Pearson

Higher Nationals in
Business
ASSESSMENT BRIEF
Unit: • 5 Management Accounting

Student Name/ID Number

Unit Number and Title Unit 5 Management Accounting
Academic Year 2018
Unit Tutor Maryam Ayub
Assignment Title Management Accounting Principles
Issue Date 18-07-2018
Submission Date 30-12-2018
IV Name & Date HatifRoohanChishti
Unit Learning Outcomes
LO1Demonstrate an understanding of management accounting systems
LO2 Apply a range of management accounting techniques
Assignment Brief and Guidance
Scenario
You are a Qualified Management Accountant from institution of cost and management
accountant of Pakistan (ICMAP). You are hired for the position of Manager costing of Khan
Private Limited a new manufacturing company that is producing Plastic pet Bottles.
Company has its Plant in Lahore two thousand workers and operational staff is working in it,
companies major clients is Pepsi cola and Coca-Cola Pvt multinational Companies. Company
is producing on mass production, being a manager costing it is your responsibility to manage
all production process calculates cost of production and supply chain issues. Being a Costing
manager it is your job responsibility to recognize importance of costing for company decision
making and introduce different costing methods for analysis.
Being a subject specialist you will perform all costing and managerial duties and recommend
better solutions to company for better profitability and cost cutting techniques. CFO of khan
Pvt requires a document in which you will discuss following points.
Note:
Make sure all the requirements are relate to the have scenario in a suitable
manner

Note: All points will cover LO1&LO2( P1,P2,P3 M1,D1 and D2)
1. As a manger need to discuss the management accounting and give the essential
requirements of the management accounting system in your company?
Solution:
Management Accounting
Management accounting is a profession that involves partnering in management decision
making, devising planning and performance management systems, and providing expertise
in financial reporting and control to assist management in the formulation and
implementation of an organization’s strategy. Management accounting, also called
managerial accounting or cost accounting, is the process of analyzing business
costs and operations to prepare internal financial report, records, and account to aid
managers’ decision-making process in achieving business goals. In other words, it is
the act of making sense of financial and costing data and translating that data into
useful information for management and officers within an organization.

Cost accounting system

Cost accounting system is the framework applied by the corporation to
approximate the cost of its products for inventory valuation, profitability
analysis, and cost control. In the cost accounting system allocation of cost is
performed based on either activity-based costing system or traditional costing
system. Approximating the actual products’ cost is crucial for effective
functions. Cost accounting is the kind of accounting system whichaims at
capturing the corporations’ production cost through weighing the inputs costs of
every production step plus fixed costs like capital equipment depreciation. Costing
system will individually measure and record the costs then comparing of inputs
outcomes to actual results or output to assist management of the company in
measuring financial performance. Business managers rely on accounting data in
general and specific on cost since any task of the company may be explained via its
cost. Cost accounting is seen as the key concept in management accounting as it
offers the analytical tools like budgetary control, marginal costing, standard costing,
operating costing and inventory control which are applied by management in
discharging their reproducibility efficiently.
Inventory management
Inventory management refers to the method of controlling and overseeing the
ordering, use, and storage of components which the corporation applies in the
production of the goods it sells. Inventory managing system combines the application
of barcode scanners, desktop software, mobile devices and barcode printers to
streamline the inventory management such as consumables, goods, stock, and
supplies. Also, it is the practice of controlling and overseeing of quantities of the
finished goods for sale. The objective of inventory management is to accurately
understand present inventory levels and minimize overstock and under stock
situations. Through efficient tracking of quantities across the stocking location,
managers will have insight and be capable of making sufficient inventory
decisions. The inventory of a business is one of its key assets and accounts of the
investment which is tied up to the products sells.

Job costing system

Job costing refers to the system of allocating manufacturing costs to the individual
item or batches of the products. It is applied if the goods processed are different from
one another. It involves the practice of accumulating data on the costs related to a
particular service or production job. The information can be needed to submit cost
data to a consumer under the contract in which costs are refunded. Also, the
information is important for determining the accuracy of the estimating system of the
company that must be capable of quoting prices which permit for a reasonable
income. The information may also be applied to assigning inventorial costs to
processed products. The job costing system requires accumulating the following
three kinds of direct information labor, direct materials and overhead.

Price optimization systems

Price optimization is the use of mathematical analysis by a company to determine
how customers will respond to different prices for its products and services through
different channels. It is also used to determine the prices that the company
determines will best meet its objectives such as maximizing operating profit. Price
optimization refers to the application of mathematical analysis to the corporation to
determine how consumers will react to various prices for their goods and services via
different channels. Discovering an alternative via the highest achievable
performance or cost effective under the provided constraints through maximizing
desired aspects and minimizes the undesired ones.

Performance reports
Management accountants apply budgets to comparing actual revenues and
expenditures to the budgeted amounts. The differences computed are evaluated
when shaping new budgets plus all information concerning the amounts is listed on
the performance report. These reports are computed each year, but some
corporations establish them quarterly or monthly. The reports assist managers in
planning for the future demands in production and cost increases.

Budgets: One of the key elements of management accounting is budgets

preparation. Budgets are established through applying budgets of prior years and
adjusting them to future forecasts. The budgets of a company list all expenses and
revenues sources. The corporations attempt to attain its objectives and goals
whereas staying within the budgeted amounts. The managers consider new vendors
to employ as raw materials suppliers’ to save money. They also look for means of
increasing sales while reducing expenses.

Cost Reports: Management accounting calculates costs of items manufactured.

It is done through taking the entire raw product overhead, costs, labor plus
any extra cost in consideration. The sums are then divided into amounts of
goods produced. All of the data is summarized in the cost report. The report
permits managers the capability to view the cost value of products versus the
selling price. It assists the managers’ control and plans profit margins.

How I will apply the essential requirements in my company:

As a manager Of Khan Private Limited, I can apply cost accounting system in my

company in such a way that I have to be flexible when assigning operating expenses
and I have to be responsible for the planning, estimating, budgeting, financing,
funding, managing and controlling cost of the products. So that I can avoid going
over budget. Inventory management system aims to have the products in right
quantity and minimize overstock and under stock situations. With inventory system I
can minimize costs and maximize the sales of my products. Job Coating system can
be applied by in my company when a the employees makes products and to fill
customer’s orders. They complete the cost sheets for each order and the expenses
are then separated into 3 main categories. Which are direct material, direct labor and
manufacturing overhead. Price optimization basically utilizes data analysis to predict
the behavior of potential buyers to different prices of the bottles produced by khan
Private Limited. As a manager I have to go through the performance reports of Khan
Private Limited every 3 to 4 months which helps me in planning for the future
demands in production. It is beneficial for my company as it helps me and my
employees to set goals and work more collaboratively and ensure that our
expectations are set and met. Through budgeting I can make decisions on how to
move forward and by looking on my budget I can make plans for the future and tell
my employees about the material needs that will be required to manufacture the
bottles. One more important requirement of the management system is cost reports.
My company can take the advantage from the Cost reports and we get the most
useful information from the data and make changes for the future accordingly. We
can get to know about our profit we made and losses we went through and I can
keep my employees updated about the company’s condition. So they can put more
effort towards the targets and the goals we have set to meet.

