This unit is based on management accounting functions which are executed by management accounting officer of Austin Fraser by using marginal and adsorption data.
- Demonstration of understanding of management accounting system for Austin Fraser.
- Application of various management accounting techniques such as marginal and adsorption costing.
- Explanation of various planning tools which are used in management accounting by Austin Fraser.
- Comparison of way in which Austin Fraser is responding to their financial problems.
Management accounting is an essential process that helps in formulation of important financial information that is carried out in particular business structure. The management account plays a essential role in this regard as they have to perform all these operations in effective and efficient manner in order to accomplish final goals and objectives of the company. Every business organisation have to operate in dynamic environment which keeps on changing with time and thus companies have to keep in pace with these changes. Management system have to inculcate modern and advanced technology system which will results in carrying out the work process in adequate way. The company selected in this report is Austin Fraser, an international recruitment consultancy that imparts that services related digital technology, automation, life sciences and many other. The report highlights the various types of management accounting as well as benefits of it which is enjoyed by the business organisation. It also focuses on usage of marginal and absorption costing.
TASK 1 P1 Management Accounting and its different requirement.
Management accounting is the dynamic system that is adopted for maintaining important financial statements like balance sheet, P&L account and other important components. These components help in finding out the profits and loss for particular financial year hence, proper steps could be taken so that management accounting process could be performed. These preparation of financial statements helps in presenting information about financial position of the company in accurate manner (Albelda, 2011). There are several tools that is introduced in business organisation in order to plan the whole system in prospective way. In order to furnish financial condition it is necessary for the financial manager of Austin Fraser to present financial information in effective way so that proper results can be calculated. These statements delivers the information regarding sales volume, cash, inventory level, stock and many other activities. On the other hand, these information are materialistic in nature that contain some aims and objectives to be achieved hence are known as financial information. It uses can be determined on three key areas of business which are discussed below: '
- Performance management: management accounting is directly linked with managing performance of individual that are working in single business organisation. On the other hand, it assist in enhancing skills and knowledge of every employees so that they could contribute to best of their abilities and capacity (Vakalfotis, Ballantine and Wall, 2013).
- Strategic management: Strategies are formulated for achieving the future tasks of the company so that ultimate goals which were framed get accomplished in effective and efficient manner. Therefore, Austin Fraser will require financial and non financial information to come to its conclusion and form proper strategies for the company. It is essential to manage strategies in strategic manner so that it outcomes could be determined (Arroyo, 2012).
- Risk management: Risks are considered as part and parcel of every business organisation and it is of different nature and types. There are proper system that is framed to face all these types of risks in proper manner so that effective results can be accomplished. For example, management have to maintain adequate inventory level in their system so that proper resources could maintained at significant level in order to meet demand and supply process. There some risks have to be faced and some can be ignored therefore, it is necessary to maintain risk level and evaluate its impacts according to it and take steps to face it.
Different types of management accounting system that is prepared in Austin Fraser organisation and are as follows:
- Cost accounting process: This system is focused upon controlling cost of the company in order to ascertain the profits and valuation of inventory that take place in the organisation system. It is very much useful to carry out this procedure in effective way. The financial manger introduce effective costing system so that overall cost could be ascertained (Suomala, Lyly-Yrjänäinen and Lukka, 2014).
- Inventory accounting system: In this accounting, inventory management is performed at significant level. Austin Fraser have to carry out this process so that proper inventory system could be maintained. This company have introduced inventory control software that keep a full record on the stock level so that no wastage could occur and there is no proper utilisation of resources that take place (Becker, Messner and Schäffer, 2010).
- Managerial accounting: This accounting system is maintained on order to take decisions in relation to managerial accounting. On the other hand, it also involve taking proper decision in relation to improving overall operation and working procedure.
- Job costing system: It is a type of cost that is incurred while carrying out various job process. There is proper system that is generated in order to perform all job responsibilities in accurate manner. Every organisation is having different types of job of various nature and types, therefore it is essential to consider this job costing system in order to present overall information in proper format (Parker, 2012).
- Profit maximization system: Every business organisation exists for earning huge profits in the form of high outcomes and revenues. Their main objective is to increase their profits so that final results could be achieved. On the other hand, it is also important for the Austin Fraser, which is a small organisation have to adopt several tools and techniques so that optimum profits can be attained.
From the above discussion, it has been concluded that management accounting is a proper system that complete financial information could be ascertained that results in carrying out the work process in adequate way. The other aim for this process is that it also Austin Fraser to achieve set objectives and aims in efficient way. There are several requirements for management accounting that has to be fulfilled in efficient way so that the final vision and mission could be met out. Austin Fraser have to inculcate the managerial system in order to meet its requirements in effective and adequate way.
