Unit 14: Advanced Management Accounting Assignment Sample – BTEC-HND-LEVEL 4
This unit aims to develop a basic conception of management accounting. This management course focuses on comparing, analyzing different accounting techniques. It assesses organizational performance using management accounting principles. Learners explore how decisions taken by management accounting, impact the behavior of an organization.
On completing the assignment, students will be able to support businesses. They will be able to create value through effective decision-making management accounting. To control employees of a business organization. Besides, learners will gain skills and advance to a higher level of education.
Assignment solutions of Unit 14 Advanced Management Accounting
Performance measurement techniques may vary from one industry to the other. Performance measurement techniques incorporate both financial and non-financial measures. There are varieties of performance evaluation techniques. The main goal of measurement techniques is to identify the KPI indicator. PWC developed methods for evaluating KPI.
Performance evaluation measures are upgradable to meet the cost, services Quality, delivery. Management assigns a rating to the quality measurement technique such as rejection/acceptance of customer feedback.
It analyses components, percentage contribution in the negative, positive impact on cost variance. Management can test Performance measurement techniques with regards to the industry benchmark. It can measure negative or positive position following a mentioned benchmark, and client-retention.
LO1: Analyse the importance of presenting and developing financial information
The main aim of the financial statement is to provide information related to financial position, outcomes of different operations, cash inflow, and outflow of an inflow of an organization. It helps the managerial people to make important decisions related to the allocation of resources. at a refined level, their distinct purpose related to the financial statements. The income statement informs the management about the organization’s capacity to earn profits. It provides information related to the volume of sales, nature of the expenses. It provides information relying upon how payment-related information gets managed by the Finance department.
The income statement analyzes the trends associated with the business operations when reviewed over consecutive periods.
The purpose of the Balance sheet is to provide information About the current financial position of the organization. A balanced sheet lists the time, and date, and keeps track of the business operations. It offers information related to the equity, liquidity, debt position, and funding of a unit. It forms the basis for several Liquidity ratios.
Finally, the purpose of a cash flow statement is to Display the nature of cash reimbursements and receipts.
But, Cash flow statements have limited use as the cash flows mentioned in the sheet do not always match the actual expenses displayed in the income statement.
As a unit, financial statements help to make critical decisions and serve purposes as follows:
- Credit: Financial statements help lenders to determine whether they will extend the duration or limit of credit to a business or restrict the credit amount.
- Investments: Financial statements help investors to determine whether they will invest or increase the cost per share.
- Tax: Government may charge taxes depending on the number of assets, or liabilities. Financial statements help the government entities to make relevant decisions.
- Bargains: Financial statements help the union communities to make their bargaining decisions, relying on the payment capacity of the business organizations.
M1: How financial statement gets presented for effective planning and decision-making
A financial statement helps the business organization to keep a track of transactions. It helps the businesses to keep track of financial data that goes in and out of the Operation.
Financial statements let the management and external lenders, investors understand the financial condition of organizations. make thoughtful decisions.
There are accounting principles that the companies should adhere to Make decisions related to financial accounting. Incorporated organizations based in the United States follow the GAAP Standard that the Accountants follow as they collect accounting figures and produce financial statements.
Organizations outside the United States follow distinctive accounting standards and principles, International accounting standards vary from country to country. In general, there are three key areas in which financial statements influence management decisions.
- It helps creditors to Assess the capacity, liquidity, and solvency of an organization.
- Along with Management Accounting, it eases management decisions about the allocation of scarce resources.
- It provides investors with a basis for analyzing and comparing the financial health of an organization.
A financial statement helps the investors and lenders to make decisions about the Creditworthiness and capacity of an organization. It allows them to figure out the value of the share.
Without a financial statement, investors wouldn’t be able to know the past, current, and potential financial health of the organization.
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How do effective management accounting techniques help to achieve organizational goals?
In Managerial accounting, management uses the accounting provisions to gain a complete insight that helps them to control organization functions. Managerial accounting is the part of accounting that helps managers to make important decisions by providing them accounting information.
Managerial accounting is a modern and scientific Accounting approach to effective management.
Definition of Managerial accounting
Managerial accounting refers to the preparation, accumulation identification, Understanding, and Communication of information that helps managers to fulfill the objectives of an organization.
It helps the managers to perform their activities. It includes planning, managing, recruiting, controlling, and directing.
