Management Accounting Role

Company's product range mainly involves small & rugged audio/video systems and recorders for extremely covert. Corporation also engaged in manufacturing of wider range of supporting items like high-quality microphones, low-light miniature cameras etc. Other ancillary items includes picture-in-picture modules for displaying various video-channels on single screen and stabilization unit for video designed to cut down camera shingle from long lens/high zooming video-surveillance equipments or cameras.

This assignment covers meaning of management accounting and why it is required in various accounting procedures and with that some distinguished techniques adopted in the reporting of management accounting is also discussed in the report. However, design income statements using managerial and absorption costs. The benefits and weaknesses of the tools used for planning the budgetary control are discussed effectively. Additionally, comparison is done how business associates are executing the systems of management accounting to react to the financial problems.

Throw-light on the concept of management accounting as well as discuss the important need of several types of management accounting systems.

In the modern era, management and cost accounting means presenting accounting data and information in sequence order so that it helps top level management to frame policy and day to day operation activities effectively. This is directly related to the adoption of accounting data gathered from numerous sources like, cost accounting and financial accounting so as to control, planning, policy formulation and decision making process by the management. There are varied kinds of MAS used by the organizations like job costing method, cost accounting method, inventory management method and price optimising method. These systems help the organizations in doing efficient planning, helps in controlling and making good decisions for the company.

Main motto of MA is to develop and establish framework for providing assistance to management in different key managerial personnels. Various systems of MA supports managerial planning, controlling of operations and management decision-making.

Difference between Financial Accounting and MA:

Following is a discussion on different systems as follows:

Price Optimising System: In this case, Ovation Systems Ltd will be able to measure the right cost so that huge revenue can be maximized in the cut throat competitive world. Along with this it helps firm to better understand how demand of the consumers keeps on changing with the slight differences among the price structure of goods as well as services. Additionally, this kind of optimizing technique assert administration in considering all the elements which are, prices of their goods, rivalry pricing tactics and product life cycle so as to discover the best cost. By doing so business associates is able to decide effective prices for their goods and services in the competitive market place (Ax and Greve, 2017). It also covers pricing strategies to resolve any particular issues related to pricing and its effect on company's revenue.

Cost Accounting Systems: It is an essential requirement for Ovation Systems Ltd as this method helps in finding out the cost of it's goods to control the cost of inventory, doing valuation as well as analysis related to profitability aspect of the business. Cost accounting systems aid in calculating efficiency so that set goals and objectives can be achieved in the world with full of competition. Cost accounting includes two methods i.e. costing for job order and for process. However, job order costing directly helps business associates accumulate manufacturing expenses   for each and every process in the working premises. While, process costing assist aid enterprise to figure out the cost of each process.  Ovation Systems Ltd study this aspect before deciding the prices of the goods in order to maximize huge profit. Here, this particular system render authentic information to the firm that is useful to ascertain the variable and fixed cost of the products and services. With the help of this optimum prices can be set for the goods as well as services in the global market (Azudin and Mansor,  2018.). Mainly two methods are adopted by companies under this system named: Job and Process Costing Methods. The first method helps the organisation in assigning the overall costs to different jobs while in process costing costs are systematically assigned to different key organisational processes.   

Inventory management systems: Ovation Systems Ltd adopts this method in their company so that they can easily track the supply of its goods from their office itself. It is essential for the business administration because it includes all the activities that helps company to keep sufficient raw material and finished products in stock.  By doing so administration can fulfil the ever increasing demands of the consumers. Those business who are dealing in retail sector for them inventory management system turned out to be more profitable in nature. Ovation Systems Ltd by effectively implementing this system raises overall productivity and profitability ratio of the firm which is a positive mark for the enterprise (Bedford and Speklé, 2018). By performing this system company will not face stock deficiency at the time of manufacturing and production process. Here three major methods are applied by business enterprises named: FIFO, LIFO and Average cost method. FIFO method allow to make assumption that oldest or first purchased inventories are sold at first place. The LIFO technique in managing the inventory means the last items which are bought will be sold out first. While LIFO method assumes that latest bought inventory items are sold first. While in average cost method a simple mean rate is used to value closing inventory.

