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Running Head: MANAGEMENT ACCOUNTING 1 Management Accounting Name Institution Professor Course Date

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Table of contents Introduction………………………………………………………………………………………4 Body 1. The understanding of the management accounting system……………………………….4 I.

Essential requirements of different types of management accounting systems….4

II.

Benefits of management accounting systems and their applications……………..6

III.

Different methods for management accounting reporting………………………..8

IV.

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Accounts receivable aging………………………………………………..8

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Budget Report…………………………………………………………….8

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Job Cost Report…………………………………………………………...9

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Inventory and Manufacturing…………………………………………….9

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An operating Budget……………………………………………………...9

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Profit and Loss Statement………………………………………………...9

Integrated management accounting systems and management accounting reporting…………………………………………………………………………10

2. Management Accounting Techniques……………………………………………………11 V.

Income Statement Under Marginal Costing…………………………………….12

VI.

Income Statement Under Absorbing Costing…………………………………...13

VII.

Marginal Costing Technique……………………………………………………13

3. Dell Financial Report…………………………………………………………………….15 I.

Products and Solutions………………………………………………………….16

II.

Business Units…………………………………………………………………..16

III.

About Dell………………………………………………………………………16

4. Pros and Cons Of Budgetary Control Tools……………………………………………..17 5. Applications of Planning Tools in Budget Forecasting………………………………….17 6. Appropriate Response of Planning Tools to Dell Inc. …………………………………..18 7. Comparative Analysis (Dell and HP)……………………………………………………18 8. Management Accounting for Sustainable Success………………………………………19

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Conclusion………………………………………………………………………………………19 References ………………………………………………………………………………………20

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Management Accounting Introduction Management accounting system is the integrated processes that provide information to the managers for sound decision-making procedures. It is also the provision of both financial and non-financial decisions during decision-making procedures to the managers. The decisions will provide a direction for the company as far as both financial and non-financial decision makings is concerned. A robust managerial accounting system is the integration of accounting information system which involves the use of computers in management. The computer technology will take track of the accounting activities in addition to the IT services to generate financial reports. Being a management accountant at Dell Company, I have been entrusted to conduct a short induction course to the new trainees in the company. The induction course concentrated on the following critical issues pertinent to management accounting techniques. The induction process requires a person who is well-acquainted with the management accounting principles (Garrison, 2010, pg. 792). Engaging such person also ensures the organization gets the best recruits for the vacant positions in conjunction with the Human resource department. For this reason, it was necessary for the line manager to task me with this duty.

Understanding Management Accounting Systems

P1 Explain management accounting and give the essential requirements for different types of management accounting systems. Management accounting is a way of preserving value for an organization through sourcing analyzing, communicating and use of relevant financial and non-financial information. Management accounting integrates finance, accounting, and management techniques which are valuable to Dell Company and any other company operating under similar principles. Nevertheless, management accounting is different from financial accounting on the following basis. Financial accounting involves the preparation of the reports which are based on past performance of a company. These reports are prepared in line with the reporting requirement whereas management accounting is a collate information such as outstanding revenue debts and cash flows which are meant to pedicure timely trend reports of an organization (Henri, 2010, pg. 65). Besides, management accounting gathers statistics which are used on a daily basis when it

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comes to decision making in the business. Management accounting combines financial information with non-financial information data to give a complete overview of the company and drive the business to its success and strategies while financial accounting produces the information needed for use by other functions and departments within the business. The info from financial accounting can be distributed to the lenders, stockholders and financial analysts and other parties outside the company. The information covers appropriate accounting principles which are the guidelines when reporting the company’s past transactions on the balance sheet. On the other hand, management accounting focuses on providing information within the company for a smooth running of the business. It also provides instructions when computing the cost of products at manufacturing enterprise (Drury, 2013, pg. 34). In an organization like the Dell Company, the primary users of the management accounting information are mainly the managers and the accountants among other internal users. The management accounting information is, therefore, a crucial document in any organization since it provides the organization with the relevant financial details required for strategy development. A management accounting information system is, therefore, a subsystem of management information systems that process all the financial transactions and provides internal reporting to managers for planning purposes and controlling operations within the organization. In this regard, management accounting systems include cost accounting system also called the product costing system. Cost accounting system is a framework which firms use to nest an estimation of the cost the products (Hilton, 2013, pg. 43). The evaluation of the cost of the product is ideal for a profit-oriented business. A firm must come to terms to know which products are profitable and which ones are not profitable. On the other hand, inventory management system is a set of integrated hardware and software tools which are meant to be used by the company as per the agreed rules. Today, the modern inventory management systems are robust and sophisticated while maintaining the desired flexibility. Most of the management accountants work in conformity to the job-costing system. In job costing system, the process involves gathering information which is related to the cost of a specific production (Baldvinsdottir, 2010, pg. 79). Managers require this information to supply the cost information to the customers under the situations when the costs are reimbursed. An elaborate job costing system needs to cover the direct materials, direct labor, and overheads. Management accounting

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pertains to the price-optimization system as well. In the price-optimization system, companies including Dell apply the extensive use of mathematical models to come up with the best option for pricing strategies. This system will determine how the customers will respond to the different prices staged by these companies. It will gauge how demand for a particular commodity varies at different price levels. M1. Evaluate the benefits of management accounting systems and their application within an organizational context. Business enterprises often use management accounting systems to keep track of the business and the financial information which are crucial to running a successful business. In Dell Company, the management accounting systems are designed to capture all the operations of this company because Dell experiences a lot of competition from other companies like Lenovo Company. First and foremost, management accounting systems lower operational expenses. Most businesses use management accounting systems to review the cost of the economic resources that brae available to the company at the time of budgeting as well as reviewing the cost of other business operations (Hopwood, 2010, pg. 43). The information obtained from these systems allows the managers in the business to develop a better understanding of the cost of ruining the business. As seen earlier, the cost-accounting systems, job-costing systems, and the price optimization systems all work in conformity to this advantage of lowering the cost of operation. The management accounting systems are also useful when analyzing the economic resources quality used in the production processes for the company. If a case at hand is that the business will not suffer a setback in the overall product quality by using cheap raw materials, then the business is likely to lower the production costs.

