Management Accounting Assignment Sample

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Introduction

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The importance of management accounting in a Synergy manufacturing co. Ltd. and its function in improving business activities are discussed in this study. In company, management accounting is critical. Because it encompasses management accounting systems, reporting methodologies, and planning tools, it is regarded as a fairly broad notion. Several of these heads are discussed in this paper. It also represents how budgets aid in planning, management, and accounting, as well as the various types of budgets and their significance in a company. This study will also illustrate how management systems, reporting, and planning strategies aid in the resolution of financial issues. The financial issues of the company Synergy, will be discussed and the financial issues of another company Tesa PLC, will be discussed in this report.

LO1: Understanding Management Accounting Systems

Management Accounting

Management accounting is the science of creating reports and monetary evaluations of the system's functions. It is designed to display accurate information, facilitate decision-making, and increase the company's profit-making capacity. According to CIMA, management accounting is "universally utilised in large and small enterprises, public and private, everywhere in the world". It is a dependable technique to emphasise the expenses that are incurred in the day-to-day tasks of a firm, and it is used consistently as a tool to enhance internal decision-making for management.

Types of Management Accounting System and their essentials

Cost Accounting System:

Meaning:

The determination of cost is a critical function of any manufacturing process, and this cost is determined using a cost accounting system. The organisation can use this approach to calculate and consider all costs, including material, labour, and overheads (Abdusalomova 2019).

Essentials:

• The cost accounting system should not be pre-made; instead, it should be tailored to the organization's needs.
• The data used to determine the pricing must be precise and genuine.
• The company's top management and executives must want to implement a cost accounting system that is effective.

Price Optimization System

Meaning:

It refers to an accounting method that allows a company to determine what its optimal price for a product or service should be in order to stay ahead of their competitors while also earning a reasonable profit. It also aids in comprehending the relationship between how a product's demand varies and how the product's price changes (Gonçalves and Gaio 2021).

Essentials:

• Pricing methods employed by the company in the past 
• Pricing strategies employed by the company's competitors
• Information on all types of orders, whether completed or pending.

Reporting in Management Accounting

Budgetary reporting

Performance reports are used as a secondary reporting method, in which the net performance is compared to the company's performance target in order to identify discrepancies and take remedial action. Performance does not only refer to a company's net worth; it also refers to how well it performs across the board. Synergy estimates performance using a performance report based on financial data (Maheshwari et al. 2021).

Cost Report

The information gathered from the management system, which calculates the cost of production or cost per unit, is summarised in cost managerial reports, which can be used to show that it is appropriate. Because Synergy sells so many different items, having cost estimates for each one is essential. The requirements should also be compared to the actual to assess whether or not cost management is necessary (Weetman 2019).

Benefits of MA system and their application in context of organization 

Cost Accounting System

• Benefits:

The cost accounting system in Tesa UK helps the company determine the cost of manufacturing and production processes. The cost accounting system in Synergy helps the company control and monitor costs on a regular basis, resulting in improved cost efficiency (Eldenburg et al. 2020).

• Application:

In Synergy, standard cost accounting is applied. In this case, the company established some standards at the start of the manufacturing process and then compared them to the actual outcomes at the end of the process. The company uses activity-based costing, in which the costs spent in each activity are allocated to the various products using cost drivers. The corporation uses this to allocate overheads to the various goods.

Inventory Management System

• Benefits:

With the help of an inventory management system, the accuracy of inventory costs is maintained. When the inventory management system is deployed in Synergy, inventory value is simple. The company's relationship with its suppliers has improved after the inventory management system was introduced.

• Application:

The company calculates the economic order quantity with the help of this technology, and all orders are placed accordingly. The company's inventory is valued at weighted average cost, and inventory frauds and manipulations have been eliminated (Hasyim and Jabid 2019).

Critical Evaluation of the MA systems and reporting

Advantages

• Planning – The company's management accounting system and reporting aids in the planning of future initiatives and operations. The MA's reports assist the organization in budgeting and forecasting.
• Controlling – By deploying various MA systems and creating MA reports, the organization maintains control over its activities and operations.
• Communication – To guarantee proper management, the MA reports are employed. Similarly, MA systems provide a platform for a company's management to provide a better communication method.
  
  Limitations

• Personal bias – Because users and creators of MA systems and reports sometimes have biases toward certain issues, the system's and reports' dependability suffers as a result.
• Highly dependent on data – All of MA's planning and forecasting is based on data, and if the data isn't accurate, the results won't be as expected.

