be high. Not all the activities cost can be similar, so this management accounting technique creates problems.

Dell company uses Activity-based costing. In this costing method, the cost is allocated to the different activities. Cost drivers and cost pool consider by the company. This method of accounting is reliable. So, dell this management accounting technique does not create any financial problem.

Lenovo uses a system of non-integrated computing that is not efficient for the organization's activities and it creates communication problems in many cases. The employees and management face difficulty in using data to complete the tasks and dell use the system of cloud computing that is highly reliable and increase the communication level in the organization (Ameen et al. 2018)

Analysis of how to respond to financial problem:

To identify the financial issues by using various methods such as budgetary targets, KPI, and the problems related to these financial and non-financial to solve the problems and variances without any delay. The company must describe financial governance and it is also necessary to understand how it can be used and applied to prevent financial issues that occur in a business. Dell should use a monitoring strategy for financial governance.  To work properly in organization management should know the basic features of managerial accounting and they need to understand how to use the skills of employees so that they can work effectively and efficiently and able to deal with the problems that arise in the business.

Dell can use different types of strategies and approaches for the development of business and these strategies and systems will help in timely reporting the financial disclosure of a company, which is owned by an organization.  Various approaches are discussed in the report from which a management accountant can guide a company towards achieving success and growth.

1.         Need to identify the trends, which will have a great impact on the firm capability to build the value of a company.

2.         The company should use a key performance indicator to analyze the performance and growth of a business

3.         Needs to generate report such as sustainable reports, which helps in defining the prices and strategies of a business, and tools from which company measures budgets and make decisions accordingly.

Evaluation of uses of planning tools lead to success:

Strength: Dell company uses an activity-based costing system, it is an effective costing system, and it helps in increasing the profit of a company. Dell uses a system of cloud computing which helps in doing better communication in the organization and both the strength helps in leading to the sustainable success of an organization.

Weakness: Lenovo uses a traditional costing system, which creates difficulty, and not helpful for increasing the profit of the company and Lenovo uses a system of non-integrated computing which creates problem in the process of communication (Dell.com, 2019)

 

Task 4:

MAS helps to find out the financial problem and provide solution:

Many financial problems arise in the company, and these financial problems can be overcome with the aid of MAS. These financial issues were caused by a small calculation error, some missing data, and some other issues. These concerns impacted the company's financial situation and financial statements, forcing it into the survival zone. System Company can monitor the situation as well as provide accurate and evaluated data with the aid of MAS. Pearl chartered accountants will use the MAS method to improve management levels, allowing these mistakes to be resolved quickly (Alin et al 2019).

Financial problems:

There are several kinds of problems are available that is related to the finance and comes to manage the finance that is:

  • Improper of cash flow: Cash flow is a statement that shows how much money is available in a business. It's a financial statement that just keeps track of cash-related data. The inflow and outflow of cash are discussed in this cash flow. The operating activities, the second known as investing activities, and the third known as funding activities are the three pieces that determine it. The cash flow is determined by these operations. Improper cash flow detected incorrect cash availability, and based on the information, if Pearl chartered company spends the cash on other inappropriate products, the business faces a major problem. It is influenced by the company's finances and brand image (Collin et al 2017).
  • Unnecessary expenditure: Expenses are essential and can be accepted, but extra and needless expenditures cause problems for the company. These kinds of costs add to the overall production cost. The price of the commodity would naturally rise in line with the cost of production. The price of the commodity was influenced by the cost of the product. Low commodity prices sell at a high rate, but this is not feasible in a competitive market. The business is unable to boost commodity revenues. Sales were affected, profit was affected, and the company's finances were automatically altered (Collin et al 2017). Pearl chartered's should use the MAS strategy and try to manage expenditures and have better situations in order to solve these problems.
  • Poor accounting: Accounting is known as a technique for analysing and managing all financial information in a standard format. It is known as the recording of financial data. If there is an error in the accounting, the financial statements are affected, and these statements represent the incorrect financial condition. Weak accounting is characterised by the absence of data and the occurrence of manual errors. It is not in keeping with the organization's standards (Krylov 2016).

