Student Name: Nishat Shabbir

Management accounting Assignment:

TASK 1 – SCENARIO 1 (LO1)
a) Explain management accounting as distinct from financial accounting. Subsequently define a management accounting system.
1) Explain any three-management accounting systems used by your department, specifying their requirements.

EVALUATE THE BENEFITS OF THE SYSTEMS EXPLAINED IN 1 (A) TO YOUR ORGANISATION.

b) Explain the importance of presenting financial information in a reliable, accurate, up-to-date and understandable format for
the relevant users.
1) Explain the relevance of any three types of managerial accounting reports generated by your department for the
organisation.

EVALUATE WHY IS IT IMPORTANT TO INTEGARTE THE MANAGEMENT ACCOUNTING SYSTEMS (A) AND MANAGEMENT ACCOUNTING REPORTING (B) INTO THIS
ORGANISATION.

Definition of Financial Accounting: Financial Accounting is an accounting system

which is concerned with the preparation of financial statement for the outside parties like
creditors, shareholders, investors, suppliers, lenders, customers, etc. It is the purest form of
accounting in which proper record keeping and reporting of financial data are done, to
provide relevant and material information to its users.

Financial Accounting is based on various assumptions, principles and convention like going
concern, materiality, matching, realisation, conservatism, consistency, accrual, historical
cost, etc. The financial statement consists of a Balance Sheet, Income Statement and Cash
flow statement which are prepared as per the guidelines provided by the relevant statute.

Normally, the statements based on the financial accounting are prepared for one
accounting year, to enable the user to make comparisons regarding the financial position,
profitability and performance of the company in a specific period. Not only external parties
but internal management also gets information for forecasting, planning, and decision
making.

Definition of Management Accounting: Management Accounting, also known as

Managerial Accounting is the accounting for managers which helps the management of the
organisation to formulate policies and forecasting, planning and controlling the day to day
business operations of the organisation. Both the quantitative and qualitative information
are captured and analysed by the management accounting.

The functional area of management accounting is not limited to providing a financial or cost
information only. Instead, it extracts the relevant and material information from financial
and cost accounting to assist the management in budgeting, setting goals, decision making,
etc. The accounting can be done as per the requirement of the management, i.e. weekly,
monthly, quarterly, etc. and there is no format set on the basis of which it is to be reported.
Distinction between management and financial accounting: Control
accounting is greater involved with operational reports which can be only allotted
within a company. managerial accounting is interested by the place of bottleneck
operations, and the numerous methods to enhance earnings via resolving bottleneck
troubles. managerial accounting can also deal with budgets and forecasts and so can
have a destiny orientation.
Key Differences Between Financial Accounting and Management
Accounting
The following points explain the major differences between financial accounting and
managerial accounting:
• Financial Accounting is the branch of accounting which keeps track of all the financial
information of the entity. Management Accounting is that branch of accounting which
records and reports both the financial and non financial information of an entity.
• Users of financial accounting are both the internal management of the company and
the external parties while the users of the management accounting are only the internal
management.
• Financial accounting is to be publicly reported whereas the Management Accounting
is for the use of the organisation and hence it is very confidential.
• Only monetary information is contained in financial accounting. As against this,
management accounting contains both monetary and non-monetary information such as
the number of workers, the quantity of raw material used and sold, etc.
• Financial Accounting is done in the prescribed format, whereas there is no
prescribed format for the Management Accounting.

Management accounting system: Management accounting is a career that entails

partnering in management selection making, devising making plans and performance control
systems, and supplying know-how in financial reporting and control to help management
inside the formula and implementation of an enterprise's approach

(a) Explain any 3 control accounting structures used by your

department, specifying their necessities.

Managerial Accounting

Managerial accounting and the connecting branches highlighted in Exhibit 1-2 provide the
focus of this textbook. As indicated in the exhibit, managerial accounting is linked to cost
accounting, cost management, activity management and investment management.
Managerial accounting involves generating information for internal users including all levels
of management and others within the organization. Some of the same information is
reported that appears in the external financial statements, but frequently the information
provided to internal users is in more detail, provided more often, and in many different
forms depending on how the information is to be used.
Cost Accounting

Cost accounting is linked to tax accounting, financial accounting and managerial accounting
in Exhibit 1-2 because it is an important component of each discipline. Why? Because cost
accounting involves determining the cost of something, such as a product, a service, an
activity, a project, or some other cost object. These costs are needed for several purposes.
For example, the costs of products and services produced and sold are needed for both tax
and external financial statements. In other words, tax and financial accounting depend on
cost accounting to provide cost information. Information about costs is also needed for a
variety of management decisions.