Integration of the MA within organizational process:

Any business should have a balance of goods for better performance. As a result, management accounting systems and reporting methods must also be balanced. They are ineffective if used on their own. As a result, management accounting systems aid in the calculation and determination of numerous business financial operations such as job costing, cost per unit produced, inventory management, and optimal pricing. Reporting methods, on the other hand, help in determining how far they've progressed, such as how far they've departed from the standard work cost, stand price, and standard output cost. If the variance is not calculated, the company will be unable to make effective and corrective decisions.

LO2: Application of Management Accounting Techniques

Absorption Costing

It's a method of calculating profit and loss based on how many units are sold. As a result, the number of units sold is used to compute all costs, both fixed and variable. The difference between these two tactics is that one focuses on the fixed cost, which varies based on the number of units sold, while the other focuses on the variable cost, which varies depending on the number of units sold.

Marginal Costing

In order to evaluate performance, marginal costing is a method of assessing cost and net profit for the year. It's a variable cost per unit concept. The unit created is used to separate variable and fixed expenditures in this technique. The profit is calculated by removing the contribution's fixed costs as well as all other indirect costs.

LO3: Planning tools used in Management Accounting 

Planning Tools – Advantages and Disadvantages

The tools used in a corporation to establish future plans based on the data available to them are known as planning tools. These tools aid managers in making sound business decisions, as well as forecasting and predicting future events. Not only do these tools assist management in forecasting and predicting the future, but they also assist management in ensuring that the organization is capable of managing future uncertainties.

Budgets

• Advantages:

Budgets assist the company's management in organizing efforts across all departments. Using budgeting approaches, the company's strategic plans may be transformed into tangible results. Budgeting helps to increase communication between management, its employees, and departmental managers (Alexander 2018).

• Disadvantages:

If budgets are applied rigorously and mechanically, the budgeting tool may be problematic. The budgeting tool might also contribute to the feeling of unfairness. Employees will be demotivated if budgets are established in a way that prevents them from participating.

Standard Costing

• Advantages:

Because pre-determined expenses are established, planning and budgeting become easier; also, inventory value gets easier as pre-determined costs are established. The reasons of the variances can be analyzed and the mitigation strategies can be made by the organization by using the standard costing technique.

• Disadvantages:

Standard costing is not relevant when the industry in which the company operates involves non-standardized products. Calculating the material, labor, and overhead expenses is a difficult undertaking. The procedure is time-consuming and expensive.

Cost-Volume-Profit Analysis

• Advantages:

The CVP Analysis of a firm provides a complete perspective and provides the preconditions for key decision making. The company can analyze the amount of profit which can be derived by the organization from the sale of different products of the company. 

• Disadvantages:

This analysis is ineffective in multi-product operations, and the risk of human mistake is considerable with this method. Sometimes when the decision is to be made by the company and its multiple products, the decision making becomes inefficient. 

Use and Application of different planning tools

Budgets

• Budgets are used to forecast revenue in the future. Budgets allow managers to examine previous outcomes, detect trends, and forecast future revenue generation.
• Budgets are also used to plan the costs. Budgets allow managers to plan the costs and expenses that the company will incur in order to earn the expected revenues.
• Budgets can also be used to keep track of things. Revenues are anticipated and expenses are scheduled at the start of the quarter, making it easier for managers to keep track of the company's costs and expenses, as well as revenues (Grozdanovska et al. 2017).
  
  Standard Costing

• Standard costing is used by management to determine the pre-determined prices.
• Standard costing can be used to evaluate the performance of different expenditures and expenses.
• The company's management can compare actual performance and outcomes to pre-determined standards, and variations can be calculated to compare the performance of various departments.
• When the causes of the variances are determined, the reasons for the variances are determined. After determining the cause of the variance, the company makes strategies to avoid it in the future.

Evaluation of Planning Tools

Advantages of the Planning Tools:

• The planning tools aid in the coordination of activities throughout the company's departments, and the strategic plans devised by management are transformed into reality with the aid of the planning tools.
• It keeps track of all the company's previous operations and makes future forecasts based on that information.
• The company's planning for future events becomes more trustworthy, and future contingencies may be easily addressed.
• The policies, plans, and objectives of the firm are defined using these planning tools. These instruments direct management's efforts toward achieving the organization's goals.

• Limitations of the Planning Tools:

• When there is a plan for everything, the creativity of the employees does not have any place in it, therefore the employees may feel demotivated.
• If the plans are rigid and mechanically applied, there is a chance that the staff of the department do not want cooperate the management in other activities.
• Implementing these planning tools within the management and making plans for different types of activities is very much time consuming.
• The planning process and implementation of the planning tools required highly qualified workforce which contains professionals, these professionals charge high fees and therefore the planning tools are costly. 
• These tools are less effective in preventing the future risks and losses that are uncertain at the time of their preparation (Hansen et al. 2021).