You may also like:
Improving Poverty and Access to Healthcare
P2. Different methods used for management accounting reporting
Management accounting reporting is an essential process that has to be involve number of interrelated activities and has to be performed in for carrying out the whole work process in reaching the set objectives and aims. There are number of methods that are utilized for management accounting reporting in Austin Fraser and is described below as follows:
- Account receivable accounting system: in accordance to this system proper inventory system is maintained by the business organisation (Bennett, Schaltegger and Zvezdov, 2013). This accounting record involve recording of all receivable that is done by the Austin Fraser from customers in the form of process, consideration that is the form of money, kinds that assist in maintaining the cash process in proper way.
Use: This system help Austin Fraser to keep record of every transactions that is related to their customers in relation to amount that is needed to acquire from the customers as well as amount that have to be achieved from their consumers. Hence, weekly record has to be maintained in correct order that will supply proper information to the management system of the company (Otley and Emmanuel, 2013).
- Budget reporting system: Budgets are formulated in order to maintaining record of all cost that has been allocated in different sections that are present in single business organisation. Budgets helps in forming standard level so that actual level can be compared with it and any deviation that occur must be solved in proper time.
Use: As being a small scale organisation Austin Fraser have to make optimum utilisation of all funds in proper way so that best utilisation can take place. There are several uses t hat are attached in budgets formation.
- Performance reporting system: It is very important to record the performance level of every employees that are working in the company. This is very much important as it helps the manage to keep record of performances of every individual and find out the key areas that require improvement (Van der Meer-Kooistra and Vosselman, 2012). As employees are known as important resources of Austin Fraser in order to align their personal objectives with organisation's final aims so that it will help the company to reach set targets in particular time period. It is very much important to keep record of performance of each and every individual so that problems is it there, can be solved.
Use: This is a important system that is applied in Austin Fraser as it is a consultancy firm that employee large number of employees and proper system must be introduced to carry out the whole process in efficient manner so that final goals can be achieved.
- Job cost reporting system: This type of report is formed by the manager of Austin Fraser in which all expenditures that are incurred by the company while carrying out certain plan of actions that may include carrying out some particular project or performing some particular activity in order to accomplish set goals and objectives. Therefore, manager have to maintain this process in efficient way so that proper evaluation of procedure can be done. Firms always aim in introducing cost effective techniques that will allow the organisation to reduce overall cost at significant level (Macintosh and Quattrone, 2010).
Use: manager of Austin Fraser keeps a complete record of all job cost in correct format so that they could identify profitability and other conditions that may arise in the particular financial year. On the other hand, he always aims in earning high amount of profits and outcomes so that time and cost could be focused on optimum utilisation.
- Accounts payable reporting system: It is completely opposite of accounts receivable in which all details regarding payments that has to be maintained which focuses on making payments to the particular supplier from the goods and products are purchased. Hence, this enable the manager to keep complete records in efficient manner so that no problems could be raised while carrying out the complete work process.
Use: Austin Fraser have a proper accounting system that is maintained in order to keep complete information and details regarding accounts payable service provider. This helps them to maintain proper payment system so that complete work process must be conducted in performing whole work structure in accurate mode. Financial manger maintains proper books of accounts that contain all details regarding credits and other parties to whom payment have to be done.
From the above discussion, it has been concluded that there are different methods that are adopted in order to keep the record of management system so that it could deliver proper information and details regarding financial and non financial aspects that is consider to be indispensable in fulfilling final set tasks and objectives.
TASK 2 P3 Calculating cost with Absorption and marginal cost.
Mainly there are two costing method which is used by the management of Austin Fraser, so that they can calculate the different cost and with the help of such income statement can be made. Basically, those two method are as marginal and absorption costing (Bodie, 2013).
Marginal Costing: It is being considered as the opportunity cost which is incurred in firm by having an production of one or more unit in effective way. Moreover, various changes are there in production which is due to the increase and decrease in unit as well. Generally, it is such which is used by break even point that is accounted and also attained. Hence, Cost is that which is absorbed and also having an variable cost too. Even though, it is such which do help in allocating the different resources as well and having an achievement in effective way. Therefore, it can be used by determining the marginal costing and also lead to have an change of cost and in quantity too. This costing helps in finding out the relation that exist between inputs and costs that have to be properly considered.
Absorption costing: It is considered as having an necessary in having an costing method and it is used by company Austin Fraser. Basically, it is used to calculate the cost that is incurred by the production in the department and also include the direct and indirect expenses too. Basically, direct cost is that which leads with direct connection related to the production of product as well, with raw material and labour cost etc.. Moreover the indirect cost do consider the various expenses that is incurred indirectly and also support the production of product too (Boyns and Edwards, 2013).
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
Fixed cost £3
Working 2: Calculate value of inventory and production
Opening inventory Production amount Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: Under/ Over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration cost: In this budget cost the £800 and Actual cost is £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using Absorption costing
(-) Cost of Sales:
(Under)/ Over absorbed fixed prod. O/h
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure