Unit 4 Management Accounting Assignment

Task 1

P1 Explaining the management accounting and the important requirements

Difference between management accounting and financial accounting

Management accounting helps in making the decisions very effective related to business and financial accounting helps in classifying, recording, summarising and analysing all the organisation's financial affairs (Narasimhan, 2017). On the basis of application of management accounting, it takes steps and strategies which are very meaningful to the organisation and on contrary side, financial accounting is prepared for framing very accurate picture of financial affairs. Scope of financial management is pervasive but in management accounting, the scope is much broader. The measuring grid of management accounting is qualitative and quantitative but financial accounting is only measured as quantitative. Management accounting is dependent on financial accounting for taking right decisions but financial accounting is not dependent on management accounting. No rule is followed in management accounting but financial accounting has to be prepared on the basis of GAAP or IFRS.

Management accounting information as a decision making tool for department managers

Small or large business owners or managers have to face many decisions on every business days. The information of management accounting has been used for the operations which are used to prepare report and ongoing insights have been given into the performance of business like labour utilisation and profit margin. Managerial accounting gives the description of business activities by collecting, reporting and analysing the activities which are related to business and there main target is towards the internal mangers instead of external client of business such as shareholders or lenders and banks. Internal managers use specific management accounting tools for decision making of business. The specific management accounting tools are:

Trend analysis: It is helpful for forecasting future as it is a tool which tracks the changes to data from the time when business conditions are changing.

Break even analysis: The calculation where is combination of unit volume and sales and it will generate neutral revenue not even profit and not loss (Leotta, Rizza and Ruggeri, 2017).

Margin analysis: It can be referred as profit analysis which has been built around revenue which is generated by some particular subset like region, product, business branch or customer.

Capital budgeting analysis: All the investment proposals are examined for allocating the finance and to acquire the fixed asset.

Transaction analysis: Specific transactions are tracked like sales related to particular customer or purchase of some certain goods.

Inventory analysis: This tool is very useful for determining cost of goods sold and even allocating value on raw materials and even unsold products.

Constraint analysis: The primary bottlenecks of the business is examined and its effects on profit and revenues.

Cost accounting systems

Actual costing: It refers to an accounting system which exercises the rates of direct cost, actual cost and all the actual qualities which are used in the production of identifying the specific product's cost. Generally, actual costing tracks the direct cost which is related to cost object or which helps in measuring cost. For example: For a plant of manufacturing plastic items such as bottle, box etc. the actual material which is required for production of plastic, actual man hours which are consumed are taken in account of actual cost.

Normal costing: It refers to the cost allocation method which helps in assigning the cost on the basis of labour, material and overhead which is used for producing them. It is a process of finding the price of product that is used. In other words, the costs of products which prepare normal costing are manufacturing overhead, actual direct costs and actual material. The direct cost and material are actual costs which are directly linked while producing labour and raw material. Manufacturing overhead is an appropriate rate which can be example of normal costing. In short, it is the way to identify the cost of item which is manufactured for applying the cost of product.

Standard costing: It refers to costing which substitutes the cost which is expected from the actual cost in the records of accounting and then by tracking the variance of actual costs and expected costs. This gives the representation to simplified alternative to layering system of cost like LIFO and FIFO methods where huge amount of historical cost information has been maintained. There is involvement of various estimation cost for the activities of the company.