Cost Management

Cost management is a term that has been popularized by CAM-I (Consortium of Advanced
Management - International). Cost management is said to be a more comprehensive
concept than cost accounting in that the emphasis is on managing and reducing costs rather
than reporting costs. In other words, it is a long run proactive approach rather than a short
run reactive approach.

Activity Management

Activity management, or activity based management, places emphasis on continuously

improving the activities and tasks, or work that people perform in an organization. The main
idea is to find and eliminate waste. Conceptually, activity management is somewhat
different from cost management in that it focuses on the waste itself, not the cost of waste..

Investment Management

Investment management involves the planning and decision process for the acquisition and
utilization of an organization's resources, including human resources as well as technology,
equipment and facilities. The concept of investment management includes the capital
budgeting discounted cash flow methods traditionally studied in accounting and finance
courses, but is more comprehensive in that the organization's portfolio of interrelated
investments is considered as well as the projected effects of not investing

Importance of presenting financial information in a

reliable, accurate, up-to-date and understandable format
for the relevant users:

Importance of Financial Statements:

The importance of financial statements lies in their utility to satisfy the varied interest of different
categories of parties such as management, creditors, public, etc.
1. Importance to Management:
Increase in size and complexities of factors affecting the business operations necessitate a
scientific and analytical approach in the management of modern business enterprises.

A comparative analysis of financial statements reveals the trend in the progress and position

of enterprise and enables the management to make suitable changes in the policies to avert
unfavourable situations.

2. Importance to the Shareholders:

Management is separated from ownership in the case of companies. Shareholders cannot,

directly, take part in the day-to-day activities of business. However, the results of these

activities should be reported to shareholders at the annual general body meeting in the
form of financial statements.

These statements enable the shareholders to know about the efficiency and effectiveness of
the management and also the earning capacity and financial strength of the company.

Published financial statements are the main source of information for the prospective
investors.

3. Importance to Lenders/Creditors:
The financial statements serve as a useful guide for the present and future suppliers and
probable lenders of a company.

It is through a critical examination of the financial statements that these groups can come to

know about the liquidity, profitability and long-term solvency position of a company. This
would help them to decide about their future course of action.

4. Importance to Labour:
Workers are entitled to bonus depending upon the size of profit as disclosed by audited

profit and loss account. Thus, P & L a/c becomes greatly important to the workers. In wages
negotiations also, the size of profits and profitability achieved are greatly relevant.
5. Importance to the Public:
Business is a social entity. Various groups of society, though directly not connected with

business, are interested in knowing the position, progress and prospects of a business
enterprise.

They are financial analysts, lawyers, trade associations, trade unions, financial press,
research scholars and teachers, etc.

6. Importance to National Economy:

The rise and growth of corporate sector, to a great extent, influence the economic progress

of a country. Unscrupulous and fraudulent corporate managements shatter the confidence

of the general public in joint stock companies, which is essential for economic progress and
retard the economic growth of the country.

Financial Statements come to the rescue of general public by providing information by

which they can examine and assess the real worth of the company and avoid being cheated
by unscrupulous persons.

Benefits of making reports:

Cash Flow Review
A cash flow statement is one of the financial statements used in financial analysis. As the
name implies, it accounts for money in and money out. It shows the financial solvency of a
company to pay its liabilities at any point in time. Some companies have cyclical revenues
but consistent expenses. Knowing that the Christmas rush needs to fund a slow first quarter
of expenses is important for business owners to manage financial resources.

Liability Review: The financial statements show the existing liabilities. These include
business loans, lines of credit, credit cards and credit extended from vendors. A business
owner who is planning to apply for a business expansion loan can look at the financial
statements and determine if he needs to reduce existing liabilities before applying. Lenders
look at the financial statements and consider the revenues, assets and existing liabilities.
Review Inventory: The balance sheet is a component of the financial statement. Assets
are included on the balance sheet. Analyzing whether there is too much inventory or too
little helps business owners prepare for upcoming sales months. Keeping too much
inventory on hand is a potential problem that ties up money, while not having enough
inventory can lead to losing customers and market share.
Identify Trends: Analyzing the financial statements from quarter to quarter and year to
year help business owners see trends in growth. A young business might have losses in the
early years while it is developing products and a customer base. At the same time,
statements show whether the business owner is meeting projected estimates. If a business
is projecting a 10 percent annual growth but only achieving 7 percent, business leaders
need to look for ways to either cut costs or increase revenues. The financial statement
identifies the information to explore further.

