Table of Contents
Task 1: Management accounting system.
Task 2: Application of management accounting system.
Task 3: Planning tools used in management accounting.
Task 4: Using management accounting to solve financial problems.
In terms of management accounting, the managers apply different requirements of the accounting information to inform them before they adopt any key decisions in their business organizations that help to manage the performance of the control function (Edmonds and Olds, 2013). This paper, first, focuses on the management accounting system along with the different methods used for reporting management accounting system and their advantages and disadvantages. The second part of this report applies the management accounting system in a practical business scenario. The third part of this system applies different planning tools and evaluates how they are perfectly used for solving financial problems and strategic planning. Finally, this paper uses different management accounting for sorting out different financial problems for a business.
Task 1: Management accounting system
1.1 Explain management accounting and give the essential requirements of different types of management accounting systems
As the Junior Management Accountant in KEF Ltd., I have been asked by my Senior Management Accountant to make a report for the management accounting department.
Management accounting and its purpose
Levitan and Baxendale (2015) claimed that the term management accounting refers to the system of making the reports containing all the information related to the financial statement of a company. The authority of the company can take important decisions of the business on the basis of these reports. It is helpful to analyze the financial condition of a company and manages the upcoming projects according to that. Management accounting is an important fact for every company as it gives the future forecast and controls the cash flow on the basis of the forecast. It helps the company to take the right decision that if they make or buy. Moreover, it discusses other variants related to the finance of the company. The rate of return can be calculated through the reports of the management accounting. Management accounting can be done in various ways which are given below.
Cost accounting system
According to Mohammad (2016), cost accounting can be defined as the process of managing the accounting. The process works to find out the amount of cost which is needed for the production process. It can determine the variable costs of different stages of the production process. It can help to take the business decision by giving full information about the finance. Moreover, the cost accounting system is a type of accounting system that’s main aim is to determine production expenditure by assessing production’s input cost. On the other hand, the cost accounting system will record as well as to measure costs that help a business to evaluate the financial performance of its activities. Horngren et al. (2013) said that the cost accounting system is observed as the main factor in management accounting. This is because this accounting system offers a number of analytical methods including standard costing tool, operating costing tool, inventory control tool, budgetary control tool, and marginal costing tool.
Inventory management system
This is the process of managing product availability and ordering for a business to run its activities efficiently and effectively. This system uses a number of tools, whereas the main tools are barcode scanners, inventory management software, computer and related accessories. (Blocher, 2016). The key objective of this system is to properly understand the inventory levels by minimizing both under-stock and overstock situations. A business’s inventory is the key assets where the accounts of investment which is mainly occupied to sell the products. On the other hand, the main advantage of this system is to increase the performance of a business’s bottom line and improve workflow and efficiency of inventory of business (Drury, 2015).
Job costing system
According to Edmonds and Olds (2013), a job costing system is used for a specific production process or to implement a particular project. The process gathers all the information of the costing related to that project. This information is necessary as the cost of that product is given to the buyer and the amount is verified again by them. The system is very important for the company as it determines whether the company can able to find out the right amount of cost for that particular project. It is helpful for the company to fix the right amount which can earn profit for them. The job costing system gathers the information which is the combination of the information about direct material, direct labor and overhead.
Price optimization system
Vanderbeck and Mitchell (2016), said that a price optimization system is the process of searching for the right price of a product in which customers can able to buy that product as well as the company can gain profit from that. The company can set up its price optimization process according to the demand of the customers for that product. It is necessary to fix the price. If the company only thinks about profit and sets a high price, customers can not afford the product. So, the company should apply a perfect price optimization process for the products.
Role and principle of management accounting
Management accounting is considered the heart of the company. Management accounting refers to the process by which the company can understand its business and the process of operations to remove the threats and to grab the opportunities. By doing the management properly, the company can take full advantage of the opportunities which will help to increase the attraction of the stakeholders and the value of the company. It can organize the infrastructure strongly. It links the management system to the finance sectors. There are some principles of the management accounting process. It needs to provide all the influential information and strategies with the proper communication system. All the information must be relevant to the project of the company otherwise they are of no use. The company must analyze that what kind of value they can generate from the project and if they have any impact on the company or not (Horngren, 2017)…………………………….