Managerial accounting is the branch of accounting that provides relevant information to management. It keeps the team members informed, allowing them to take part in the group discussion.
What are the important functions of managerial accounting?
The function of managerial accounting is to assist management to make effective decisions. It helps management perform its activity. Basic functions of Management include Controlling, organizing, directing, and Planning.
Management Accounting updates existing accounting data, modifying it such that it becomes understandable.
Moreover, the Modification of data in groups helps management to understand, organize it. To make decisions, the manager requires accounting data that gets compiled and categorized.
Management uses data of months and assesses purchases made by the company. It uses data categorized upon Supplier, demography, and product.
P2: Financial management accounting techniques to achieve organizational goals
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.
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.
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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.
After cash forecasting, variance analysis is a crucial account management tool. The CIMA 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.
Role of management accountants, and accounting control systems
- Management Accountants work for private organizations, businesses, and government agencies.
- Management Accountants need to have an interest and aptitude for mathematics, Numbers, production processes, and Accounting. Likewise, Management Accountants know GAAP Accounting and leadership skills.
- Management Accountants help to manage and determine company Investments, strategizing, budgeting, studying, and risk management.
As a Management Accountant one needs to prepare, crunch and record data that heals the contrary to plan Budget and increase organizational efficiency. Often Management Accountants supervise the low-level managers to manage Accounting tasks such as recording income and expenses and tax liabilities. They use the information to prepare balance sheets, cash flow, and income statements.
In smaller firms, Management Accountants handle all the jobs themselves. He has to do analyses for Budgeting and performance plans And present them to the top-level management to make important decisions.
Management Accountants need to figure out the opportunities and Trends for improvement, manage risk, handle funding and Financial activities. Likewise, they might develop and maintain the financial system, and supervise the data processor and bookkeepers.
P3: Analyze how variance cost analysis helps to control the budget of an organization.
The majority of the organization focuses on meeting financial goals. Ultimately, all business proprietor emphasize growth, and accordingly, they analyze between
- Budget of the current year and Previous year’s actual result, which help them to plan budgets. Thus, it is a part of budgeting.
- To monitor the current year’s budget and actual expenses, which helps them meet the financial objectives. Activity gets repeated once every 4 to 6 months.
- It helps them to compare the actual expenses of the current financial year and the past year. It analyzes the economical growth of the firm. Management participates in this activity at the end of the year.
P4: Applications of Variance analysis are as follows:
- Comparing allocated budget with actual expenses
Variance analysis helps the management to control budgets by tracking the allocated budget and comparing it with the actual cost. For project or program-driven companies, an accountant analyses financial data at month-end or every alternate 4 months. The financial month-end report provides quantitative information related to inventory expenses and revenues.
- Identifies the relationship between two entities
Variance analysis helps deduction of relationships between two entities. Understanding the correlation between positive and negative elements is essential in planning. For instance, variance analysis can tell how the rise in the sale of the product can affect the productivity of an organization
An effective rise in sales of product B. Thus, it brings in a positive relationship between two or more products.
M3: Analyse the benefits and demerits of different types of variances
Variance refers to the difference between the expected use and actual use of an entity in an organization. The difference in revenue or operational expenses brings results invariance.
When the actual cost is higher than the estimated cost, such different results in a negative variance.
When the actual cost is lower than the estimated cost, such different results in a positive variance. Positive variance is termed as favorable variance, whereas negative variance is the unfavorable variance.
Effect of variance in the profitability of an organization
Negative or positive correlations of variance create an impact on planning. For instance, the positive variance of product A might lead to the negative variance of product B.
Benefits of variance analysis
- Variance analysis helps the management to assign responsibility to a particular department or organization. For example, the production manager is credible for product quality variance.
- Variance analysis acts as an effective accounting tool for budget control. By analyzing differences in particular variance, management looks for ways to minimize the variance.
- Variance analysis helps businesses to meet their objectives, and ensure effective utilization of resources. In this way, companies gain the trust of the shareholders.
Demerits of variance analysis
- Accountant executes variance analysis at the month-end. It is of no use when the authority needs feedback faster.
- Variance analysis is effective for large enterprises and proves to be expensive for small-scale businesses. Hence, a detailed analysis of the cost components does not make sense.
- Variance analysis relies on a preassumed standard. Standards restrict the operational efficiencies up to a limit.
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