Study numerous methods used for management accounting reporting.

Reporting of Management accounting means providing relevant information to distinguished levels of administration so as to become a base for taking correct decision. This aid in planning, decision making, regulating and measuring performance activities which leads in fulfilling the demands of the consumers. As per the necessities these reports are regularly modified throughout accounting and bookkeeping period.  

Budgeting report: Organization adopts this in the working premises as it helps them to measure overall performance of enterprise. By designing budgeting report company manage cash amount of every single activity. It helps in making comparisons among the actual and forecasted budget so that proper monitoring and control can be done on various outcomes. Better incentives and benefits are given to the staff members in order to reduce the cost which provides complete satisfaction to workers (Bui and De Villiers, 2017).

Performance reports: Ovation System Ltd is executing performance report so as to examine the performance of the business administration and their staff members. This directly or indirectly aid enterprise to take the quick and smart decisions in order to upgrade workforce productivity and profitability ratio. By appropriately scanning this report Ovation Systems determine the efficiency of their tactics towards stated aims and objectives.  The effectiveness motivates workers to work day and night in order to attain the companies set standards

Job costs reports: Organization by taking job costs report within the enterprise is able to investigate the cost of each individual project. It leads in providing benefit to Ovation Systems Ltd as they are capable enough to find higher earning areas. Moreover, by using this   progression and succession of the project areas can be determined. This helps in measuring and monitoring the wastage of precious time and money in the low margin areas in the global market (Busco and Quattrone, 2018).

Inventory Valuation Report: This reports primarily concerned with inventories like RM, WIP, packaging materials, finished goods etc. This report hep to determine how much materials have been consumed and how much quantity of RM required for further production with aims to minimise inventory costs. In respective corporation production and inventory managers are using this report to tack the actual movement of stock and optimise normal and abnormal costs.

M1. Evaluation of benefits of management accounting's systems and their application:

D1. Examine how management accounting systems and management accounting reporting are integrated with organisational processes:

Management accounting systems and management accounting reporting are very much related to one another in this huge competitive world.  Both the aspects assist them in effectively handling administration operation activities in systematic order. In Ovation System inventory reporting system and inventory report are interconnected with each other due to which sufficient stock is maintained. By doing so emerging preferences of the consumers are accomplished. However, it consume more time in reporting inventory data which sometime leads to dissatisfaction among the consumers.

Compute costs using appropriate techniques of cost analysis to prepare an income statement

CVP analysis: This states the sum of money that has been invested so as to produce a goods and services as well as to receive product and services (Cooper and Qu, 2017). With the increasing expenses on buying plant and machinery, raw material, labour and so on. However, there are two common techniques to find out the estimated costs i.e. marginal or variable and absorption costing. Here in this context an analysis with regards to cost, volume and profit is applied to measure the fluctuations in the costs and volume of production and its impact on corporation's net and operational income. They are explained as under:

Absorption costing: It is globally adopted by the business administration as it covers each and every aspect of fixed as well as variable costs to find out the estimated prices of goods as well as services. Moreover, Ovation systems use this method as it assure that incurred cost will be taken back by selling the goods as well as services in the huge competitive environment. By this act, administration is able to achieve the set standards in this ever changing competitive era.

Marginal costing: It is a best and the most appropriate method for computing the costs and under this method the variable costs whether related to manufacturing or not are treated as product costs and is applied to calculate the unit costs. On the other hand, fixed costs are treated as period costs and are treated separately. Moreover, marginal costing is very significant for short time duration as in this method only expenses are covered which are in   variable nature (Englund and Gerdin,  2018).

Preparation of income statement by Absorption costing:

Preparation of income statement under marginal costing:          

Material cost variances:

Given information is as follows-

Standard price(SP)- £10 @ per kilograms

Actual price (AP)-       £ 9.5 @ per kilograms (20900/2200)

Actual quantity (AQ)-  2200 Kilograms

Standard quantity(SQ)-  1000 Kilograms

Material price variance (MPV)= (SP-AP) * AQ

       (10-9.5) * 2200=   £1100 F

Material usage variance (MUV)= (SQ-AQ) *SP

    (1000-2200) *10=     £12000 A

Material cost variance (MCV)=    Standard material cost- actual material cost

Valuation of closing stock using LIFO

Valuation of closing stock by using weighted average method:

Application of MA techniques and preparation of financial reporting reports:

Ovation System Ltd is adopting marginal and absorption techniques as per their requirements. Here, firm perform the activities of business in the budget allotted so as to reduce the cost charges. It helps is making the enterprise financially stable in nature it directly leads in gaining competitive advantages against rivalry. These above discussed techniques helps in financial reporting processes by providing significant outcomes.