2. As a manger of costing need to evaluate the role and benefits of the current management
accounting system and their application in your chosen organization?
Relate the role and benefits with Khan pvt limited
Solution:

Management accounting involves collecting, analysing and reporting information

about the operations and finances of a business.These reports are generally directed
to the managers of a business rather than to any external entities such as
shareholders or lenders. In management accounting the managers performs a series
of tasks to ensure their company’s financial security, handling essentially all financial
matters and thus helping to drive the business’s overall management and strategy.
Management accounting applies both real information and estimated data to help
managers in daily operations and planning for future operations and deals with
specific issues faced by managers at various levels of the business. Managers are
key figures in determining the status and success of a company.
Some of the roles of of management accounting system are listed below:

 Planning:This step involves mapping out exactly how to achieve a particular

goal. Say, for example, that the Khan Private Limited’s goal is to improve
company sales. The manager of khan Private Limited first needs to decide
which steps are necessary to accomplish that goal. These steps may include
increasing advertising, inventory, and sales staff. These necessary steps are
developed into a plan. When the plan is in place, the manager can follow it to
accomplish the goal of improving sales of Khan Private Limited.
 Organising:After a plan is in place, a manager if Khan Private Limited needs
to organise his team and materials according to his plan. Assigning work and
granting authority are two important elements of organising.
 Staffing:After a khan Private Limited’s manager discerns his area's needs, he
may decide to beef up his staffing by recruiting, selecting, training, and
 developing employees. A manager in Khan Private Limited often works with
the company's human resources department to accomplish this goal.
 Leading: Khan Private Limited’s manager needs to do more than just plan,
organise, and staff his team to achieve a goal. He must also lead. Leading
involves motivating, communicating, guiding, and encouraging. It requires the
manager to coach, assist, and problem solve with employees of Khan Private
Limited.
 Controlling:After the other elements are in place, a manager's job is not
finished. He needs to continuously check results against goals and take any
corrective actions necessary to make sure that his area's plans remain on
track.It is an important function because it helps to check the errors and to
take the corrective action so that deviation from standards are minimised and
stated goals of the Khan Private Limited are achieved in a desired manner.
 Decision Making:Being a successful manager depends on taking
responsibility as a leader, and one of the duties of a leader is to make
decisions. If khan Private Limited’s manager makes good decisions so it can
influence morale, for good or ill.In every function performed, role taken on,
and set of skills applied a manager is a decision maker. Decision making
means choosing among alternatives. Decision making occurs in response to
the identification of a problem or an opportunity.
 Determining the amount of profit or cash flow that a Khan Private Limited
makes from selling plastic bottles.
 Calculation the mix of contribution margin and unit volume at which a khan
Private Limited exactly breaks even, which is useful for determining price,
points for products and services.
 Assisting in designs of new products by accumulating the costs of new
designs, comparing them to target cost levels and reporting this information
to management of Khan Private Limited.
 Determining the direct costs of cost of goods sold and inventory items as well
as allocating over head costs tot these items.
 In management accounting managers of Khan Private Limited also assist in
decision making process.
 The main objective of management accounting is to control the actions which
is done in the khan Private Limited according to the plan.

Benefits of the current management accounting system:

Formulate financial strategies:Management accountants of Khan Private

Limited can formulate financial strategies using sales forecasts, budgets and
job casting techniques, among other managerial costing tools. They also can
incorporate data from a khan Private Limited’s financial statements to develop
strategies that enhance gross income, net profit and earnings per share.
Whether its formulating a plan to purchase capital equipment or reduce
operating costs to ensure the continued viability of the khan Private Limited’s
 management. Management accountants serve a vital role in formulating
effective financial strategies.

Explain financial consequences of decisions: If senior leaders adjust

khan Private Limited’s capital structure, management accountants can explain
the ramifications of adding additional debt or equity financing. This is true of
other decisions such as merging with other companies, opening new
operating facilities or laying off large numbers of employees. They can explain
how decisions impact budgets and financial statements, illustrating how
decisions change a khan Private Limited’s profit or loss for a given period of
time while some business decisions may sound good, its only when digging
into the numbers when a khan Private Limited finds whether they truly add
up or not.

Monitor expenses: Management accountants can create static, flexible or

rolling budgets, along with other types of reports that allow senior leaders
and department heads to monitor expenses. This is important because
operating expenses have a direct impact on bottom line profit. Management
accountants can select the optimal budgeting technique, given the specific
needs of their stakeholders and help khan Private Limited run as cost
effectively as possible. They also can create ad-hoc reports that makes it
easier for their stakeholders to understand the nature of the expenses khan
Private Limited incur.

Maintain profitability: There are many tools management accountants can use to
keep Khan Private Limited profitable, including performing a break even analysis.
With this type of analysis the accountants weigh sales against variable and fixed
costs to determine a point at which a khan Private Limited breaks even. Knowing
this point will help management determine production levels, sales objectives and
over head costs, among other points impacting profitability. Also management
accountants can examine direct and indirect manufacturing costs, helping to
optimise a khan Private limited’s cost structure.

3. You need to discuss the methods used in a management accounting like financial reports,
receivable analysis, budget reports, breakeven reports, cost reports etc. in your chosen
organisation?
Again relation with scenario is missing in this requirement
Solution:

There are several methods which are used in management accounting, some of
them are listed below:
  Financial Reports
 Receivable Analysis
 Budget reports
 Breakeven reports
 Cost reports in
 Communicating
 Budgetary Control
 Decision Making

Financial Reports: It is the presentation of formal records of the financial activities

and position of a khan Private Limited, person or other entity. It can be a balance
sheet or statement of financial position. Relevant financial information is presented
in a structured manner and in a form which is easy to understand. It is primarily an
accounting function. A financial report is also known as income statement or profit
and loss report and it shows the khan Private Limited’s revenues and expenses
during a particular period. The purpose of the financial report is to show the
managers whether khan Private Limited made money or lost money.

Receivable Analysis: It is also known as ratio analysis which reveals the number
of days that an average customer invoice remains outstanding before it is paid. It
measures the money which a customer owes to a khan Private Limited for the goods
or services that has already been provided by the Khan Private Limited. Receivable
analysis are treated as khan Private limited’s assets on the balance sheet. as there
is a legal obligation for the customers to pay the debts and the khan Private limited
has the right to receive it as it has delivered its products or service to its customers.

Budget Reports: A budget report is an internal report used by management to

compare the estimated, budgeted projections with the actual performance number
achieved during a period. It is designed to compare how close the budgeted
performance was to the actual performance during an accounting period. The
budget report shows information such as general income and sales information,
fixed and flexible expenses and the net worth of the khan Private Limited including
assets and liabilities. The budget reports are mostly ready by the owner or the
manager of the khan Private Limited, they use the information to create the financial
plans that suits the limits of the budget in hopes of creating larger annual profit.

Breakeven Reports: The break even report is a tool that’s widely used across all
industries. In khan Private Limited its used to evaluate business performance in
terms of costs. It determines when the net profit generated exceeds the cost.
Breakeven report entails the calculation and examination of the margin of safety for
an entity based on the revenues collected and associated costs. It enables khan
Private Limited to measure profits and losses at different levels of production and
sales. Break even reports tells us at what level the investment must reach to recover
the initial outlay. It is a guide to help set the targets in terms of units and revenues.
It is also considered as a margin of safety measure. It also analyses the relationship
between fixed and variable costs.

