Managerial Accounting and Essential Requirements of Tech Limited
University: UK College of Business and Computing
Question :
- Explain managerial accounting and its essential requirements.
- Presentation of financial information using managerial accounting report.
- Prepare income statement using marginal and absorption costing.
- Explain the different types of budget and its tools along with its importance.
- Evaluate how management accounting can be used in dealing with financial losses.
Answer :
INTRODUCTION
Management accounting is a process which prepares the reports assigned by the managers and accountant and it helps to provide timely reports and accurately in short time period as well as long time period. This report show how the budget helps in making the report accurate. In this there are many other approaches are also given which help to make good and better decision and achieve the goals to run company faster. It also depicts the different budget and how they help to make business or the company run in better and fast way (Ax and Greve, 2017).
TASK 1
Discuss the difference between the management accounting and the financial accounting
- Basic
- Financial Accounting
- Management Accounting
- Purpose
- Show financial position
- Helps in decision making
- Requirement
- Compulsory
- Optional
- Primary Audience
- External like investors, regulators, tax authorities
- Internals like management and decision makers
- Focus
- On past transaction
- Decision make for the future
- Scope
- Widen and broaden the company
- Narrow per segment product etc. as needed
- Reports
- Summarize the reports about the financial position
Show detailing report related to the information
- Information
- Monetary only
- Monetary and non monetary both
Time Phrase
- Statements are prepared at the end of financial year
- According to the need of management
2. Importance of Management Accounting
As management accounting is very useful in small a well as big firms. In Tech limited company also . The main importance of management accounting is that it help in decision making which help to achieve the future goals and run the company in better way. we can see that in small business the owners and managers are faced many decisions every day and by the use of management accounting the information which we use in our operations are converted and produce repo main importance of management accounting rare which help in maximises the profit and greater competitive advantages. Management accounting always help to determine the aim of the company as it clears that what our company needs and find the route through which it can reach the goal. If the owner make easy to take the judgement and helps in several plans and policies.
3. Cost Accounting System
Cost accounting system is mainly used by the firms to know the rates of the product and to show the profit, stock valuation and controlling of the cost.
Actual Cost Accounting: It records the product cost which include actual price of material, actual cost of the workers, actual expenses incurred during distribution of the product.
Normal Cost Accounting: It is used to derive the price of the product. This show the direct cost of a product as well as standard rate too.
Standard Cost Accounting: It shows the difference between the expected cost and the actual cost . Standard costing involves the creation of estimated cost for some or all the activity .
4. Inventory Management System
Inventory management system is the running process of moving products into and out of the company's location. Tech limited also manages their inventory on the basis as the order is place and ship order out to customers. It tracks the product that where it is go and where is the need of that product, whether the product is in good condition or not and lastly the product is actual in the destination point or not.
5. Job Costing System
A Job costing system is sum up the information related to the cost which related to the particular product. It needs three type of information like related to direct material,direct labour, and overhead . Once if the job has been completed a the system should be close to set the job costing otherwise strong loss will be face by the employees and managers too and to attract the employees they should be charge overhead according to the need . (Cooper, Ezzamel and Qu, 2017).
b)
1. different types of managerial accounting reports.
Lets summarize them :
Budget report : In Tech Limited company the budget report is mainly use as it show whether the company has enough budget to spend or not so its necessary to present the report . Budget report can be make weekly, monthly its all depend on your expenditure only. The owner and the managers of the Tech limited company can also use budget reports to provide incentives to employees. If the managers or the owners cannot find method to trim the cost, future budget may be increased and the company may be in loss. So proper budget report should be made.
Job cost reports: the another report is Job cost report, it help in show the expenditure for a particular project finance by the company and then they match with an knowing value so can evaluate the profitability of the company. Job cost reports analyses that particular project whether it is in progress side for the company or not.
Inventory and manufacturing: Tech Limited also present report of their inventory and manufacturing products. As it is necessary to know the exact amount of selling and manufacturing of their product and what is the process of their product during shipping, warehousing and retailing. This reports shows the item such as inventory waste, timely may be hourly or weekly labour cost or overhead cost.
Financial Reports: These reports are made at the end of the financial year because the overall transaction during the year can be seen by this report only. Under this report each head is shown and number of categories shown in the profit and loss account and balance sheet and by this report only owner can finalize to show the company actual financial report.
2. Importance of presence of information
Yes, the presence of the information is quite important. Because making the reports complex will slows down your reputation and takes your too much time of understanding . Its just requires t disclose the information systematically instead of presenting it in complex form. The reports should not be in rigid form. As only single reading person can understand it quickly and use of numbering should be must and calculation should not be in tough method as ine takes too much time to solve it (Zhou, 2017). The transaction and accounting which show in the last financial statement should be in easy and understandable form . The user should have the level of knowledge related to the business and and in general they should be create the willing to use more and more data. (Covaleski, Dirsmith and Samuel, 2017).
TASK 2
Preparing income statement considering absorption and marginal costing system
Profitability statement as per absorption costing method
TASK 3
a. Different kinds of budget
There are many types of budget which Tech Limited company used , some of them are as mention below:
Cash Budget: cash budget determines whether the cash inflow is on timely basis or not and it managing the working capital of the business. It has both advantages and disadvantages
Advantages are:
it help in minimizing the cost and maximize the profit .
It help to coordinate the activity of all the department
it help to improve the communication power and establish the relation between the employee and the staff.
Disadvantages are:
its success only depends on the cooperation of the staff and the employees.
Its quite expensive to handle a cash budget.
It can take a long time to achieve the goals.
2. Master budget: the master budget is the sum of the company's budget which include the cash fund of different firm with different activity. (Németh and Németh, 2017). It is affected by the different factors such as : sales, working capital, operating expense, income source etc.
Advantages are:
it gives a complete scenario of the company in single budget.
It identify the problems and plan ahead.
Disadvantages:
it is lack of specificity which means that company would not be ale to determine the spending during the month.
It is difficult to read and update because of many categories and numbers that are include in the budget.
3. Static Budget: static budget will be stable throughout the year such as sales volume and revenue ratio ,change in its fixed budget.
Advantages are:
it is so easy to execute and then to follow.
No need to update it regularly..
This budget allow the company to see that it might be overestimating and underestimating.
Disadvantages are:
it lack of flexibility.
It cant provide any additional resources to help
the impact may be negative for the company's revenue stream.
b.Budget preparation process
In Tech Limited company the budget preparation process include or use to determine of pricing and different costing system. As the budget assumption needs to be update and then see the whether the fund is available or not and and select the growth of the revenue . It creates the budget package also and then issue the budget package then it obtain the capital/cash budget request ,it examine the capital budget request sent by the budget package and forward it to senior management team .then the team update it and then review the budget and highlights the mistakes and any limitation caused by the funding problems (Modell, 2017).then the team issue the budget and then load the budget into the financial software, so that the company can create the budget into the actual reports and this is the way budget preparation help in pricing the sale and volume level and different costing system.
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