Unit 5 Management Accounting Assignment Sample – BTEC-HND-LEVEL 4

Understanding of management accounting systems

Management accounting systems use financial and non-financial statements to provide insightful information. So that management can take an effective decision for the organizations.

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It plays an important role in providing information to the managerial people. The scope of management accounting is wide as it includes all sorts of information related to a specific organization.

The accounting management system studies cost and business operation. It aids the management to prepare financial reports and records. It eases the managerial decision-making process to achieve the organizational goal.

The accounting management system is the act of transforming the financial, and accounting data into meaningful information. It helps management to make an important decision on behalf of the organization.

The costing system or cost accounting system is the Framework used by the management to approximate the cost of the product for profitability analysis, inventory management, and evaluation.

  • Influence

Communication provides information that influences the productivity of the organization. The role of accounting management initiates and ends with communication. The effectiveness of the accounting management system depends on how well information got conveyed. The influence of management relies on communication, and well-organized communication leads to effective decision-making. The organization needs to focus on the communication of accounting information so that it can influence the management.

  • Relevant

Accounting management can result in better decision-making. To do so, it needs to provide relevant information to the management. Accounting management incorporates all information, regardless of whether it’s related to cultural or social issues. Whether they’re financial or not, the accounting system offers valuable information to the management.

  • Analysis

It helps the management to analyze the information, and take effective decisions for the organization. As such, proper analysis of information is important, as analysis reflects the decision-making of the organization. Management needs to analyze the information so that they can assess the financial condition of the enterprise, and take better decisions.

Trust

This principle focuses on how the Management accountants perform their activities. They should follow basic work ethics and are accountable to the organization. Management accountants should be trustworthy and analyze the information appropriately so that they can make effective decisions for the company. They ought to consider the company stockholders, and are credible for the betterment of the organization through effective decision making.

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Important functions of management accounting

  • Planning

It includes the formation of the long and short-term plans and proper measures taken. Financial planning incorporates resources that get acquired and used over a specific period. Management accounting helps in planning activities as it offers insightful information for the decision-making process.

It helps to plan a list of alternative actions taken by management to meet the goals of the organization.

  • Organizing

It is the process of allocating tasks to the staff members and establishing the organizational framework. It helps to achieve the goals and objectives of the organization. The

The accounting management system aids the managerial people to furnish necessary information by providing records and reports.

  • Controlling

It is the act of monitoring, measuring, correcting, and evaluating the business plan. An accounting management system helps to plan performance reports, control reports. To highlight the difference between expected performance and actual performance.

  • Decision Taking

The main aim of the accounting management system is to help the organization make effective decisions.

Cost accounting is an act of Omit cost related to operating a business. In general, cost accounting gets used by the manager to determine the type and Amount of expense incurred while following the current model.

Performance reports get analyzed by the management after every 4 to 6 months. Managerial Accountants use budgetary plans to examine the actual budgeted amounts. The difference between the real and actual budgets gets analyzed and calculated when determining new budgets, And all information about accounts gets reflected in the performance reports.

  • Throughput Accounting

It is a new concept related to the accounting management system. An Israeli business management guru Proposed the throughput accounting concept.

  • Accrual Accounting:

If the management follows accrual accounting principles, it records revenue when a transaction gets completed, not receiving the cash in hand. It implies that the company records when it earns it, even if the consumer hasn’t paid it yet. For instance, a carpentry contractor that uses accrual accounting Records the revenue when the task gets completed, Even if the customer hasn’t cleared the final bill.