Cost Reports: The cost reports provide cost accounting information in the khan
Private Limited. It can be fun as everyone likes to see the profits their hard work is
bringing in, or plan where to allocate the future funds for khan Private Limited’s
growth. The optimism and promise of a new report whether its monthly, annually or
yearly. On the other hand cost reports can also be very frustrating, especially if the
profits aren’t as large as expected or aren’t accurate. Cost reports can identify where
you are losing money. The employees of the khan Private Limited take the
advantage from the cost reports and get the most useful information from the data.

Communicating: The success or failure of the management is dependent on the

fact, whether the information is provided to the management of khan private limited
in the right form at the right time. The management accountant gathers data and
information from internal and external sources. They compile this information in an
appropriate format, structure and report it to the appropriate level of management
in khan Private Limited in timely manner. The management accountant will prepare
the necessary reports for providing information to the different levels of
management by proper selection of data to be presented.

Budgetary Control: Budgetary Control refers to how well managers of Khan

Private Limited utilise budgets to monitor and control costs and operations in a given
accounting period. It is a process for the managers to set financial and performance
goals with budgets, compare the actual results, and adjust performance as it is
needed. It is the use of the comprehensive system of budgeting to aid management
in carrying out its functions like planning, coordination and control. It is the
establishment to budgets relating the responsibilities of executives and the
continuous comparison of actual with budgeted results to keep the current
performance in line with the predetermined targets.

Decision Making: In management accounting decision making may be simply

defined as choosing a course of action from among alternatives, then no decision is
required. A basis assumption is that the best decision is the one that involves the
most revenue or the least amount of cost. Decisions which management of khan
Private Limited must make may be classified as marketing, production and financial
decisions. A primary objective of decision making is to achieve optimum utilisation of
the khan Private Limited’s capital or resources. Effective decision making requires
relevant information and special analysis of data

4. Critically examine the role of management accounting both their positive and negative
aspects and for your organization?
Solution:

Role of Management Accounting: Management Accounting provides relevant

information at each stage of management process. Management accounting
measures and reports financial and non-financial information that helps managers
make decisions to fulfil the goals of an organisation. Managers use management
accounting information to choose, communicate and implement strategy.
Management accounting focuses on internal reporting. The roles of management
accounting include collecting, recording and reporting financial data from several
units of an organisation, observe and analyse their budget and suggest their funding
and allocation. Management accounting’s main role is budgeting. For a small
company budgets are guide to all expenditures. Management accounting helps
managers make good decisions. It provides information about the cost of goods and
services, whether a product is profitable, whether to invest in a new business and
how to budget. The role of a management accounting is thus very crucial for a
firm’s well being. Their roles and responsibilities are so huge that even a single
miscalculation or underestimation of any business plan by a management accountant
can put a company’s future in danger.

Positive aspects:

 Increase efficiency of the company: Companies opt for managing

accounting as it increases the efficiency of the company in performing
operations. It contributes in striving for better performance by evaluating and
comparing. Management accounting makes it easier to achieve various
results. This indirectly motivates the employees to strive for better
performance.
 Increase the bar of profitability: Management accounting includes
budgetary control and capital budgeting. The use of this method makes it
easier for the company to cut short the extra expenditures for performing
vital operations. This indirectly increases the bars of profits for the company
as the company is able to reduce its piercing on the products.
 Simplifies the decision making in final statements: Managerial
decisions and other activities of management require simplified report of the
financial statement of the company. This enables the managing officers to
take up appropriate decisions for the betterment of the company.
 Cost transparency: In the corporate world the majority of the costs come
from the information technology (it). The work of the management
accounting in the firm is to work with the IT Department closely. This action
ensures with in budget actions and provides cost transparency to the
company.
 Flexible and freedom: A management accounting system is of a flexible
nature. These reports do not require to be made yearly, monthly or weekly.
Therefore the accountant gets enough time to prepare a perfect report.
  Marginal costing: Marginal costing is possible with the aid of a
management accountant. It fixes the selling prices of the products
manufactured in the organisation. It also recommends actions based on a
fixed cost, contribution and other extras. Although management accounting
do not promise perfect decisions, they don increase the chances of taking
effective and efficient decisions.

Negative aspects:

 Based on manually maintained records: Management accounting system

requires information related to financial and cost accounting. The records
prepared by management accounting officers are based on the maintained
records. Thus the efficiency of the records presented relies upon the accuracy
of the records that are maintained.
 Cannot recommend a particular action: Various alternatives for problem
solving are presented before the management. These alternatives can be
effective or non-effective. Management accountant’s function is to select any
one of the alternatives or toss out all the given measures. Thus management
can only select a certain action.
 Management accounting has its own limitations: Management
accounting system is merely a tool that facilitates the management
accountant in giving advice for decision making. However the implementation
of the actions that are advised depends upon the follow up action of the
management. Thus management accounting is limited to giving suggestions.
 Participation and efforts matter: A management accounting system is a
tool that provides a solution. However the way of applying that solution also
matters. Thus for better results giving full efforts and participation in the task
is required. To attain overall success it is important for all the employees to
give their full inputs.
 Not an ideal choice for small scale organisations: A management
accounting system is a very expensive tool, and it’s not a good idea for a
small scale organisation to use such a tool. Due to its high cost, it is not
suitable for low budget industries. In addition the utility of the system is
restricted to large scale and complex organisations.

5. Differentiate between cost accounting and management accounting?

Solution:

Cost accounting: Cost accounting is the systematic set of procedures for

recording and reporting the measurements of the cost of manufacturing
 goods and performing services in the aggregate and in detail. It Includes
methods for recognising, classifying, allocating, aggregating and reporting
such costs with standard costs. Cost accounting provides the detailed cost
information that management needs to control the current operations and
plan for the future. Cost accounting information is commonly used in financial
accounting, but its primary function is for use by managers to facilitate their
decision making.

 The recording classifies the cost data of an organisation is known as cost

accounting.
 Cost accounting only deals with quantities data.
 The objective of cost accounting is ascertainment to the cost of production.
 Cost accounting concerns with allocation distribution and accounting aspects
of costs.
 Cost accounting follows the specific procedures.
 Cost accounting mostly plans for a short term period.
 The scope of cost accounting is limited to cost data.

.
Management accounting: Management accounting is a profession that
involves partnering in management decisions making, devising, planning and
performance management systems and providing expertise in financial reporting
and control to assist management in the formation and implementation of an
organisation strategy. Management accountants look at the events that happen
in and around the business, while considering the needs of the business from this
data and estimates emerge. The primary source of data for management
accounting information is the organisation’s basic accounting system.

 The accounting in which financial and non financial information are provided
to the managers is known as management accounting.
 Management accounting deals with quantities and qualitative data.
 Management accounting objective is to provide information to managers to
set goals and strategies.
 Management accounting deals with affects and impacts of costs.
 Management accounting follows the specific procedures.
 Management accounting plans for short and long range.
 The management accounting has a wider area of operation like tax,
budgeting planning and forecasting.

6. Critically evaluate how management accounting and management reports integrated with
the organizations process and influence in major decision making in your chosen
organization.
Solution:
Management Accounting: The management accounting is that branch accounting which
deals with presenting and providing accounting information to the management in a
systematic way to facilitate the managers in the decision making and management controls
function that will allow them to be better equipped in their management and control
functions. So that it can perform its functions of planning, controlling and decisions making
in an effective and efficient manner. This means that management accounting goes beyond
the day to day tallying of finances and focuses more on forecasting and longer term business
decisions. Another key role is to help managers decide on the prices of products by providing
all the information regarding costs, market factors and profitability. Management accounting
is the practical science of value creation with in organizations in both the private and public
sectors. Management accountants combine accounting and financial expertise with strategic
insight to guide better business decisions. Management accountants are business
professionals at the heart of decision making, who “connect the dots” and recognize how the
different parts of the business need to come together to create value. Their understanding and
experience of business goes well beyond financial accounting.
How Management Accounting helps in decision making in Khan Private Limited:
Management accounting provides a data driven look at how to grow khan private limited. By
focusing on this data, managers of khan private limited can make decisions that aim to
continuous improvement and are justifiable based on intelligent analysis of the company data
as opposed to gut feeling. Management accounting involves providing information for
planning, controlling decisions making and the formulation of khan private limited policy and
strategy.
Management Accounting provides the answers to the following questions:
 What are future costs of khan private limited likely to be ?
 How do actual costs compare with the budge of khan private limited ?
 Is the Khan Private Limited achieving the objectives set by management ?

Management Reports: management reporting can be expressed broadly as reports that

management uses to run the organization, make business decisions and monitor progress.
Management Reports helps managers monitor the smaller details of their departments.
Employees submit management reports to their managers. Management reports range in
content and breadth. Management Reports contain financial and operational reports on a
small segment of the business. Management reports can also contain complex and involved
reports like accounts receivable aging or the operating budget. Management reports are a
form of business intelligence. Management reports contains performance data and analysis.
This is so Management can make decisions and advise other senior executives. Often these
reports include proprietary information and are for internal use only.
The Goal of management reporting is to:
 Measure and monitor specific performance metrics and KPIs.
 Understand your status, health and what you should do next.
 Determine benchmarks.
 Ensure better communication between stakeholders, colleagues and executives.
 Guide your next steps.
  Force you to have an action plan.
 Monitor performance frequently.

Importance of Management Reports in Decision Making In khan Private LTD:

Management Reporting plays an important role in khan Private Limited. It gives a
clear picture to executive teams about the financial health of Khan Private Limited
that if a company is gaining or losing but unlike management accounting,
management reports don’t provide much information to help them to understand how
Khan Private limited is performing at an operational level. With financial reports you
can even find out which areas of khan Private LTD need to be worked on and which
areas are strongest. Better availability of financial reports reduces uncertainty and lets
managers of khan Private Limited make decisions based on reliable data.

Manager Accounts of Khan Pvt ltd has given you following data of your company and asked
to find out following:
The volume and the corresponding total cost information of the factory for past
eight months are given below: Selling price of per bottle is Rs15.5
Month Units Cost
1 1,520 Rs36,375
2 1,250 38,000
3 1,750 41,750
4 1,600 42,360
Opening stock = 1000 units valued at Rs 70000 including variable cost of Rs 50 per unit.
Fixed cost = Rs 1,20,000 Variable cost = Rs 60 per unit Production = 10,000 units Sales =
7,000 units @Rs 100 per unit. Stock is valued on the basis of FIFO.

7. Use the high-low method to split its factory overhead (FOH) costs into fixed and variable
components.
Solution:
Steps of High-Low method:
 Identify the highest output level and its cost
 Identify the lowest output level and its cost
 Calculate Variable rate / Variable Cost per unit
 Total Cost fined + Variable cost

Formula: Variable Rate = Difference in cost

 Difference in output level

Variable Cost = Variable Rate x Output Level.

UNITS. COST
1: HIGH. 1750. 41750
2: Low. 1250. 38000
500. 3750
Variable cost = 3750 = RS 7.5/unit.
500.

Total cost = Fixed Cost + Variable Cost

41750 = ? + (1750 + 7.5)
41750 = ? + (13125)
47150 – 13125 = ( 28625 ) Fixed cost.

Total Cost = Fixed Cost + Variable Cost

38000 = ? + ( 1250 x 7.5 )
38000 = ? + 9375
38000 – 9375 = Fixed Cost
Fixed Cost = 28625.

8. Cost volume profit analysis how many units need to be sold to reach the breakeven level of
the company.
9. Compare Company income statement costing under marginal and absorption system of
your company with company data.
Present normal costing report standard costing and activity based costing reports and also
present role of costing for setting prices in KHAN private limited.
Company having the following information related to the next task of the variance analysis:

Standard cost per litre

Materials 600liters @Rs 45per litre
Labour 48000 hours @Rs 8per hours

Actual cost for the month

Materials 5900 liters @Rs 50per litre
 Labour 47500 hours @Rs 9 per hour

Solution:

Marginal Costing: It is a method of cost accounting and decision making which is used for
internal reporting in which only marginal costs are charged to cost units and fixed costs are
treated as a lump sum. Marginal Costing is a simple way to analyse cost data for the guidance
of management.It is also known as variable, direct and contribution costing. In marginal
costing only variable costs are used to make decisions. It does not consider fixed costs which
are assumed to be associated with the time periods in which they were incurred.
Marginal Costing Formula =
Direct Labor cost + Direct material cost + Variable Manufacturing overhead
No of units produced.

Marginal Costing is commonly used for:

 Automation Investments
 Customer Profitability
 Internal Inventory Reporting
 Profit Volume Relationship
 Outsourcing

Some of the benefits and advantages of Marginal Costing are:

 Cost Control: Marginal Costing makes it easier to control and determine costs of
production. The management can concentrate on maintaining and achieving a
consistent and a uniform marginal cost by avoiding the allocation of fixed overhead
costs.
 Simplicity: Marginal costing is way too easy and simple to operate and understand.
And it can also be combined with other forms of costing without much difficulty. E.g.
(Standard Costing and budgetary Costing).
 Short term profit planning: Marginal Costing helps in short term profit planning
and it can be easily demonstrated with profit graphs and break even charts.
Comparative profitability can be accessed easily and brought to the notice of the
management for decision making.
 Maximum return to the business: with Marginal Costing the effects of production
policies or alternative sales are more readily appreciated and accessed. So that the
management can ensure that the decisions taken will yield the maximum return to the
business.
 Accurate overhead recovery rate: This method of costing eliminates large balances
left in overhead control accounts, which makes it easier to ascertain an accurate over-
head recovery rate.

Disadvantages of marginal costing are:

 Classifying Costs: Its really difficult to separate all costs into variable and fixed costs
clearly. Since all costs are variable in the long run, hence such classifications
sometimes may give misleading results.
  Accurately representing profits: Since the closing stocks consists only of variable
costs and ignores fixed costs, this gives a distorted picture of profits to the
shareholders.
 Recovery of over heads: The problem of over or under recovery of over heads occur
with marginal costing. Hence variable costs are not apportioned on actual value but on
an estimated basis.
 External Reporting: Marginal Costing can’t be used in external reports. Which must
have a complete view of all overhead and indirect costs.
 Increasing Costs: Since it is based on historical data, Marginal Costing can give an
inaccurate picture in the presence of increasing production pr increasing costs.

Absorption Costing: It is a costing method that includes all the costs associated with
the production or manufacturing process. Such as Direct Material Cost, Direct Labor
Cost, Variable Manufacturing Overhead and fixed Manufacturing Overhead. In other
words the cost of a finished unit in inventory will include direct material, direct labor,
and both variable and fixed manufacturing overhead. As a result absorption costing is
also referred to as full costing or the full absorption method. The term “Absorption
Costing” means that all the company’s costs are absorbed by the company’s products.

Formula of Absorption Costing:

Direct labor cost + Direct Material Cost + Variable Manufacturing Overhead
cost + Fixed Manufacturing Overhead.
No of units produced

Some of the advantages of absorption costing are mentioned below:

 Absorption costing takes account of the fixed overheads that are involved in the
manufacturing process and includes them into the cost of the product, which presents
a more realistic cost of a product.
 The most suitable method for the purpose of preparation of accounts is Absorption
Costing.
 Absorption Costing shows an increased revenue of the company and decreased cost of
sales than the marginal costing especially when the inventory levels are rising.
 Absorption costing is knows as the best and simple way of costing for smaller
businesses as it makes calculations easier for such businesses.
 Absorption Costing is a suitable method for businesses which have a constant demand
for products.
Absorption costing also has some disadvantages which are listed below:
 Unlike marginal costing, absorption costing cannot be used as an effective monitoring
tool to evaluate profitability of the company.
 This method cannot be used for the purpose of planning or decisions making because
the cost of the product is based on both the fixed cost as well as the variable cost.
 With Absorption Costing it becomes difficult to do cost volume profit analysis.
10. Compute the material and labor variances of your chosen company?
Solution:

Material Variances:
 Material price Variance is that portion of material cost variance which is due to
the difference between the standard price of material used for the output
achieved and the actual price of material used.
Material price variance =(standard price – Actual Price )x Actual Quantity
=(49 – 50 ) x 5900
=(29500) ADVERSE

 Material usage variance is that portion of the material cost variance which is due to the
difference between the standard quantity of the material specified for the actual output
and the actual quantity of the material used.
Material Usage Variance= (standard quantity – Actual quantity ) x standard price
= ( 600 – 5900 ) x 45
= ( 238500 ) ADVERSE

 The difference between the standard cost of direct materials specified for production and
the actual cost of direct materials used in production is known as material cost variance.
Material Cost Variance= Standard Cost – Actual Cost.
= (29500+238500)
=(268000) ADVERSE

Labour variances:

 The labour rate variance indicates the actual cost of any change from the standard labour
rate of remuneration.

Labour rate variance= ( Standard Price – Actual Price ) x Actual Hours

= (8-9) X 47500
= 47500 ADVERSE
  The labour efficiency variance indicates the standard labour cost of any change from the
standard level of labour efficiency.
Labour efficiency Variance=
( Standard Hours x Standard Price ) – ( Actual hours x standard price )
= (4800 x 8 ) – (47500 x 8 )
= 38400– 380000
= (341600)ADVERSE
 The labour cost variance indicates the difference between the standard direct labour cost
of the output which has been produced and the actual direct labour cost incurred.
Labour Cost Variance=
( standard hours x standard price ) –( Actual hours x Actual Price )
= (4800 x 8 ) – (47500 x 9 )
= 38400 –427500
= 389100 ADVERSE.

Unit Learning Outcomes

LO3Explain the use of planning tools used in management accounting.
LO4 Compare ways in which organizations could use management accounting to respond to
financial problems
Assignment Brief and Guidance

Scenario
In your role of management accountant, your line manager gives a task to produce a report
which analyses the organization’s khan pvt limited use of planning tools to ensure financial
stability and performance as well as ways in which management accounting has played a key
role in preventing and solving financial problems. You are to produce a business report that
analyses the use of different methods used for management accounting and make
recommendations for which of these methods should be applied to achieve sustainable success.
Note: (all Below points will cover LO3&LO4 (P4, P5 M3, and D3 with practical company data)
1. Your manger gives a task to discuss the , types of budgets like capital and operating budget ?

Solution:
Budget: Budgeting is important for any organization. A budget is a financial
plan for a defined period. It may also include planned sales volumes and
revenues, resource quantities, costs and expenses, assets, liabilities and cash
flow. A budget is the sum of the money allocated for a particular purpose and
the summary of the intended expenditures along with proposals for how to
meet them. It is an estimate of income and expenditure for a set of period of
time. It can also be defined as a formal statement of estimated income and
expenses based on future plans and objectives.

There are several types of budgets, some of them are listed below:
• Sales Budgets: A sales budget is an analysis of company’s sales target
for a particular period. It provides an estimate of the volume of goods
and services that a company proposes to sell in a future period. Sales
organization have certain process or procedure for the preparation of
sales budget. Sales budget gives a detailed break down of estimates of
sales revenue and selling expenditures. Usually sales budget is slightly
lower than the sales. A sales budget predicts sales quantities and selling
prices to determine the amount of sales revenue the company expects to
generate and the likely selling expenses. Sales budget is the most
important budget based on which all other budgets are build up. This
budget is a forecast of quantities and values of sales to be achieved in a
budget period.

• Production Budgets: The production budget is prepared after the sales

budgets. It is the component of the operating budget that calculates the
number of units of products that must be produced during each budget period
to meet sales needs and to provide for the desired ending inventory. In other
words this is a report that estimates the number of units that a plant will
produce from period to period. Managers use this report as a planning tool for
future production process and ensures that it produces an adequate quantity of
goods. A production budget can be made on monthly, quarterly or yearly basis
and it is important to note that only a manufacturing business needs to prepare
the production budget. A firm can plan its raw material procurement strategy on
the basis of this budget.

• Material Budgets: The material budgeting calculates the materials that must
be purchased, by time period in order to fulfill the requirements of the
production budget. The materials budget show both the quantity and the cost
of direct materials to be purchased. It is typically presented in either a monthly
or quarterly format in the annually budget. In a business that sells products this
budget may contain a majority of all costs incurred by the company and so
should be compiled with considerable care. It is concerned with determining the
quantity of raw materials required for the production. A material budget ensures
no shortage of materials in the production budget.
 • Cash Budgets: A cash budget is an estimation of the cash flows for a business
over a specific period of time. These cash inflows and outflows include revenues
collected, expenses paid, loans, receipts and payments. This budget is used to
access whether the entity has sufficient cash to operate. Basically a cash budget
represents the company’s future cash position. The cash budget ensures that
funds will be available when needed. The cash budget is the last budget
prepared because all other budgets go into this budget. This budget is prepared
on a monthly basis and by doing so, a company can figure out any future cash
shortages before they even take place.

• Master Budgets: The Master Budget is a central planning tool that a

management team uses to direct the activities of a corporation. It combines all
types of budgets from all departments to create one large and comprehensive
snd detailed budget, that showcases the entire organization. A master budget is
a document that integrates all the individual budgets prepared by the different
departments with in a company. Sometimes it is misunderstood that master
budget is one large budget of the organization, however that’s not the case.
Intact master budget is a summary if the divisional budget. The individual
budgets that make up the operating and financial budgets together make up
the master budget. An organization is able to estimate its profit with the help of
the master budget.

