Management Accounting For Financial Statements: Methods And Tools

Management Accounting and its Essential Requirements

Management accounting information is used by the managers to formulate the strategies and identifying whether the financial performance of company is good or not. This report focuses on the critical discussion on the management tool its methods and tools to evaluate the performance of company. The different types of management accounting system and its essential requirements have been analyzed.  The application of the management accounting is also done.

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The management accounting information is used to evaluate whether company has adequate resources to implement proper business decision. There is management accounting information system that has been used to evaluate the busienss financial system of organization (Chiarini, & Vagnoni, 2015).

This system is used to evaluate the cost of the process and valuation of the particular products and services in busienss. The main purpose of this system is to identify the costing of the each process and strengthen the overall quality of the busienss (Chiarini, & Vagnoni, 2015).

It is the system or method to control the flow of the inventory in the busienss process. It helps in accurately identifying the inventory level, minimum and maximum stocks and economic order quantity to place order. The benefit of this system is to strengthen the bottom line and accuracy of the inventory management (Nishimura, 2013).

It is the system of allocating the cost to the individual items or batches of the products.  It is used to assign the individual cost of the products based on the process cost. The job costing system is used to identify the costing of the process based on the identified cost incurred for the particular products and services. This method also uses the activity based costing method to absorb the cost of the products in different process of the Organizaiton.

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It is the system to determine the price of the products and how the client will react with the changes in the price of the offered products. It discovers the best optimum price for the offered goods in market.  If company could use this system effectively then it will not only assist in determining the right price for the products but also helps in strengthen the overall business outputs in effective manner.  This will allow in determining the costing and pricing of the products which company would have from its sold goods and services in market.

There are several principle of the management accounting system which needs to be followed by the organization if it wants to prepare the proper accounting sheets and statements in its books of accounts. An explanation of the principle of the management accounting could be given for evaluating the management accounting information. The management accounting provides all the information that is needed for making decisions in the organization. The principle also identifies all the information that are related to present, past and future including the data that deal with financial and non- financial.  The main reason for developing the management accounting principle was because the internal department in the company needs all the information for making the better decision, forming the customer base and utilization of the resources that are present in the company. The management accounting has two principles that are: (a) principle of causality (b) principle of analogy (Nishimura, 2013).

Methods for Management Accounting Reporting

The management accounting analysis the internal information received via financial accounting and used for the controlling, planning and comprising the balance sheet, income statement and other cash flow report of company (Drury, 2015). The different types of management accounting systems and essential requirements have been analyzed to showcase the financial information of company.

There are several methods for the management accounting reporting

Cost reporting

It is the reporting of the cost of the items calculated in the busienss. It is based on the cost of the labour, raw material and other process costing. It is used by the manager in evaluating the cost and benefit analysis of the products (Chiarini, & Vagnoni, 2015).

Budget

It is the statement which reveals the estimation of the expense and income of the products and services offered in market. The mangers use this budget to formulate the strategies and busienss strategic plans (Otley., 2016).

This performance report is prepared to evaluate the estimated budget performance of company with the actual performance. It is used by the managers to make the effective strategic plans based on the identified budgets (Appelbaum, and Kogan,  2017).

This are the report which are prepared to records all the financial records and data which company will book with a view to showcase the financial performance of company. It is accompanied with the balance sheet, profit and loss account, cash flow statement of company (Edmonds, and Olds, 2013).

This is the report which is prepared to identify the cash inflow and outflow from the busienss. However, in order to identify the present value of the cash inflow and outflow, we could use the discounting factors which will assist in evaluating the financial performance of company in long run.

The computation of the cost is done by using the marginal costing technique  (Klychova, Faskhutdinova, & Sadrieva, 2014).

  • Computation of the cost using the cost analysis marginal costing method
  • Contribution could be defined as differences between the sales and variable expense
  • The cost of each unit of cake under marginal costing method

Cost of the 10000 units

Calculated amount

Costing of the process per unit

Cost of the direct material =£50000

50000/10000

£50

Costing of the direct labour = £30000

30000/10000

£30

Variable overhead =£20000

20000/10000

£20

Marginal cost per unit  Burger

£100

The above given table reflects the marginal cost per unit of the burger which is computed on the basis of the burger sold in market and variable cost associated with the same (Maskell, H., Baggaley, & Grasso, 2016). 

Use of absorption costing for the computing of the cost per unit

Cost of the 10000 units

Calculated amount

Costing of the process per unit

Cost of the direct material =£50000

50000/10000

£50

Costing of the direct labour = £30000

30000/10000

£30

Variable overhead =£20000

20000/10000

£20

Fixed cost =£40000

40000/10000

£40

Per unit cost of production

£140

These are the financial information which could be used to identify the cost and profit of the company. The above given table has helped in identifying the cost and benefits, contribution, and net profit of the company after selling the particular level of units (Maskell, Baggaley, & Grasso, 2016).

For the period ended 30, June 2017

Particulars

Units

selling price £ per unit

 value in £

Sales

10000

25

250000

Less: marginal cost of goods

Material costing

10000*50 =50000

Labour Costing

10000*30 = 30000

Variable expense costing

10000*20 =20000

Total marginal costing

£100000

100000

Contribution gross

150000

Reduced with the other expenses

30000

Net contribution per unit

120000

Reduced with the fixed cost

Fixed overhead expenses

40000

Fixed expenses.

30000

70000

Net profit

50000

Cost Analysis Techniques for Income Statements

The formulation of the income statement of the XYZ Company has been done on the basis of the assumption made and hypothetical of the data collected. This shows the net profit, contribution per unit and breakeven point of the business (Nishimura, 2013). This has allowed company to determine the break-even point and the point at which company will have profit from its business (Stafford, & Karszes, 2017).

Conclusion

After analysing the all the management accounting information and other details it could be inferred that company should focus on using the proper costing method and reporting to lower down the complexity in determining the cost of the process of the organization. The cost and benefit analysis is the best method to determine the contribution per unit, fixed cost expenses and net profit earned by company throughout the time. It is analyzed that if company could use proper methods then it will not only strengthen the overall busienss functioning but also help in lower down the business complexity in effective manner. The management accounting information shown in the busienss report should be accurate and tested with the proper graphs, charts and tables. This management accounting information is the best method to identify how company has been performing and where company needs to work in order to strengthen its busienss process.

References

Appelbaum, D., & Kogan, A. (2017). Impact of business analytics and enterprise systems on managerial accounting. International Journal of Accounting Information Systems, 25, 29-44.

Chiarini, A., & Vagnoni, E. (2015). World-class manufacturing by Fiat. Comparison with Toyota production system from a strategic management, management accounting, operations management and performance measurement dimension. International Journal of Production Research, 53(2), 590-606.

Drury, C. (2015). Management and cost accounting (9th Ed.). Australia: Cengage Learning.

Edmonds, T., and Olds, P. (2013). Fundamental Managerial accounting Concepts (7th Ed.). Maidenhead:  Australia:McGraw.

Klychova, G. S., Faskhutdinova, ?. S., & Sadrieva, E. R. (2014). Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), 79.

Maskell, B. H., Baggaley, B., & Grasso, L. (2016). Practical lean accounting: a proven system for measuring and managing the lean enterprise. Australia: Productivity Press.

Nishimura, A. (2013). The Control Functions of Accounting and Management Accounting. Management Accounting, 11-22. Seal W. (2014). Management Accounting (5th ed.). Maidenhead: McGraw – Hill. 53(2), 590-606.

Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Australia: Routledge.

Stafford, D., & Karszes, J. (2017). Precision Management for your Accounting System. Australia: Pearson.