EVALUATE WHY IS IT IMPORTANT TO INTEGARTE THE MANAGEMENT ACCOUNTING SYSTEMS (A) AND MANAGEMENT
ACCOUNTING REPORTING (B) INTO THIS ORGANISATION.

TASK 2 – SCENARIO 2, 3 & 4 (LO2)

a) Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption
costs, using the information in scenario 4.

FOR THE COMPANY IN SCENARIO 3, ACCURATELY APPLY A RANGE OF MANAGEMENT ACCOUNTING TECHNIQUES FOR STOCK VALUATION, AND PREPARE FINANCIAL
REPORTING DOCUMENTS OF CLOSING STOCK AND GROSS PROFIT USING FIFO AND LIFO. ALSO PRODUCE FINANCIAL REPORTS THAT ACCURATELY APPLY AND
INTERPRET DATA FOR A RANGE OF BUSINESS ACTIVITIES. CALCULATE ALL POSSIBLE VARIANCES AND RECONCILE THE BUDGETED PROFIT WITH THE ACTUAL PROFIT IN
SCENARIO 2.

Scenario 4
Income Statement +Absorption Costing

£ £

Sales (1500x50 75,000

Cost of Sales
Direct Labor 10000
Direct Material 10000
Variable Production 4000
Fixed Production Over Head 10000

Add: Opening stock 0

Less : Closing stock (8500) (25500)
Less : Under Absorbed 2000 (10000) 49500
(
(5000)
Gross Profit 44500
Less: Selling & Distribution (10000)
Fixed
Variable (15% of 75000) (11250)
Net Profit 23250
 Scenario 4
Income Statement & Marginal Costing
month ended 31 March

£ £
Sales (50 x 500) 75000
Variable Cost of Sales
Direct Labor 10000
Direct Material 10000
Variable P.O.H. 4000
24000
Add. Opening Stock 0
Less Closing Stock (6000) (18000)
Gross Contribution 57000
Less Variable Selling and (11250)
Distribution
Net Contribution 45750
Less: Fixed cost
Manufacturing (15000)
Selling Distribution (10000)
20750

Profit Reconciliation Statement

£
Profit as per Absorption costing 23250
Add: Difference in Opening Stocks 0
Less: Difference in Closing Stock (8500- (2500)
6000)
Profit as per marginal costing 20750
 Scenario 3
Stock Valuation
Month ended 31 May
Date Issues Receipts Balance
QT RT Total QT RT Total QT RT Total
1 May - - 300 x 4.5 = 1350
2 May 200 x 7 = 1400 - 100 x 4.5 = 450
1 May 500 x 4.8 = 2400 100x 4.5= 450
500 x 4.8 = 2400
13 May 400 x 10 = 4000 200 x 4.8 =960
20 May 500 x 4 = 2500 200 x 4.8 = 960
500 x 5 = 2500
28 May 450 x 12 = 5400 250 x 5 = 1250

Closing on Sales Purchases Closing Stock

31 May 1050 x 10.24 = 1000 x 4.9 = 4900 250 x 5 = 1250
10800
£
Sales 10800
Less: Cost of sales
Opening Stock 1350
Add: Purchases 4900
Less: Closing Stock (1250) (5000)
Gross Profit 5800

LIFO
Stock Valuation
Month ended 31 May
Date Issues Receipts Balance
1 May 300 x 4.5 = 1350
2 May 200 x 7 = 1400 100 x 4.5 = 450
7 May 500 x 4.8 = 2400 100 x 4.5 = 450
500 x 4.8 = 2400
13 May 400 x 10 = 4000 100 x 4.5 = 450
100 x 4.8 = 480
20 May 500 x 5 = 2500 100 x 4.5 = 450
100 x 4.8 = 480
500 x 5 = 2500
28 May 450 x 12 = 5400 100 x 4.5 = 450
100 x 4.8 = 480
50 x 5 = 250
Total=1180
Closing on 31 May Sales Purchases Closing Stock
10800 4900 1180