I can relate all of the above budgets in Khan Pvt Ltd as following:
A sales budget gives an estimate to Khan Pvt Ltd on how much sales a company needs
to do, and this motivates the staff to work hard to achieve their targets. khan Pvt Ltd
uses production budget as a planning tool for future production process and it ensures
that the company is producing enough number of units products as mentioned in
production budget. This budget can be made on monthly quarterly or yearly basis.
Material Budgets teller Khan Pvt Ltd how much material needs to be purchased in order
to fulfil the requirements of the production budgets. Cash budgets helps the khan Pvt
Ltd by giving information about all the inflows and outflows of a company, such as
revenues collected, expenses paid, loans recipts and payment. This tells the company if
the if it has enough cash to operate. and this budget is prepared on monthly basis. then
comes the master budgets this combines all the budgets from all departments to create
one detailed budget khan Pvt Ltd is able to estimate its profit and losses that a company
has made throughout the year.
2.What should be the pricing strategy of new company in a high competition?

Solution:

The main objective of every organisation’s management is to maximise profits and to

maximise profits they use different pricing strategies. The purpose of pricing strategies
is not always about maximising profit margins. Sometimes a business owner uses
pricing strategies to set the cost of a product at a low price to maintain his hold on
market share and prevent competitors from encroaching on your territory. Pricing a
product is a really complex process and thus a management needs to do lots of research
before taking this step. This research includes steps such as the segment of the product,
the ability of a consumer to pay for the products, actions of their competitor, market
conditions, manufacturing cost and much more. When selling a product the organisation
can use variety of pricing strategies.Some of the pricing strategies are listed below:
• Pricing for market penetration: Market penetration is a pricing strategy that
aims to attract customers by setting the low initial price of the product. The
lower price helps to lure customers away from competitors. Attracting customers
quickly based on the low cost is the goal of this strategy. Market penetration
pricing is the most effective strategy for increasing sales volume and market
shares while discouraging competition. Sometimes this strategy can be risky for
the business as it can result in an initial loss of the income for the business.
• Economy pricing: This strategy offers customers a “no frills” low price. The
cost of marketing and production are kept at a minimum. Regional and local
manufacturers usually follow this economy pricing strategy as they have limited
investments to make. Economy pricing is a valuation technique which assigns a
low price to selected products but its widely used in retail food business. It aims
to attract the most price conscious consumers. But this strategy is more
beneficial for big business as compared to small businesses.
• Premium pricing strategy: This strategy establishes a price higher than the
competitors. It is a practise of keeping the price of the product high in order to
encourage favourable perceptions among buyers. This exploits the tendency for
buyers to assume that expensive items enjoy an exceptional reputation. It’s a
strategy that can be effectively used when there is something unique about the
 product or the product is newly launched in the market and the business has a
distinct competitor advantage.
• Psychological pricing strategy: This strategy is based on the idea that certain
prices have some positive psychological impacts on its customers. It uses the
emotional response of it’s customers to encourage sales. The retails prices are
often expressed as “odd prices” a little less than a round number. E.g. 199$,
3.99$. This makes the customers think that it’s a bit cheap and they end up
buying the product because they don’t look at the price as a whole but instead
they focus on the first digit of the price. The companies that succeeds in finding
psychological prices can improve sales and maximise their profit.
• Bundle Pricing Strategy: In this strategy the companies sells multiple products
at a lower rate than they would charge a customer if he or she would buy it
separately. This strategy allows a business to increase it’s profit by giving
discount to its customers. Bundled pricing is a method that is mostly used by
retailers to sell products in high supply. It is an effective way to reduce
inventory. Small business owners have to be careful while applying this strategy
as they have to keep in mind that the profits they earn on the higher value items
must cover the losses they take on lower value products.
• Geographical Pricing strategy: It is the practise of adjusting an item’s sale
price based on the location of the buyer. It is intended to reflect the costs of
shipping to different locations. Sometimes the difference in the sale price is
based on the cost to ship the item to that location. Companies will try to to
maximise revenue in the markets in which they operates and geographical
pricing contributes to that goal. Factors that effect the prices are taxes, shipping
costs, and location specific rent.
• Promotional pricing Strategy: This is one of the powerful sales strategies.
Promotional pricing is the sales promotion technique in which the prices are
reduced for a short duration. This helps to increase the demand for the product.
Promotional pricing attracts more customers and is widely used by retailers and
manufacturers to gain market share. Promotional pricing strategy is more than a
financial tool. It can send a message about the product and company and
customer a reason to buy. It can help build brand awareness and attract
customers who can stay loyal even after the promotion is over.

The above pricing strategies can be related to Khan Pvt Ltd in a following way:
Khan Pvt Ltd can adopt Market Penetration pricing strategy by lowering the cost of their
products and attracting customers and this helps the organisation to increase its sales
volume and market shares. Economy pricing helps the Khan Pvt Ltd to keep marketting
and production cost at minmum. so the company is able to attract price concious
 customers. premium Pricing strategy helps khan pvt ltd to set the prices of its product
higher than its competitors, this makes the buyers to assume that expensie products
emjoy an exceptional reputation. Then comes the Psychological pricing strategy this is
used in Khan Pvt Ltd in such a way that the company sets the prices of its products a bit
less than what it should be. for example the plastic bottle price has to be 2 $, but khan
Pvt Ltd changes its price to 1.99$ this manipulates its customers minds and make them
think its cheap because the customers focus on first digit of the price and so it is
benificial for the company to sell more units and earn more profit. lastly Khan Pvt Ltd
uses Promotional pricing strategy and reduces the prices of its products for a limited
period of time and attracts its customers.
3. As a accountant you need to Compare the planning tools used in management accounting,
indicating how effective you judge each to be and why. Also discuss advantages and
disadvantages of each planning tool?
SOLUTION:
Management Accounting Tools: A management accounting tool is a framework, model,
technique or process that enables management accountants to improve performance, facilitate
decision making, support strategic goals and objectives. There are many Management
accounting tools but some of them are listed below:
 Management Information System: It is computerized database of financial
information organized and programmed in such a way that it produces regular reports on
operations for every level of management in a company. Data planning is supplied to
management and feedbacks are received.
Advantages:
1) It facilitates planning.
2) It encourages decentralization.
3) It brings coordination.
4) It makes control easier.
Disadvantages:
1) Lack of flexibility to update itself.
2) Effectiveness decreases due to frequent changes in top management.
3) Quality of outputs Governed by quality of inputs.
4) Increase in unemployment.
5) Takes only quantitive data.

 Control Accounting: it is not a separate accounting system. It is a method and a

procedure that is implemented by a firm to help ensure the validity and accuracy of its
own financial statements. In control accounting we can use internal check, internal audit
and statutory audit.
Advantages:
1) Maintenance of business records.
2) Valuation of business.
3) Provides information to related parties.
4) Replacement of memory.
 Disadvantages:
1) Recording of fixed assets at original costs.
2) Audit of the financial statements are more difficult and more costly.
3) Accounting information is based on estimates.
4) Control accounting information may be biased.