LO4: Management Accounting to respond financial problems

Whether a company is large or little, it faces financial difficulties. Financial concerns have a negative impact on the entity's performance. Entity managers can use planning tools and MAS to create plans for resolving financial difficulties. The difficulties faced by the company Synergy and another company Tesco PLC will be discussed below.

Financial issues face by Synergy

Cash Flows

Managing cash is a serious issue, Synergy faces difficulties in managing their cash, the company is facing problems with the liquidity, the liquidity of the company is getting lower, and due to this the company is unable to manage its working capital also. A significant amount of working capital is required for the production process. Debtor collection periods are long in Synergy company, indicating ineffective working capital management. As a result, cash inflow is reduced, and both firms' liquidity is dwindling.

Capital Equipment

The company needs to buy capital equipment, which costs a lot of money. If the investment fails to pay off, the company will lose a lot of money and its liabilities would skyrocket.

Issues faced by Tesco PLC

Cost of abnormal nature or excess cost

Excess cost in the form of extra expenses and anomalous cost are included in the cost element. These expenses raise the company's costs and reduce its profit. Due to this high amount of cost in the operations and manufacturing of the company, the profit of the company also decreases which is quite undesirable for the company.

Inventory management:

Manufacturing relies heavily on inventory, which comes at a high expense. These costs must be kept to a minimum, as must the holding costs. It's also necessary to decide on the ordering amount and value the inventory.

Using management accounting techniques to respond financial problems

Benchmarking:

Benchmarking is the process of comparing a company's practices and performance to that of competitors. A company's quality, time, and cost are measured and compared to those of another company. It enables a company to set internal objectives for a set period of time.

Both Tesa and Synergy are manufacturing firms. As a result, both companies will be able to compare their performance, strategies, and outcomes through benchmarking. Both companies can set internal goals and objectives, assess their business decisions, examine their operations, identify profitable approaches, and put them into practice. Profit maximization is one of a business's primary goals, and this method will eventually lead to it (Damelio 2017).

Key Performance Indicators:

Key performance indicators are quantitative metrics that are used to analyze long-term success. These indicators are incredibly helpful in identifying and making decisions about a company's strategic, financial, and operational outcomes. Financial KPIs are concerned with net profit, sales, and costs. A current ratio is a sort of KPI that is used to determine the liquidity of a company.

These KPIs can be used by businesses to measure their success in terms of statistics. The performance of employees is measured in monetary terms. In order for both organizations to expand and make strong profits, as well as for effective planning, they need compute KPIs, measure financial performance, and take corrective actions to address financial concerns.

Balanced Scorecard:

This is a measure of a company's performance that is used to build business strategies. In this technique, the firm's internal functions are compared to their external consequences. A company can use this method to gather and analyze feedback on its current strategy and functions. Tesco PLC employs the balancing scorecard technique to enhance internal processes and boost profitability; Tesa, on the other hand, employs it to test new ideas.

Activity Based Costing

This is a method of assigning indirect expenditures (also known as overheads) to products and services. Expenses that are not directly tied to the production process are referred to as indirect expenditures. Tesa UK use the ABC method to properly distribute overheads among products. This will result in the finding of extremely high indirect costs that can be avoided. This wasteful expenditure must be avoided, and appropriate action plans must be devised to eliminate these expenditures and save money.

Sustainable development through Management Accounting

• MA aids in the planning of business activities based on financial data or conclusions gained from the use of various approaches and technology.
• It also assists in the control of critical areas through the use of reporting tools, which allow the business to evaluate how far it has deviated from the standards.
• The firm's financial performance can be improved with the help of MA. It can be used to examine financial data and run scenarios to determine the company's growth.
• Management accounting is a system that allows the manufacturing process to run smoothly, all raw materials and other resources to be utilized to their maximum potential, and the company to make a profit.

Conclusion

It is vital to apply MA techniques to the administration of an entity's activities. In order for a manufacturing company's operations to run smoothly, it must build a sound management accounting system. The cost of goods produced can be calculated in a variety of methods, including marginal costing and absorption costing. In absorption costing, the fixed overheads are absorbed on the actual production, hence the profit is different in both methods. Tesa is struggling with a number of financial problems. This research examines management accounting strategies and ways for effectively resolving financial problems in a corporation.