Range of management accounting techniques

Accounting management tools

Tools used in present accounting management get classified as follows:

  • Depending on the Financial accounting system
  • Assessing Financial management through ratio analysis
  • Financial management analysis through graphs Trends and Comparative statement
  • cash flow and fund flow Analysis
  • technics related to Return on capital

Based On cost accounting information

  • Analysis of cost variance
  • Differential costing and direct or incremental costing
  • Standard costing
  • Marginal costing (Analyses cost volume profit)

Based on Mathematical research

  • Linear programming
  • Operations research
  • Games theory and queuing theory
  • theory on simulation
  • Network analysis

Based on predictable information

  • Budget and budget planning
  • Business forecasting
  • project appraisal or evaluation
  • Analyzing budget or Revenue variance

Miscellaneous tools or techniques

  • Financial planning
  • Revaluation accounting
  • accounting decision making
  • Integrated auditing
  • MIS (aka management information system)
  • Fund Flow Analysis

The fund flows system analyses the balance sheet of the company for two consecutive years to assess the movement of funds from the previous year to the current year. In short, fund flow analysis compares the source of incoming and outgoing funds during the concerned accounting period. Fund Flow Analyse how it affects the working Capital of A business organization.

This statement helps the financial analysts to predict the fund flow of the company in the future.

Cash flow analysis

Cash flow analyses the amount of cash and cash equivalents (securities) that a business generates or spends over a period. Cash flow pertains to the cash that flows in and out of your business. Management needs to analyze three categories of cash flow to determine the solvency and liquidity of the organization.

  • Cash flow from investments made by the company
  • Cash flow from financial activities
  • Cash flow from business operations
  • Decision making accounting
  • To solve a problem, it needs to choose a profitable and appropriate alternative. To select the best alternative, the management evaluates and compares related costs. It helps the accounting management to solve the problem that emerges due to the complicated nature of the business.

Cima conducted a survey called eternal Management Accounting tools in 2019. According to the survey result, variance analysis, cash forecasting, casting, and accounting forecasting is the most important tool used in accounting management.

Finance forecasting

Finance forecasting is an important accounting management tool. According to the survey, about 85% of the participants admitted that they used the technique. Forecasting is the process of predicting the year-end result while the year is still ongoing. The management to take corrective measures if needed.

For the Management Accountants, forecasting is a follow-up task of Budgeting. The budget of a financial year gets calculated, even before the year starts.

Management uses Financial forecasting to incorporate an Insight after planning a budget. The method and amount of forecasting vary from one organization to the other.

Cash Forecasting

Cash forecasting is one of the crucial tools used in the account management system. According to the CIMA survey reports, about 80% of the participants indicated that they followed the technique.

Cash forecasting predicts the liquidity condition of the organization. It is important, as unpredicted cash outflow can ruin the financial health of the business organization.

Even if the company has revenues and assets, the unavailability of Cash can cause the bankruptcy of the company.

Variance analysis

After cash forecasting, variance analysis is a crucial account management tool. The CIM survey report says that about 75% of the organizations use this tool.

Variance analysis aims to compare two related values. The comparison takes place between an actual and expected value. In general, it relies on the closing schedule of the organization. If the business has a monthly closing, management conducts variance analysis after every alternate month.

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Tools used by the performance management system

  • Balance sheet: It IS a management tool that improves and identifies processes and communication among different organizational structures.
  • Business process reengineering: Planning and modifying business processes To improve metrics like output quality and cost.
  • Performance-based management: It assesses and analyzes aspects of business that help to identify the weakness and strength. Activities that lead to increased profitability and Improvisations.

Use of planning tools used in management accounting

Strategic decision-making is an important task of account management. Important strategic management tools used in the organization are as follows:

  • SWOT analysis: SWOT analysis identifies the company’s weakness and strength, and the market’s opportunities and threats.
  • Risk management: It relates to the Management and identification of the risk
  • Mission statement: It is a brief description that explains the aim of business
  • Future planning: It is systematic planning for the longer future of an organization.
  • Competitor analysis: Assessing the current and Potential business Competitors. It helps the management to plan effective strategies to gain a competitive advantage in the market.