 Marginal Costing: It is a method of consisting concerned with changes in cost resulting

from changes in the volume of production. It is helpful for measurement of profitability
of different lines of production, different departments and divisions of an enterprise.
Advantages:
1) It is simple to operate.
2) Marginal Costing is useful in the decision making process.
3) Fixed costs are a period cost and are charged in full to the period under
consideration.
4) There is no under or over absorption of overheads and hence no adjustment is
required in the income statement.
Disadvantages:
1) No conform of IAS 2 stock valuation. Matching concept.
2) Difficult to split the vc & Fc.
3) Not recover full cost in the production. May set wrong Sp.

 Budgetary Control: It is a system which uses budgets as a tool for planning and
control. Budgets for all departments are prepared in advance. Actual performance is
compared with the predetermined targets. Helps to asses the performance of each and
every person in the organization.
Advantages:
1) Maximization of profit.
2) Coordination.
3) Reduces costs.
4) Corrective actions.
5) Tool for measuring performance.
Disadvantages:
1) Budget plan is based on estimates.
2) Expensive technique.
3) Opposition from staff.
4) Danger of rigidity.

 Standard Costing: here costs are determined in advance. Actual costs are recorded and
compared with the standard costs. Variances are analyzed and their reasons are
ascertained. It helps to enhance the efficiency of the concern.
Advantages:
1) To measure efficiency.
2) To fix prices and formulate policies.
3) For effective cost control.
4) Management by exception.
5) Valuation of stocks.
 Disadvantages:
1) Difficulty in setting standards.
2) Not suitable to small business.
3) Not suitable to all industries.
4) Difficult to fix responsibility.
5) Technological changes.

Comparison of the planning tools:

Management Information System is a database which makes the control easier and
brings coordination in the company. I think this system can bring lots of ease for the
employees working in the company and reduce their work to a great extent. Control
accounting is a procedure that a company uses to ensure the validity of its financial
statements which is very beneficial for the company. Standard costing is the
manager’s model for ascribing fixed costs across a produced volume of goods on a per
unit basis while marginal costing is the incremental production cost of producing one
more unit of a good. At the end I will talk about budgetary control which is a process
for managers to set financial and performance goals with budgets and compare the
actual results. This can lead a business to progress in terms of earning more profit and
achieving their goals.

4. your manager assign a task to evaluate how planning tools for accounting respond
appropriately to solving financial problems to lead organizations’ to sustainable success

SOLUTION:

Evaluation Of how Planning tools responds in solving financial problems;

Management Information System helps to organize the financial Information of khan Private
Limited in a way that it produces regular reports for every level of management in Khan Private
limited. It plays the role of communication, problem identification, information generation and
helps in decision making process and therefore plays a vital role in Decision Making and
solving financial problems. Control Accounting is a procedure that helps khan private limited to
ensure the validity and perfection of its own financial statements. And khan private limited uses
marginal costing to measure profitability of different departments and devisions of khan private
Limited. With the help of Budgetary Control khan private limited prepares budgets for all
departments in advance and creating a budget is one of the best weapons for combating
financial problems. and standard costing tool helps khan private limited to determine the costs
in advance which helps to enhance the efficiency if the concern. Khan Private Limited needs
accurate and timely financial data to make intelligent decisions and this way it can avoid
financial problems to occur and accountants are the ones who produce this data.

5. How Porter’s Five Forces analysis use in an organization and Applying PEST, SWOT,
balance scorecard in organization
Solution:
Porter’s five forces:
Porter’s five forces is a framework that defines and analyzes five competitive forces that shape
each market, helping to access the weaknesses and strengths of an industry. Porter’s model can
be extended to any sector of the economy in order to recognize the level of competition with in
the market and increases the long term competitiveness of the business. The concept of the Five
Forces is commonly used to evaluate a company’s manufacturing structure and corporate
strategy. Porter defines 5 forces that contribute to shaping the world’s economics and industries.
These forces are widely used to measure competition intensity, attractiveness and profitability
of the industry.

The Porter’s Five Forces are listed below:

 Competition in the industry: this force refers to the numbers and capacity of the rivals.
How many rivals do you have ? Who are they, and how does the quality of their
products and services compare with yours.The greater the number of the competitors the
less a company’s strength. Where competition is strong the company can attract
customers with aggressive price cuts and high impact marketing campaigns. Because
you have lots of rivals in the market so this can lead your buyers and suppliers to go
elsewhere because they are not getting a good deal from you. And on the other hand
there is a possibility that you can get the maximum profit if your rivals are not doing
what you are doing.
 Bargaining power of supplier: this power means that suppliers can exert pressure on
companies by increasing prices, decreasing performance or reducing the availability of
their goods. This is determined by how easy it is for your suppliers to increase their
prices. This factor addresses how easily suppliers can increase the cost of the products.
 It is affected by a number of facts. I.e How many potential suppliers do you have ? How
unique is the product ?. The more you choose from the easier it will be to switch to a
cheaper alternatives. But if there are few suppliers then the company would need their
help and depend on them more.
 Bargaining power of buyers: the theory is that buyer’s bargaining power in a market
affects the seller’s competitive environment and impacts the capacity of the seller to
achieve profitability. It is affected by how many customers a business has ? How
important is each customer, and how much it will cost a business to find new customers
for its products? When you have few buyers so their power increases but your power
increases if you have many customers.
 Threats of substitutes: this refers to a threat that if a substitute can offer a product that
has the reasonable close benefits match at a competitive price. A substitute product is a
product from another sector offering similar advantages to the customers. The threat if
the substitute is the level of the risk that a company faces from replacement by its
substitutes. A simple and cheap substitution can weaken your position and seriously
damage your profitability.
 Threat of new entry: the power of the company is also affected by the strength of new
market entrants. The less time and money a competitor needs to enter the market the
more easily a developed company’s position could be weakened in the market. A
industry with strong entry barriers would be suitable for existing companies with in that
industry since the company would be able to charge higher prices and negotiate better
terms.

SWOT Analysis: SWOT analysis involves looking at the internal strengths and
weaknesses of the business and external opportunities and threats. In other words it is
used to analyze the possible internal advantages and problems that a business has and to
determine the external factors of the business which may effect its strategy. The purpose
of the SWOT analysis is to conduct a general and a quick examination of a business’s
current position so that it can help the business to develop or plan a direction of
development or a proper strategy in future.

USES OF SWOT ANALYSIS:

 SWOT analysis is an effective way of gathering and classifying information, illustrating
particular matters and generating strategic planning ideas for a business.
 The result if the analysis may provide a basis on which a more detailed analysis can be
conducted.
 SWOT analysis is often used as a method by which a business or its marketing
 department can plan its marketing strategy.

Examples of SWOT analysis:

Strengths:
 Good brand image
 Well known name
 Good reputation
 Cost advantage in production
 High Market Share

Weaknesses:
 Ineffective in production
 Falling profit
 Falling sales of the product
 Poor reputation
 Lack of innovation and change

Opportunities:
 Possible development of new products
 Expansion into new markets
 Development of a global brand
 Possible growing demand for a product in the market
 Join development with other companies

Threats:
 Change in law or regulation which may prohibit or affect the production of a business
 Growing competition from local companies
 Increasing competition from foreign competitors
 Marketing activities or strategies which will be implemented by competitors.

