Management Accounting

Table of Contents
Task 1.....................................................................................................................................................2
Task 2.....................................................................................................................................................5
Task 3.....................................................................................................................................................6
References.............................................................................................................................................8
Task 1
a) Management accounting and Financial Accounting
Accounting tends to state the process of creating, recording and summarising the business
transactions in the monetary values and interpreting the results in a clear manner. It used by
the management in order to track all the financial transaction and present them in a clear and
concise manner. Financial accounting and management accounting are stated as two branches
of accounting used by the management to have a clear understanding of the financial position
of the business, the financial accounting enable in providing true and fair view of the
financial position of the business, whereas management accounting aim in providing
qualitative and quantitative information to the managers which will enable the business to
take appropriate decisions and thereby maximise the wealth of the shareholders. (Brooks,
2012)
Financial accounting is considered as an accounting method which enable in focusing on the
preparation of annual reports of the organisation as per the standards stated by the regulators
and circulate the reports to all the stakeholders of the business. It tends to record only the
business transactions which is in monetary terms, they are generally prepared at the end of
the accounting period, these reports need to be audited by external auditors and certified by
the management before being circulated to both internal and external parties.
Whereas management accounting system tend to provide relevant data and information to the
internal management in order to take policy decisions, plan the future course of action and
prepare strategies so as to run the business more effectively. These reports are for the internal
use by the top management and will not be circulated to outside stakeholders, therefore these
reports are not audited. The information included are monetary and non-monetary
information so as to assist the management in planning and the decision making process
thereby providing the detailed data and information on various aspects.
b) Cost accounting systems
Cost accounting system is considered as a framework which is used by the company to
estimate the cost of the products manufactured by the business so as to analyse the expected
profits, make a clear valuation of the inventory and control the cost. The estimation of
accurate cost of the product which is manufactured in the organisation is highly critical for
the management so as to measure the profitability of the operations. The management need to
understand the various cost involved in the manufacturing of the products and estimate which
is the more profitable one. Furthermore, the costing system assist in estimating the closing
value of the inventory of the materials in hand, work in progress and finished goods for the
purpose of presenting the values in the annual report.
Standard costing is considered as the key aspect which tend to associate with the
manufacturing cost of direct materials, direct labour and overheads. Rather than assigning the
actual cost of the total direct materials, labour cost and overheads, the management tend to
assign the expected cost. This states that the inventories and the cost of goods tend to begin
with the amounts which is reflected based on the standard cost and does not include the actual
cost. However, the manufacturers tend to pay the total cost, therefore there is always a
difference between the actual cost and the standards cost which is considered as the variance.
Computation of standard costing and variance analysis is considered as the key measurement
tool, as if the variance arises the management can be more aware of the reasons for such
differences and take appropriate steps to control the variances.
c) Inventory management systems
An inventory management system is considered as the combination of technology and
process which tend to oversee the monitoring process and maintenance of stocked products.
The inventory management system enable in tracking the overall inventory and goods
through the entire supply chain mechanism based on the business which they operate in. The
management need to implement comprehensive inventory management system so as to keep
in track the current inventory levels and understand the goods which are fast moving, slow
moving etc and then take appropriate decisions so as to control the cost of holding the
unnecessary inventories. The benefits of implementing the inventory management system
will enable the business to possess enhanced cash flows of the business as this can enable in
reducing the cost of inventory, better allocation of resources and reduction in the storage cost
of the inventory, reduction in the labor charges, avoiding dead stock, better control in
ordering the stock, increased transparency and improved supplier relationships. (Ray, 2011)
d) Job costing systems
Job costing systems is stated as a comprehensive system which enables in assigning the
manufacturing cost to the individual products or for batch of products. The job order costing
system is mainly applied when the products are manufactured are sufficiently varied from
each other, when the company manufactures the product are identical in nature, the process
costing system will be used. A job costing system mainly involved in the process of
accumulating the information about the various cost which are associated with the specific
production. This data may be required by the management so as to submit the cost
information to the customer under a specific contract. The data and information is also useful
for determining the accuracy of the business estimating system which will enable in quoting
the prices which will allow for a reasonable profit of the business. There may a significant
variation in the products manufactured, the job costing system will tend to create a record
system for each job order, this will state the direct materials and labour and other overhead
cost incurred to perform the required job. Furthermore, the records which is presented by the
job costing system will also serve the sub ledger document in order to value the work in
progress inventory, value of the finished goods and total cost of goods sold by the company.
e) types of management accounting reports
The various management accounting reports which the management requires are as follows:
Fund flow statement: This report intends to provide the detailed changes of the financial
position of the company between the balance sheets. This report intends to state the inflow of
funds and outflow of funds
Cash flow statement: A cash flow statement is considered as the financial statement which
enable in providing the relevant data pertaining to the cash inflows and outflows of the
company which is incurred in the normal course of business activities and investments in a
given period of time.
Budgeting: the other key report in the management accounting domain is the preparation of
budgets which enbales the business to understand the overall performance of the company
and the managers enable in analysing the departments performance to control the costs. The
estimated budget for the period is prepared based on the actual expenses incurred by the
management in the previous years.
Aging report on accounts receivables: The management also tend to prepare the aging report
of the accounts receivables which is highly critical tool to analyse the current credit period
offered by the management to its customers and whether the stated credit period is
appropriate. This report will break down the customer balances on how long they have been
owed, the management can use them for the aging report to find the issues with the company
collection process and take steps in enhancing the receivables.
f) Sound accounting systems
Business need to adopt a clear and concise accounting system based on the current
bookkeeping and accounting system which are reliable as per the standards set by the
regulators. The sound accounting methods helps the management in providing a proper
budgeting and plan so as to possess clear internal control which assist in the growth and
sustainable development of the business. Accounting is considered as the key aspect to
measure the current operations of the business, understand the financial position and
apprehend the current profits of the business, accounting is creating so as to support the
development of business. The management through building a strong accounting system will
enable in protecting the financial integrity of the business which is based on the application
of key principles stated by the regulators and they are generally stated as internal controls.
A sound accounting system will enable in implementing greater internal control mechanism
this helps to measure the performance of the company in a timely manner, present accurate
financial information to the management and other stakeholders, track the deadlines of the
business on a real time basis and measure the cash inflows and outflows of the business with
more consistency and accuracy. A sound accounting systems also helps in preventing the
fraud and material misstatement of the annual report. The accounting system is a system for
collecting, storing and processing accounting and financial data used by decision makers.
This is an organized group of calculation methods and computer accounting methods to track
and present accurate and current accounting activities. People make mistakes and have a
computerized accounting system designed to minimize human error. For example, if we add
too many zeroes, this can dramatically change the accuracy of financial exposure. Electronic
accounting systems can reduce calculation errors, simplify the data entry process and capture
correct information such as results, scales, relationships, and taxes. The computerized
accounting system eliminates the seriousness and increases the company's productivity. It
takes less time than manual procedures. In addition to automated calculations, many
accounting programs can produce multiple reports with a button, such as financial statements
and statistics. Automation generally provides more reliable and better performance. For
example, a document that has already prepared the hours needed for conversion can be
created in a few seconds. Another advantage of automating the reporting is fast information
exchange. Operational account information can be specified separately by an automated
multi-party system. The introduction of a computerized accounting system makes it easier for
different companies to distribute financial information. (Brigham, 2010). For example, if a
manual accountant buys another organization through manual reporting, the full
consolidation of the financial information of both companies may take weeks or months. On
the other hand, if both companies use computer systems, all data can be easily integrated
because one application can talk to another. (Kaplan, 2011)