Advantages of budgetary planning

Budgetary planning turned out to be an important tool for organizations to maximize profits While controlling costs. It defines the goals, policies, and plans of the organization. In absence of specific objectives, it helps to complete other important activities. Each department has to work to meet the objectives, and budgeting is an effective process that helps the department to achieve the same.

It ensures coordination among all departments in an organization. In short, budgeting promotes centralized control through decentralized Organisational activities.

Definite Planning

  • Budgets rely on well-organized plans. Budgets enable the managerial people to predict the future and take suitable measures.
  • It informs Management amount they’re supposed to spend, and expected income. In this way, the budget induces a sense of definiteness in business planning.
  • Budgeting helps to reduce operational expenses through the elimination of wastages. It ensures effectiveness as everything gets planned.
  • The budget gets planned by considering the feedback offered by lower levels of management. The department manager frames individual budgets by consulting with the staff members.
  • Maximizes profit

The goal of budgeting is to maximize the profit of the organization. To do so, coordination and planning of different organizational functions are essential. Budgeting helps to control revenue, cost, and capital expenses while optimizing the use of resources.

  • Uniform Plans and policies

Budget planning centralizes the control over all divisions and departments. It helps the management in carrying out a uniform policy without getting affected by the authoritarian nature of the Enterprise.

  • Delegation of authority

Budgeting facilitates delegation of authority. It fixes the limit within which the authority can exercise its power. Executives and subordinates can make decisions and judgments staying within the budgetary limits.

While budgeting has several advantages that are essential for an organization, it has disadvantages that Management should consider.

  • Budgeting, forecasting, and planning need not include the exact application of science. budgeting utilizes judgments and approximations that might not be 100% accurate. At its peak, Budgeting is an apprehension, no one knows exactly when it will happen.
  • Success and utilization of budgeting rely on cooperation and understanding from all the members of management. members are needed to take actions based on the Plan. It requires the top-level management to adhere to the plans and Offer Corporation. Oftentimes, budgeting fails As the top-level executive officer offers lip service to the budgeting.
  • Budgeting is merely a tool, it is neither a replacement nor it takes over the management.
  • Budget planning takes time. Management imposes too much expectation from budgeting. When the expectations don’t get fulfilled, Blame is food on a budget.
  • As the year-end period of the company approaches, employees realize the gap between the actual expense and the budget. Employees might get tempted to spend excessive amounts to get the allowance exhausted. Such activities might lead to less than optimal profit for the organization.

Ways in which organizations could use management accounting to respond to financial problems.

To meet the objectives, accounting management system depends on a variety of techniques including the following:

Margin analysis

Margin analysis is mainly concerned with the added benefits of product Optimisation. Margin analysis is one of the important functions of accounting management. It includes the evaluation of break-even analysis, which finds its application in listing the optimal product mix for an organization.

Constraint analysis

Product line analysis of an organization helps in identifying the bottleneck, and Problems created by this bottleneck, and its effect on the Company’s capacity to generate revenues.

Capital budgeting

Capital budgeting is the act of analyzing information Required to Make important decisions related to capital expenditure. Capital budgeting analysis helps the management to evaluate the net present value and rate of return to make budgeting decisions.

  • Inventory valuation

Inventory valuation includes assessing and identifying the actual cost of the company’s inventory and products. It helps to allocate and calculate the overhead cost, and the direct costs related to COGS ( Cost of product sold).

Integration of accounting management To the organization and its benefits

Accounting management is an important role in Controlling costs, supporting, Decision making of the organization. Management accounting Is the act of evaluating information, so that management can make effective decisions for the organization.

The advantages of accounting Management are as follows:

  • accounting management helps to increase organizational efficiency
  • Accounting management helps to fix the target, and product pricing
  • accounting management helps to forecast and prepare the budget, making it easy for the management to estimate expenses and income.
  • Accounting management helps to evolve better decision-making for the .organization
  • Accounting management helps to find ways by which companies can minimize production costs and maximize profitability.

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