PEST ANALYSIS: it is an analysis model examining the external environment and the
global factors that may affect a business. It can provide a quick understanding of the
external pressure facing a business and their possible constraints on its strategy. It is
usually divided into four external influences on a business.
Which are listed below:
 Political:
 Purpose: is to find how political development locally, nationally, internationally affect
the business.
Areas to be considered: consumer laws and regulations, political pressures and
government views of certain business activities, including local, national or international
government political issues affecting a business.
 Economic:
Purpose: to find how economic factors may affect on the business.
Areas to be considered: Consumer activities, Economic Conditions, Government
Policies, The change in the production and labor market.
 Social:
Purpose: to find what competitive advantage a business may gain by social changes.
Areas to be considered: aging population trend, birth rate increase, security conditions,
pressure groups.
 Technological:
Purpose: to find how new technologies might affect business activities.
Areas to be considered: the rate of technology change, the development of IT, the wide
use of internet, the creation of new materials for profuction.
6. As above said company is new how this company will use benchmark key performance
indicators and budgetary targets to identify variance analysis and issues.
SOLUTION:
Key Performance indicators: while a benchmark has a company comparing its processes,
products and operations with other entities. A KPI measures how well an individual or a
business performs against their strategic goals. Businesses use KPIs to evaluate their success at
reaching targets. Each department will use different KPI types to measure success based on
specific business goals and targets. Benchmarks are goals to aim for. Businesses choose
benchmarks based on standards with in their industry. For instance you might look to peak
performances n your industry and set their performance level in areas such as manufacturing or
marketing as ur benchmark.
Budgetary Targets: a budgetary target is an estimated amount of money for a specific fiscal
period and budget key combination for operating and capital expenses use. Use budget targets
to set up a financial goal for a budget plan.
Variance Analysis: it is a most useful tools available to companies today for business planning,
management and review. Used to assess various key performance indicators, various analysis
can reveal many aspects and outcomes of financial and operational imperatives.
7.As a costing manager you need to discuss the Impact of financial governance in your
organisation and how it can be used to prevent financial problems in any new organization
Solution:
Financial Governance:
The way Financial Information is collected, handled, monitored and controlled by an
organization is called Financial Governance. Financial Government encompasses how
companies track financial transactions, manage data on quality and monitoring, enforcement,
activities and disclosures. It also involves applying specific principles to the firm’s financial
assets and even plying a role in the management of revenue. The scope of Financial Governance
includes financial decisions related to raising money from various sources; project financing
costs and potential returns obtained throughout the process. It also makes fixed and existing
investment decisions.

What does financial Governance mean for your organization:In practice financial
governance is the policies and procedures that businesses use to handle business data and ensure
data is accurate. Financial Management includes the ability to comply with compliance
requirements. Good Financial Governance ensures that according to regulatory regulations the
company gathers, records and presents financial data. Since financial Governance results in
more accurate information, the reports used by executives to formulate strategy and determine
direction are focused on a stronger sense of the financial reality of the company. The office of
finance can work faster and more confidently to complete financial processes by using
standardized work flows and automating time consuming processes.
Risks of poor financial governance in the organization:
Some of the risks are listed below:
 Fraud
 Material Errors
 Misappropriation
 Regulatory Sanctions
 Poor decision making
 Reduced Confidence among stake holders.

Importance of Financial Governances:

Once companies implement financial data controls you can be sure that the finance department
uses the appropriate data version to complete reports, budgets, schedules and other financial
documents. Controls may include data processing and formatting technology.
The organization can improve the financial governance by doing the following things:
 Use a centralized, streamlined management software for corporate disclosure
 Keep all enforcement laws up-to date
 Automate controls and financial data
 Conduct regular risk assessments
 For all corporate data use a single data warehouse.
8.Compare ways in which management accounting is applied, the effectiveness of management
accounting in dealing with financial problems and preventing financial problems in
organizations.

9.As a manager costing according to you specific and special characteristics should in a
Management Accountant and how these skills are utilized for accomplishment of organizational
Goals and how organization is adopting management accounting system to response financial
accounting system.

10. Mention the qualities of a management accountant.

Solution:
Some of the qualities of a management accountant are listed below:
 Analytical Ability: accountants who have analytical abilities are capable of
planning well and leading projects successfully, and they can even forecast financial
results so accurately and make plans to meet objectives and goals.
 Versatility: Versatility is considered as a valuable quality in accountant .
Versatility implies an openness, that allows the manager to change on a dime when
necessary. This ability is also known as the pathway to speedy responsiveness.
 Creative: Being a creative accountant means that you are open to trying new things.
You have to be flexible. You realise that your team aren’t all the same and that one
technique may motivate one employee but may not be as effective on another.
 Commitment: A Management Accountant is committed to the completion and
success of the project. The manager holds the vision for the team members and helps
his team to move closer to the end result. Its all the manager’s effort and
commitment that pulls the team forward during trying times.
 Extreme trust worthiness: The information that accountants deal with in everyday
life is very confidential in nature. One of the important features of accountants is
that they are professional and they don’t reveal any information of their organization
to the third parties.
 Qualified: A thorough base is essential. Good accountants have a thorough
understanding of the process he is managing. The knowledge base must be so
ingrained and integrated into their being that they become transparent, focusing on
the employee and what he needs to learn, versus focusing on the knowledge base.
 Sense of accountability: A good accountant has the ability to accept the results and
fallouts of his work. He accepts when he is at faults and makes sure that his mistakes
are not repeated again. Accountants however takes the step to prevent the
inaccuracies.
 Excellent organization: An accountant must keep up with the information, data and
paper work in their daily jobs. Accountant should organise their work to maximise
productivity.
 Time Management: An accountant is responsible to manage a lot of tasks and deal
 with decision making procedures while having to complete everything on time. A
good accountant needs to create a structured system that will allow everything to be
done and submitted with in deadlines.
 Strong communication skills: The most important skill for management accountant
is the strong communication skill. If you cant even communicate with those whom
you supervise, the rest of the skills don’t really matter. The first thing that needs to
be done by the management accountant in most of the tasks is to communicate his
opinions and send the right message to his employees.

Learning Outcomes and Assessment Criteria

Pass Merit Distinction
LO1 Demonstrate an understanding of management
accounting systems
P1 Explain management M1 Evaluate the benefits D1 Critically evaluate how
accounting and give the of management management accounting
essential requirements of accounting systems and systems and management
different types of their application within an accounting reporting is
management accounting Organisational context. integrated within
Systems. Organisational processes.
P2 Explain different
methods used for
management accounting
Reporting.
LO2 Apply a range of management accounting
Techniques
P3 Calculate costs using M3 Analyse the use of D2 Produce financial
appropriate techniques of different planning tools reports that accurately
cost analysis to prepare and their application for apply and interpret data
an income statement preparing and forecasting for a range of business
using marginal and Budgets. Activities.
Absorption costs.
LO3 Explain the use of planning tools used in
management accounting
P4 Explain the M4 Analyse how, in
advantages and responding to financial
LO3 & 4
disadvantages of different problems, management D3 Evaluate how planning
types of planning tools accounting can lead tools for accounting
used for budgetary organisations to respond appropriately to
control. sustainable success. solving financial problems
LO4 Compare ways in which organisations could use to lead organisations to
management accounting to respond to financial Sustainable success.
problems
P5 Compare how M4 Analyse how, in
organisations are adapting responding to financial
management accounting problems, management
systems to respond to accounting can lead
financial problems. organisations to sustainable
success.