Task 2

a) This task is focused to compute the number of tickets to be sold in order to achieve the
break even, the selling price of the ticket for the concert is 20, the variable cost is estimated to
be 10 per ticket and the fixed cost for the concert is 60,000. Break even point is considered to
be the point at which the total revenue is equal to total expenses.
Total revenue = (Selling price x No. of tickets sold)
Total expenses = (Variable cost x No. of tickets sold) + Fixed cost
(Selling price x No. of tickets sold) - (Variable cost x No. of tickets sold) + Fixed cost = 0
(20X) = (10X + 60000)
20X-10X = 60000
10X = 60000
X = 6000
Therefore the number of tickets to be sold for Breakeven is 6000 tickets.
Back testing
Total Revenue = 20 x 6000
TR = 120,000
Total Cost = 10 x 6000 + 60000
TC = 60000 + 60000
TC = 120,000

b) The next part is to compute the number of tickets which needs to be sold if the company
wants to make a profit of 30,000 from the concert
= Fixed cost + Desired profits / Profit volume ratio
Profit Volume ratio = Contribution / Sales x 100
= (120000-60000)/60000 x 100
= 50%
Total sales to make a profit of 30,000
= (60000 + 30000) / 50%
= 90000 /50%
= 180,000
Therefore the number of tickets to be sold = 180000/20 = 9000 tickets
Particula
rs Units Cost Amount
1,80,000.
SP 20 9000 00
Vc 10 9000 90,000.00
Contributi
    on 90,000.00
Fixed
cost 60000   60,000.00
    Profits 30,000.00

c) the last part is involved to compute the total profits generated by the business if they tend
to sell 8000 tickets for the concert
Particula
rs Units Cost Amount
1,60,000.
SP 20 8000 00
Vc 10 8000 80,000.00
Contributi
    on 80,000.00
Fixed
cost 60000   60,000.00
    Profits 20,000.00