The MAS technics solve the problems

  • Financial governance: The financial statement that determines Pearl chartered accountants actual financial position is referred to as financial governance. It reflects the Pearl Charter's strengths and weaknesses. This is a structured process that records all financial data in a systematic manner and uses the double-entry system to check the accuracy of the data. The likelihood of making a mistake would be reduced as a result of this application. In this step, the company collects information first, then evaluates it in the appropriate manner and presents it in a standard format. It ensures that the information is reliable.
  • Balance scorecard: It is a method of measuring a company's and its employees' results. This method assesses the scorecard's financial performance report. The working standard is established by a scorecard. This method is based on four variables. The scorecard is divided into sections based on these variables. Customer, finance, market development, and learning are the factors. Pearl chartered accountants determines the customer's requirements and then determines the customer's satisfaction in the customer aspect. The customer's satisfaction is used to award a score. Customers who are happy produce more profit for the business (‌Intrafocus 2019). The finance element establishes the capital goals and current financial position. In the case of market growth, the organisation assesses its own growth rate and assigns a score based on that growth. The learning outcome identifies what the organisation learns during this fiscal year as a result of the project.
  • Benchmarking:  Pearl chartered accountants uses benchmarking to set certain criteria for each job and ensure that all company operations follow these standards. It is primarily used to assess product quality, revenue goals, cost cutting, profit margin, and employee efficiency. The Quality Control Company establishes a standard and certifies that the product meets the standard (Study.com 2020). In terms of revenue, the organisation set a sales goal for the whole company for the financial year, as well as a company target for each employee. Pearl chartered accountants strives to keep costs as low as possible for and standard. This benchmarking improves the organization's discipline, motivates workers, and improves the management structure.
  • Key performance indicators (KPI's): It is a quality management approach that examines the performance of an entity. Pearl chartered accountants measures the company's success using a number of metrics. These metrics include revenue growth and decline, profit margin, customer satisfaction, pricing strategies, competitive product, and so on. The success of the business determines all metrics. If a company's profits drop, it suggests that there is an issue in the business, such as a lack of consumer satisfaction or a price problem. Customer satisfaction is becoming increasingly important for business success. Following the determination of the position, managers will make decisions.

Conclusion:

This report has been discussed the management accounting system, which is used in the organization for providing some business-related information to the management for taking important decisions. Types of management accounting systems like cost accounting, budgetary control, etc. have also been discussed in this report. Various types of management accounting reporting and critically evaluated MAS and MAR in this report. The advantages of the Management accounting system and how to apply for these benefits in the organization have been explained in this report. Calculated the cost by using the different techniques of cost analysis and produce the documents of financial reporting in this report. Different type of planning tools of budgetary control with their merits and demerits has been explained. Analyze the planning tools and evaluated that how tools of planning respond appropriately for solving the financial problem that leads to the sustainable success of the company. At the end of this report, it has compared how a company adopts this management accounting system for solving their company's financial problem.

References:

Ameen, A.M., Ahmed, M.F. and 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 Management2(1), p.02.

Dell.com, 2019. Company Information. [online] Dell. Available at: https://www.dell.com/learn/in/en/incorp1/about-dell [Accessed 25 Mar. 2021].

Hansen, D.R., Mowen, M.M. and Heitger, D.L., 2021. Cost management. Cengage Learning.

Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in a management accounting system. Mediterranean journal of social sciences5(24), p.79.

Lambovska, M., Rajnoha, R. and Dobrovi?, J., 2019. From quality to quantity and vice versa: how to evaluate performance in the budgetary control process. Journal of Competitiveness.

Odar, M., Kav?i?, S. and Jerman, M., 2015. The role of a management accounting system in the decision-making process: Evidence from a post-transition economy. Engineering Economics26(1), pp.84-92.

Alin, M.I., Cosmin, G.B. and Ioana, M.L., 2019. CASH-FLOW BUDGETING AND AVOIDING RISKS WITHIN COMPANIES. Agricultural Management/Lucrari Stiintifice Seria I, Management Agricol21(3).

Collin, S.O.Y., Ponomareva, Y., Ottosson, S. and Sundberg, N., 2017. Governance strategy and costs: board compensation in Sweden. Journal of Management & Governance21(3), pp.685-713.

Krylov, S., 2016. The Company Cash Flows Target-Oriented Forecasting Based on Financial Position Analysis. Available at SSRN 2811603.

Study.com., 2020. What is Benchmarking? - Definition, Types, Process & Examples - Video & Lesson Transcript | Study.com. [online] Available at: https://study.com/academy/lesson/what-is-benchmarking-definition-types-process-examples.html [Accessed 25 march 2021].

‌Intrafocus., 2019. Balanced Scorecard - What is the Balanced Scorecard? [online] Available at: https://www.intrafocus.com/balanced-scorecard/ [Accessed 25 march 2021].

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