Sales 10800
Less: Cost of Sales
Opening Stock 1350
Add: Purchases 4900
Less: Closing Stock (1180) (5070)
Gross Profit 5730

Scenario 2
Manufacturing Cost
Budgeted Flexed Actual Variance
@ 180000 @196000 @196000
£ In ‘000’
Material A 1800 1960 2060.40 100.4
Material B 540 588 568.40 19.6
Labor 1440 1568 1621.2 (53.2)
Variable Overheads 720 784 764 20
 Total 4500 4900 5014 114
Manufacturing
Costs

Operating Results
Budgeted Flexed Actual Variance
@ 180000 @196000 @196000
£ In ‘000’
Sales 10800 11760 11466 294
Manufacturing (4500) (4900) (5014) (114)
Cost
Labor 6300 6860 6452 408
Fixed Overheads (3800) (3800) (3800) (3800)
Profits 2500 3060 2752 308

TASK 3 – SCENARIO 5 (LO3)

a) Explain the advantages and disadvantages of different types of planning tools used for budgetary control.

ANALYSE THE USE OF DIFFERENT PLANNING TOOLS AND PREPARE FUNCTIONAL BUDGETS FOR THE YEAR ENDED 31ST MARCH 2013, FOR PRODUCTION OF EACH
PRODUCT (UNITS); PURCHASES OF MATERIAL B (KILOS AND £); MANUFACTURING LABOUR (HOURS) ALSO SUGGEST ANY TWO FINANCIAL PROBLEMS THAT THIS
ORGANISATION CAN FACE AND WHICH PLANNING TOOLS FOR ACCOUNTING CAN BE USED TO SOLVE THESE PROBLEMS TO LEAD THIS ORGANIZATION TO SUSTAINABLE
SUCCESS.

P4) Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.

Budgeting is essential in any association. It helps in assets portion, arranging and usage of
good approach to upgrade hierarchical development and advancement. Absence of
satisfactory arranging and basic leadership in associations has been recognized as the
motivation behind why most associations neglect to accomplish their essential target which
is benefit expansion. Planning and budgetary control are additionally essential because of
imperatives in assets accessible, for example, materials, time, cash and labour and also to
oblige unusual monetary and political changes. Planning and budgetary control assume a
key part in the association. Each unit is aware of the requirement for the financial backing to
succeed and have its impact in guaranteeing the accomplishment of each financial plan.
Planning and budgetary control has been seen as an apparatus to administration choice.
Financial plan satisfies both arranging and control reason. However, amid vital and strategic
arranging, a few restrictions might be forced which are fit for blocking the arranging
procedure. These are known as constraining components which are advertise interest for
the items, the quantity of gifted workers accessible, the accessibility of materials supplies;
and the measure of each credit offices accessible to fund the business. Some of these
restrictions might be because of normal causes which will in the long run be changed and
the greater part of them can be overcome or stayed away from by arranging choices. The
outcome in the basic leadership is inferred at by using the right procedures planning
procedure and stages to achieve a choice.

Characteristics of a budget

A good budget is characterized by the following:

· Participation: involve as many people as possible in drawing up a budget.

· Comprehensiveness: embrace the whole organization.
· Standards: base it on established standards of performance.
· Flexibility: allow for changing circumstances.
· Feedback: constantly monitor performance.
· Analysis of costs and revenues: this can be done on the basis of product lines, departments
or cost centres.

Budgetary control:

It is control technique whereby actual results are compared with budgets. Any differences
(variances) are made the responsibility of key individuals who can either exercise control
action or revise the original budgets.