D2. Interpretation:

From the above it can be summarized that 3.75 unit is measured by using LIFO method the closing stock (Hiebl and Richter, 2018). Moreover, 3.45 is valued by effectively adopting AVCO method in the working premises.  Ovation systems Ltd top level management will be benefited by these method as they will be able to take best decision exact cost can be determined. Moreover, AVCO method less cost is charged so administration is focusing more on this method as compare to LIFO method.

Ovation systems Ltd is centred more in execution of adsorption costing method in their premises. This is because Q2: £3100 and Q1: £4300was the net profit of the organization whereas, Q2: £4700 and Q1: £1900 is the calculated amount of marginal costing. So, absorption method is better than marginal in the intense competitive world.

P4) Benefits and drawbacks of numerous types of planning tools of budgetary control.

Budget: Budget is an essential component for the companies to remain successful in this competitive era. It helps in creating some rough figures about various expenses incurred while performing distinguishing activities of business. Organization prepare budget by examining the the market conditions so that insufficiency of funds does not occur.

Budgetary control: It is used in the form of device which helps the companies in proper supervision and control of a lot of costs along with general and admin activities in set period of time. Whereas, it is the method used to compare the approximation and existent outcomes. By doing so required modifications can be executed for upgrading the overall performance of enterprise (Johnstone, 2018).  

Kinds of tools used for planning of budgetary control:

Cash budget: This budget is the first thing made by the company as it helps in the estimation of cash flows i.e. inflows and outflows. Firm prepare cash budget to find out the position of the company financially.  It is profitable budget for Ovation systems as well as there are some drawbacks which are understood as follows:

Master budget: Here, it is combination of small budget within the business concern. Master budget directly or indirectly aid Ovation System Ltd to properly arrange all the document so that activity can be performed in short time duration.

Flexible budget: It modify as per the requirements and static budget. This is the simple and easiest formation of budget although it includes some drawbacks which are explained as follow:

Sales Budget: This budget wholly dedicated towards projection of sales figures whether cash sales or credit sales. A company's sales budget outlines business's sales expectations that is determined by managing officials,for a particular period.

Purchase Budget: A purchase budget includes volume and value of material or inventories purchased during a particular period. Figures shown in this budget are required to ensure that there are adequate stock in hand fulfil order requirements.

M3. Analysing usage of different planning tools in preparation and forecasting different budgets:

All these budgets including cash budget, flexible and master budget are used for planning and are tools to forecast. Adoption of this budget is advantageous for administration as it helps them to ascertain best results in the competitive market place. Each and every budget provide authentic and reasonable information to firm in context of cash amount. By this act corrective decision is taken in regards of cash investments in the global market. Ovation System Ltd. prepare the cash budget which helps the top level in determining the inflows as well as outflows. Firm by examining this budget proper steps and tactics can be framed (Qian and Schaltegger, 2018).

Application of management accounting system to resolve financial problems.

Organizations faces several problems occurs due to improper management and use of money. To solve the issues regarding funds management accounting system is applied in a company, that helps in measuring the cost, performance and stock level. Before applying systems to resolve the issues firstly needs to know about the financial problems and their causes.

Financial problem:  A financial pressure is a situation where a person is not able to afford necessities. These challenges are causing stress, and it impacts on mental health of an individual. Financial problems effect the company's operational activity and outcome in low effectiveness and efficiency. There are many reasons of financial issues, that are faced by Ovation system which are as follows: -

Poor money management:  Ovation system have poor budgetary plan to manage its money effectively and efficiently. They spending in unequal proportions on all operational activities and it reflects on company's financial conditions. So, the company needs to develop a proper money management system to resolve their fund shortage and prepare budget for future expenditures with respect of each activity (Schaltegger and Burritt,2017).

