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Management accounting:Management accounting is a branch of accounting systems of an organisation which mainly works to contribute in the decision making strategy, resources allocation and optimization, control of financial factors and many more.
Financial accounting: Financial accounting is also a part of accounting and information systems of a business firm which collects and calculates the financial statements of the organisation. It intercepts financial data and information and measures the present condition of a business organisation and predicts its future.
In the basic accounting system of a business firm there exists these two kinds of accounting systems mainly. Proper management of management accounting and financial accounting helps an organisation to achieve success in the long run by providing a range of competitive advantage to the organisation (Schaltegger and Burritt, 2017).
Though it is seemed that management accounting and financial accounting are almost similar, but there remains some critical difference in between these two. Here in the below table, the author will make the differences out.
Management accounting deals with the process of decision orientation.
Financial accounting is based on the financial information to complete tasks.
Management accounting works with the future statements of a business organisation.
Financial accounting is dependent on the past scenario of an organisation.
Management accounting is a disparate process.
Financial accounting is not apart, it works wholly.
Management accounting focuses on the decision making strategy just in time.
Financial accounting focuses on the sharpness of information and data.
Without the existence of management accounting, organisations may run.
Without the proper maintenance of financial accounting, no business organisation can run.
To run a successful business organisation, it is important to take some decisions and actions and that is why management accounting is important to discuss about. The study of management accounting is important both for profitable and non-profitable organisations.
Business management is a dynamic process and financial management is an important factor here. Thus standard management of accounting is needed to be considered properly. There remains a lot of interrelated sectors and sub sectors in a business organisation and without the assistance of management accounting it is almost impossible to make a connection among all the departments. Management accounting is not bound to any particular structure and it is designed to handle any kind of financial concerns. The importance of management accounting in business ethics of an organisation is detailed below.
Allocation of privateinformation:The information and knowledge of a sector is not similar to the data and information of other sector or sectors. And it is the job of management accounting to design all the data and information in an integrated manner, so that the information integrated can be used in the overall operational and decision making process of an organisation.
Combination of information: Management accounting not only works with the collection of data and information. Rather it works to combine all the necessary information in a single framework and evaluates all those to make the expected result in the long run.
Verification of reasons of the feedback: Management accounting verifies each feedback of each department of an organisation and works for the further improvement of the negative ones. In this way an organisation prospers in the future.
Utilization of lasted techniques:Management accounting is anadvanced and dynamic sector of business studies and it has come out of the traditional systems of the past. Nowadays, management follows new technologies i.e. KPL, BSC, MIS and so on.
Cost management is the systematic approach which assists an organisation to promote the raw materials to the final goods or services. It is such a method which helps organisations to properly operate the costings of it. Generally the whole cost accounting system is managed by a manager wholly. He renders his own efforts and initializes his thoughts while producing anything to minimize the production cost and enhance the output which is known as the costing account system on a whole according to the business dictionary.
Actual cost: Actual cost refers to the whole cost of a business firm or organisation. Herein this given scenario, the managers are playing roles of line manager and rendering his efforts to control the costing system of Tech, UK.
Normal cost:Normal cost is a set of costs which an organisation faces to produce a final output. Like all other organisations, Tech also has this normal cost and the management accountant of the organisation takes care about this matter (Hansen, et al, 2007).
Standard costing:Standard cost is the difference between the expected cost and the actual cost. The gap between actual and expected cost is known as standard cost. For every organisation it needs to have the standard cost in a regular and nominal view. If the expected cost becomes higher than the actual cost then it can be said that the organisation maintains a weak financial standard. The management accountants of Tech, UK should consider these facts.
The management system of an organisation is needed to become inventory, so that it may help the organisation to prosper in a well-mannered approach. The inventory management should be done in such a way that it may not expanse extra cost for the organisation, rather the costing of inventory management should be in a standard level, so that the organisation may not face any phobia of extra or higher costing compared with its financial ability. Without an inventory management system, an organisation may not be able to meet the targets or demands of the customers. Tech is a special mobile phone charger producer organisation and it should always keep the demands of the customers in mind. Thus to uphold its popularity the overall management system should be inventory. The area of inventory management of Tech are the marketing, human resource management, finance and many more. While maintaining the supply chains Tech should adopt inventory management system. It the operational areas of Tech, inventory management system is necessary and thus it is urgent for the organisation to install the most suitable technical equipment and strategic tools while producing goods or rendering services. Tech and all other organisations can adopt FIFO LIFO system of inventory management to calculate the overall progress.