From the above table it is noted that the total profits generated by selling 8000 tickets is
20,000

Task 3
Budget is considered as the key planning and controlling tool for the organisation, this tool
will enable the management to work efficiently on the allocation of various resources in an
appropriate manner. Budget provides a detailed plan of the organisation income and expenses
for a given period of time. It should be noted that the budget is not only a cost monitoring
mechanism but it also integrates the organisational planning activities thereby assisting the
management in realising the overall objectives of the business. In order to make the
budgeting process more effective and support the management for problem solving tool the
accountants should involve in gathering the essential data and information by selecting the
appropriate budgeting system which are highly necessary. The management of the company
need to focus that the ideal budgeting system tend to encourage in the goal congruence which
enable in linking the organisational goals with the individual KRA of the employees. The
basic purpose of the budget provides the management a clear idea and analysis on the current
and future progress of the company, the projected incomes and expenses for a given time
period, plan if the company could meet all the expenses or tend to source the working capital
to meet the shortfall, exercise greater control on the overall activities of the business. When
the management uses the budget in a proper manner, it tend to increase the profits of the
business, reduce any unnecessary spending and clearly state the immediate course of action to
manage any shortfall. The management need to create a clear budgeting system with the basic
objective of setting the acceptable targets of the revenues and expenses, enhance the
likelihood of achieving the stated targets, provide a clear time frame in order to achieve the
goals of the budgets. (Brigham, 2010)
Financial management involves planning, monitoring and tracking financial resources to
achieve the organization's goals. Budgeting is one of the most important programming and
control tools. Budget is a key management tool for planning, monitoring and controlling the
organization's economy. Estimate revenue and spend for a certain period. The budget focuses
on effectively distributing limited organizational resources to achieve strategic priorities and
goals. The budget is a plan expressed in monetary units. This is the estimated cost of products
and resources over time, taking into account future economic conditions and organization
goals. Budgets are used to establish the organization's strategic plans and determine the
resources needed to implement the strategic plan for the coming year. The budget is one of
the organization's most important administrative tools. This is an action plan to achieve
quantified goals, performance measurements and mechanisms to handle foreseeable negative
situations. Budgeting is a design and control tool. At the beginning of the period, the budget
is a plan or template. At the end of the period, it serves as a control mechanism to assist the
administration with the plan to improve the performance of the future. It is important to
acknowledge that using computers is an effective way to evaluate scenarios. This way,
management will be able to find the best alternatives between different options through
simulation. If management does not appreciate what you see in the financial statements,
relevant financial indicators such as liquidity, sales, leverage, profit margin, and market value
may change design and decision making.
Financial governance
In today's controlled environment, the documentation of controls is almost as important as the
presence of controls. The current method requires documentation manuals through
spreadsheets, handwritten descriptions and custom flowcharts that manually update the
changes. The main management risk for business systems is in people's processes and
crossroads. In the market control model for spare parts, it is not entirely related to the
personal registration system, which means that control parameters must be manually to take
account of the frequent personal changes and organization in today's operations. Since
concepts like workflows occurred many years after the design of existing systems, control
structures are not necessary to design core systems. More controls need to be specified
separately for certain procedures. This means that new or adapted process, control or control
requirements must be considered actively and addressed separately. The thought that the
checkbox is closed may not calm you down. (Ray, 2011). The secondary approach to
managing and controlling the existing system can be almost enough before, but it can be a
disaster in today's business environment, with greater corporate responsibility, openness,
regulation and accountability. Each business event must be formed and managed through a
business process (GMP). Nothing should be moved unless GMP is involved. Effective
compliance environments are only possible if the ERP is fully aware of users and roles,
permissions, authorization limits, drivers, and how they fit into many organizations. An
"employee" can not be responsible for the personnel intended for funding, but must be a
"business area" that shares economic and human resources. Modern data structures in
memory can access all system data at any time and in real time, allowing continuous audit of
audit evidence. Traditionally, control primarily focuses on assessing the past and ensuring
consistency.

References

Brigham, E. F. (2010). Financial Management: Theory & Practice. 5th edition. Cengage
Learning.
Brooks, R. M. (2012). Financial Management. 4th edition. Prentice Hall.
CAB (2017). Annual report of Commonwealth bank of Australia
Kaplan, R. S., & Young, M. S. (2011). Management Accounting. 3rd edition. Prentice Hall.
Ray, G., & Eric, N. (2011). Managerial Accounting. McGraw-Hill/Irwin.