High storage cost:  Ovation system is a manufacturing company and it produced audio and video recorder. So, the company needs warehouse facility to store its products. Hereby, the company is suffering from the high storage cost of inventories and it effects on company's funds shortage and more expenditures.

Increase in expenses:  It can create a financial challenge for an organization, when a company has high operational cost in relation of their operating revenue is less. When a company spend more than its earnings then it automatically suffering from financial problems. So, the company needs to control on their expenses and develop a systematic budgetary plan.

From the above mentioned causes a company will suffer more or may be closed down its business in near future. So, the financial problems are needed to solve immediately by using appropriate techniques in an adequate manner. There are several techniques for resolving the company's monetary challenges that can be described as: -

Benchmarking:  Benchmarking is used to knowing the internal capabilities of an organization and identifying the opportunities for improvement. For example, Ovation system are suffering from the high storage cost of inventories. For this particular issues, the company can use benchmarking. This method is used to identify the competitor’s strategies and for setting up the targets of manufacturing the products of quantity demanded. Also, it helps in reducing the high storage cost and smoothly flow of money for operational activity (Agrawal, 2018).  

Key performance indicators:  To meet the objectives of an organisation a quantitative measures are used to assess the success of an organization. It indicates the actual performance of an individual or organizations and match with last year performance to know the deviations if any, so that corrective actions can be implemented for further improvements. For example, Ovation system can use KPI to solve a financial issue related to increase in expenses by improving the performance and productivity level of employees. Expenses are occurred in various terms such as money, time, efforts, poor performer etc.

Financial governance: It means a company collects, manage, monitor and control the monetary informations and data's. Ovation uses this tool to systematically arrange the collections and to ensure that they get the end results in a better manner. The company use financial governance as a strategic tool by making suitable policies and rules which guides manager to make an effective decision. This will help in overcoming from the problem of poor money management.

Difference between Ovation system and Oxalis group's.

M4. Analysing ways by which responding to financial issues can lead to organisation's sustainable success:

Corporation like Ovation system in current dynamic business era facing wide range of big and minor problems. Timely responding to these different issues is essential to mitigate or avoid potential risks. Using these tools on long term basis, such an act of corporation will provide sustainable success  and the corporation can respond to these risks and issues.

D3. Evaluation of planning tools as how these help in responding to financial problems appropriately:

Different planning tools as discussed above are applied by corporation like Ovation system  to make respond to existing and potential financial problems. These tools not only warns about possibles problems but also provide information which is further used by managers to resolve these problems. Pros and cons of these techniques which are adopted for control purpose are examined and then the most effective one is implemented.  Here, comparison is done among several firm in regards of using management accounting systems to resolve monetary issues.

Conclusion

Management accounting is essential and plays an essential role in assisting corporations to take effective decision for the betterment of the employees and employer. This aspect need to be performed effectively and efficiently so as to achieve best results in the cut throat competitive world. Violation of management accounting leads a firm in huge loss which is a negative mark for the company. Moreover, distinguished accounting systems are studied so that as per the dynamic environment the best one can be adopted in the working premises. The numerous management accounting reporting which are, budgeting report, performance report etc. are focused so that they can be mould to attain set goals.

References

• Abernethy, M. A. and Wallis, M. S., 2018. Critique on the'manager effects' research and implications for management accounting research. Journal of Management Accounting Research.
• Agrawal, R. K., 2018. Principle of Management Accounting. Educreation Publishing.
• Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes. Management Accounting Research. 34. pp.59-74.
• Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of organizational DNA, business potential and operational technology. Asia Pacific Management Review. 23(3). pp.222-226.
• Bedford, D. S. and Speklé, R. F., 2018. Construct validity in survey-based management accounting and control research. Journal of Management Accounting Research. 30(2). pp.23-58.
• Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty. The British Accounting Review. 49(1). pp.4-24.
• Busco, C. and Quattrone, P., 2018. In Search of the “Perfect One”: How accounting as a maieutic machine sustains inventions through generative ‘in-tensions’. Management Accounting Research. 39. pp.1-16.
• Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research. 34(2). pp.991-1025.

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