Job costing system is the approach which is used to measure the costs of any sector. Job costing system is different for each particular business sector. In the job costing system, different kinds of costs including labor material cost, labor cost, overhead cost and so on are included. For instance if the management accountant of Tech has £10,000 as material cost, £20,000 as labor cost, £50,000 as overhead cost, then the total cost becomes £80,000 according to the calculation of job costing system. In this way, the job costing system helps any organisation to allocate costs of every sector and sub sector of it.
Financial statements, cash flow or balance sheets are not the only solution to depend upon for running any business organisation as there can be absence of some important ethics. And for this reason, managerial accounting reports are necessary in an organizational framework. These reports firmly calculate everything related with the cost management and management accounting of any business organisation such as Tech, UK. There are many types of managerial accounting reports and these are described below.
Cost report:When the total cost is being divided by the total production then the result is known as the cost report. It is necessary to firmly calculate the profit margin of a business organisation. To run a business firm successfully, cost report is mandatory (Zimmerman and Yahya-Zadeh, 2011).
Budget:Budget is perhaps the best instance of managerial accounting reports. In a budget the future expanse is being predicted of any organisation i.e. Tech. Budget shows the expanses in different sectors and also shows its purposes. To run any organisation like Tech and to earn more revenue through providing services or selling products budget is necessary.
Performance report:To implement the next budget it is necessary for an organisation to look upon the previous performances of the organisation to check if the organisation has become successful in meeting its objectives or not. And if the result goes negative then the performance report searches the faults of the organisation for which it has failed to meet the commitments previously made by the organisation.
Inventory report:From an inventory report an organisation becomes able to learn how many inventions are necessary for the organisation to perform better in future and the inventory report also shows the present circumstance of the organisation.
Manufacturing reports:Manufacturing reports show a list of goods and raw materials which are needed for the organisation.
Account receivable report: Account receivable report shows a list of assets of the business firm who are qualified for account receivable. It is one of the most sensitive and contemporary parts of management accounting.
In every steps of business management studies understanding information and data are necessary and that is critical also. Here misunderstanding or misinterpretation situation may occur. Thus, information should be presented in a well-precise manner, so that the information can be easily understandable.
At the event of information collection, a universal code of conduct should be followed. It will enable the manager to understand everything and if the manager understands the provided data and information accurately then taking any kind of decisions becomes easier for him. But if the information seems harder for the manager to understand then he can take improper decisions and that can lead the organisation to a serious problem.
A manager has some sub-ordinate workers who works under him. The knowledge and information should also be understandable to them. Without proper information and direction the employees may work inaccurately and they can miss the important things to perform which will make the business firm sufferer.
From the function, orientation and goals each organisation is different from the other ones. And every organisation has some specific and common rules, which it follows to run its activity. If the rules and regulations of a business firm is unclear and not understandable, then it can hamper the progress the organisation and can make it drained. Thus the necessity of clear information and data in functioning and operating an organisation is mandatory.
If we discuss about an organisation such as Tech, UK, there are various departments and among them marketing department is a vital one. The job of marketing sector of Tech is to present the organisation by making advertisement and many more to general public. If marketing sector becomes unable to perform its activity, then the buyers may feel shy to buy products from the company. As a result the organisation may suffer. Thus presenting the information clearly is an important thing in running business firms (Ahrens and Chapman, 2007).
Absorption costing refers to the calculation of the costs which are directly related to the manufacture of products. Calculation of the wages of the employees, the costs of the raw materials, overhead costs, utility costs and many more can be called as the absorption costing of an organisation, as these terms are used generally in producing any product.
For the given organisation Tech, it has sells of 52,500 and the cost of sold goods is 30,000. Thus the gross profit is 22,500. After all the selling distribution and administration expense, the net operating income remains 4,625 which can be called as profit. Thus from the above calculation and analysis, it is evident that absorption costing covers all the necessary information of an organisation from the financial perspective. Calculation of absorption costing is beneficial for any business organisation.
Absorption cost offers an integrated financial view of any organisation through the calculation of variable cost and fixed cost.
The calculation of absorption cost helps any organisation to enhance its revenue by showing the possible ways (Macintosh and Quattrone, 2010).
Marginal cost refers to that cost which is mandatory to make out another unit of production. In another sense, it is the required cost for an additional unit of output. To produce the income statement of a business company marginal cost approach is necessary. It is a part of management accounting. In the business organisation Tech, UK the income statement is drawn above. From the above calculation it is found that the sales is 2500 and the marginal cost is 30000. It is according to the absorption cost approach which is also shown before the income statement. In the income statement fixed cost is 25000 which is the basic to calculate the profit. The calculation shows a negative figure and the loss is about 2875. The usefulness of income statement is detailed below.