Budgetary control and responsibility centres:

Budgeting is a forward arranging. It serves fundamentally as a device for administration

control; it is fairly a rotate of any powerful plan of control. The destinations of budgeting
might be outlined as takes after:
1. Planning: Planning has been characterized as the outline of a coveted future position for an
element and it lays on the conviction that the future position can be accomplished by
continuous administration activity. Itemized designs identifying with generation, deals,
crude material prerequisites, work needs, capital augmentations, and so forth are drawn
out. By arranging numerous issues assessed well before they emerge and arrangement can
be thought of through watchful investigation conditions.
2. Measurement of Success: Budgets show a valuable method for educating supervisors how
well they are performing in meeting targets they have beforehand set. In many
organizations, there is a routine with regards to compensating representatives on the
premise of their expert low budget targets or advancement of an administrator is connected
to his budget achievement record. Achievement is dictated by comparing the past
execution with past period's execution.
 3. Motivation: Budget is dependably considered a helpful device for urging administrators to
finish things in accordance with the business destinations. On the off chance that people
have strongly partaken in the planning of budgets, it goes about as a solid rousing power to
accomplish the objectives.
4. Communication: A budget fills in as a method for imparting data inside a firm. The standard
budget duplicates are appropriated to all administration people that give not just adequate
comprehension and information of the projects and rules to be taken after yet additionally
gives learning about the limitations to be clung to.
5. Control: Control is fundamental to ensure that designs and destinations set down in the
budget are being accomplished. Control, when connected to budgeting, as a systematized
exertion is to keep the administration educated of whether arranged execution is being
accomplished or not.

Advantages of budgeting and budgetary control

Following are the advantages of budgeting and budgetary control:

1. Promotes coordination and communication.

2. Motivates employees by participating in the setting of budgets.
3. Improves the allocation of scarce resources.
4. Economizes management time by using the management by exception principle.
5. It shows to the administration where activity is expected to cure a position.
6. Budgeting likewise helps in getting bank credit

TASK 4 - (LO4)
a) Compare how organisations are adapting management accounting systems to respond to financial problems.

ANALYSE WHETHER SUCH AN APPROACH IS SUCCESSFUL IN ORGANISATIONS TO SOLVE PROBLEMS AND EVALUATE HOW PLANNING TOOLS FOR ACCOUNTING
RESPOND APPROPRIATELY TO SOLVING FINANCIAL PROBLEMS TO LEAD ORGANIZATIONS TO SUSTAINABLE SUCCESS. USE D3 IN TASK3 FOR REFERENCE.

Organizations must find ways of surviving in times of rapid, transformative environmental

change. They may be reactive, changing in a passive way to reflect environmental change or
used to reinforce existing rationales for action

A management accounting system that is kept up day by day or week by week will give
more valuable data than one that is a half year outdated. Opportuneness influences
administration bookkeeping frameworks by giving criticism rapidly enough to proactive
reactions and compelling arranging. On the off chance that your framework isn't frequently
kept up, you might react to obsolete data or neglecting to respond to current difficulties
since you don't completely comprehend their effect.
Organizations are adapting management accounting systems to increase efficiency and help
in the smooth running of their operations. Increased use of management accounting
systems like inventory management and valuation are becoming a necessity nowadays.
They help the management to keep track of their current inventories, how much stock is
needed at any given time and overcome shortage costs like loss of profit and future
goodwill.

Examples of management accounting system:

Budgeted reports are used by management to control and plan the future allocation of
resources and then comparing budgeted values to actual results to evaluate the
performance of the business. Costs can be minimized and the goals of business can be
effectively met with the help of budgets.
Job reports are another example of management accounting systems that show exactly how
many resources such as time and material has been spent on a manufacturing of a particular
job. This can help management to highlights the particular costs that have the potential to
be reduced.

Benefits of using Management Accounting reports:

Management accounting often improves the business owner’s decision-making process.
Rather than making business decisions based solely on qualitative analysis, business owners
or managers can use management accounting information as a decision-making tool.
Management accounting usually provides a quantitative analysis for various decision
opportunities. Business owners can review each opportunity through the prism of
quantitative analysis to assure they have a clear understanding relating to business
decisions.

Refrences:
Bragg, S. and Bragg, S. (2018). Budgetary control. [online] AccountingTools. Available at:
https://www.accountingtools.com/articles/2017/5/11/budgetary-control [Accessed 8 Dec. 2018].

Yourbusiness.azcentral.com. (2018). How Is Managerial Accounting Used in Business Ownership?.

[online] Available at: https://yourbusiness.azcentral.com/managerial-accounting-used-business-
ownership-3550.html [Accessed 8 Dec. 2018].

Strategic Accounting. (2018). Management Reporting - Strategic Accounting. [online] Available at:
http://www.strategicaccounting.co.za/reporting/management-reporting/ [Accessed 8 Dec. 2018].