Tech (UK) Limited have been producing special charger for mobile telephone and numerous other carry-on gadgets for retail outlets offered all over the UK. The senior management have complained that there is a lack of financial information available for the purpose of making decisions.
- Explanation of management and its essential requirements within Tech UK limited.
- Preparation of income statement with the use of absorption and marginal costing methods.
- Explanation of different kinds of budgets and their use in planning and control purposes.
- Evaluating ways through which management accounting could be used to deal with financial problems.
Management accounting (MA) is process of analysing accounting information of business and interpret it in accurate manner so that correct business decision can be made (Goddard and Simm, 2017). The main agenda of applying principles of management accounting is to measure overall performance of entity and assessing risk so that management can make effective strategies in order to resolve issues. Present study is based on Tech (UK) Limited that produces mobile chargers and other carry-on gadgets. Current assignment will compare management accounting and financial accounting system. Furthermore, it will discuss various types of reports that are prepared by the organization. It will calculate absorption and marginal costing methods in order to prepare income statement for the month of September as well. In addition, study will explain various kinds of budgets and importance of budgetary system for planning and controlling process.
a) Explanation of management accounting system
Difference between MA and financial accounting (FA)
Management accounting is process of measuring performance of company. It assists manager in making sound decision so that entity can earn more profit. It helps in providing in-depth detail about policies, plans and strategies of firm so that all records can be managed in an appropriate manner (Jermias, 2017). On the other hand, financial accounting is another conceptual framework that pays more attention on preparing financial statements. Furthermore, another major difference in between MA and FA is that it is essential for companies to follow principles of financial accounting whereas if entity is following standards of financial accounting then there is no need to follow management accounting rule separately. Main objective of management accounting is to assist managers in such a manner that individuals can plan activities for the growth of business unit. Whereas, financial management aims to get all financial details that are required to run business in a smooth manner (Chiwamit, Modell and Scapens, 2017).
Time frame of preparing the reports is another major criteria that creates difference between both these aspects. Financial statements are being prepared by Tech
(UK) limited at the end of year whereas, management reports are required to be prepared as per the need of organization. These reports are being used for internal management of firm but financial reports are useful for internal and external management of business unit (Christ and Burritt, 2017).
Importance of MA in decision making
Business decisions are the significant part of firm. Overall success of organisation highly depends upon the decisions taken by managers. For making sound judgements, Tech (UK) limited look at the financial information of firm. Manager of Tech limited always look at the budget and accordingly, allocate resources to each department. This allocation decision help company in raising its profit and controlling the cost as well (Wei and Xima, 2017). These financial information support the manager in utilizing resources well and minimizing wastage so that company can make sound decision for the progress of firm.
Cost accounting system
Cost accounting system is considered as the technique that supports in monitoring cost of business. This helps the manager in identifying various expenditures and managing cost appropriately. By this, entity becomes able to generate more profit and gain competitive advantage. It tracks working of raw material and production phases. By this way, managers identify the materials required to produce particular goods. By this way, estimation of cost can be done properly ad entity can generate profit (Goddard and Simm, 2017).
Inventory management system
It is another important tool that is used by Tech (UK) limited that helps in keeping records of inventories, sales and deliveries. This is used by firm in order to create work order and billing system. This is a beneficial tool that assists in minimizing over stock issue and managing inventory in the appropriate manner so that overall cost of company can be minimized. Tech (UK) limited has retail stores where is it essential for company to make balance between demand and supply (Jermias, 2017). It cannot hold excess products because it can enhance expenditures due to overstock. Inventory management system is beneficial in keeping the records of inflow and outflow of inventories. Main agenda of using this software is to reduce the cost and avoid missing out sales because of over stock situations.
Job costing system
Job costing system is the process that aids in determining cost systematically. It looks at the overhead, direct and indirect costs in order to perform a particular task. It is very important for Tech (UK) limited to apply this method at the workplace in order to estimate actual value. Cost of production is measured by jobs involved in the manufacturing. It identifies that whether production cost is exceeded to the decided cost or not. For measuring this cost, companies prepare production order, cost sheet and other necessary documents (Christ and Burritt, 2017). This is a beneficial tool that helps the organization in examining profitable and non-profitable jobs in business and taking actions accordingly so that cost can be minimized and overall profit of company can be increased.
b) Presentation of financial information
Management accounting reports
There are various kinds of reports that help in analysing performance of the firm and taking action to improve performance (Goddard and Simm, 2017). Several kinds of management accounting reports are given as below:
- Budget report: It is considered as the most important report that supports managers in identifying cost of various activities and taking actions to minimize wastage. Managers evaluate expenditures of previous years and estimate budget for the current period. It helps in reducing the cost and improving profit of company (Christ and Burritt, 2017).
- Job cost report: It is another essential report that is required to be prepared by Tech (UK) limited. It calculates all job costs that are incurred in the business. This report helps the managers in evaluating profitability and optimising efficiency of operations.
Importance of presenting information appropriately
It is important that the information is presented in a well-defined manner so that adequate amount of information can be generated by the stakeholders through the same. It helps in providing better understanding regarding the subject