Management accounting systems also improve the cash flow in a business. The most fundamental part of the management accounting system is the budget. Budgets always provide financial roadmaps to business owners and managers in that organization. These financial roadmaps are useful in the future business expenditures. Budgets for companies are usually based on the past fiscal information. The past financial details will thus, provide a framework for the overall master budget for the company. The overall master budget is, therefore, the refined historical financial information by the management accountants (Lim, 2013, pg. 55). In Dell Company, smaller budgets are used for various departments and subdivisions within the

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company. The individual budgets are condensed to come with an overall master budget. Budgets crop out the unnecessary expenditures for the company and consequently save the company’s money through a careful financial analysis.

Management accounting systems improve business decision making. Management accounting always improves the decision-making spree of the managers. In some companies, decision making often involves qualitative analysis of the preexisting data from the company records. Nevertheless, research proves that the decision making based on management accounting as the decision-making tool is feasible for most companies including Dell. Management accounting always provides the quantitative analysis which managers and the other external user depend on for the correct course of actions regarding managerial and financial management. An organization with best decision-making strategists benefits a lot from this advantage. The managers in such companies can review the opportunities which exist via the quantitative research paradigm (Macintosh, 2010, pg. 11). Additionally, such decisions will provide a clear understanding of the business decisions which will always be directed towards a profit making agenda.

Increased financial returns are the original expectation of any profit-making business. Management accounting systems always work in such a way that they increase the financial profits. Economic forecast related to consumer demands, potential sales, the effect of the price changes on the consumers are healthy for any business. From here the business will plan on how well it can satisfy the customers’ demands as far as pricing are concerned. This is beneficial to any business since the feedback from the customers in the market will mark the beginning of strategy reviews. Increased financial returns will enable the business to accommodate its financial requirements without pressure. Good financial returns will mean better pay to workers, better working conditions and consequently improved products and services. The information from the market to ensure enough goods are produced which meet the consumer demands of the currently existing prices (Parker, 2012, pg. 56). While making this improvement, the companies also pay close attention to the existing market competition which may reduce returns.

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P2. Explain different methods used for management accounting reporting. There are various types of management accounting methods used for reporting. In this assignment, I would go through them one by one and each bearing an explanation.

Accounts Receivable Aging This is one of the methods used in the management accounting reporting. The account receivable aging is a tool for managing the cash flow in a company which extends credit to customers. It is a report that breaks down the customer balances depending on how long they have been owed. In most cases, accounts receivable reports contain columns for invoices which range from one to three months late or even more. The top management of companies can use this report to find the problems which may exist in the collection process. The companies always wish to put stringent measures to its credit policies if many customers are unwilling to settle their balances. Credit policies for companies will still work to enable the companies to realize profits in the end. The various departments of the company may overlook old debts, and this can result in inadequate follow-up activities. Most companies always do a periodic analysis of the accounts receivable aging to avoid such cases. The next method used for management accounting reporting is the Budget Report. Budget Report The budget report provides the basis for analysis of the company’s performance. If the business is the size of the Dell Company, the managers will analyze the performance of each department and the control costs. The estimated budget for a given period is usually based on the actual expenses forms the previous expenditures. From the earlier expenditures, managers can draw similarities in expenses and the setbacks they faced during the past budget. The budgeting for the subsequent years goes through a series of balancing aimed at trimming the resultant figures to the desired cost. If the past budget experienced overestimations, the cost in the oncoming years must be feasible. Budget reports are useful in providing incentives to the employees. Some of the budgeted funds may be given out as bonuses for meeting specific objectives.

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Job Cost Reports Job cost reports show the expenditures for specific projects within the company. These reports help the companies to evaluate and estimate the project’s profitability. Thus the companies will direct many funds to a more profitable project and possibly reject the non-profitable projects. The rejection of a project or upholding is a result of the identification of the high-earning areas of the business. During the project progress, job cost reports are used to analyze the expenses so that possible corrections in the areas of waste can be corrected. Inventory and Manufacturing This method is always applicable to companies with physical inventories. Such companies can use the managerial accounting reports to improve the efficiency of the manufacturing process. In this method, items such as inventory waste, per-unit overload cost, and the hourly wages. The managers can evaluate each unit in the company or each department and award bonuses the best performing department. An operating budget An operating budget is the integrated known expenses and expected future costs as well as the forecasted income over a period usually one year. The operating budgets are completed before the commencement of accounting period since they are required to estimate the revenues and expenses. It consists of the sales and collection budget hence it majorly facilitates the incomes. They are usually based on the quarterly performance of a company. Dell has more than one operating budget one for the unforeseen drop in revenue and the other one for the positive case which all asset in the planning for the interchanging business environment.

Profit & Loss Statement This also referred to as the income statement. It is a recap of company’s revenues and expenses over a given period. This is a method of management accounting reporting which indicates how the revenues from the sale of products are transformed into net incomes. This reporting method shows the managers and investors whether the company made profits or losses over the period evaluated. This method of reporting can be prepared in two approaches. One is the single step approach where the bottom line is arrived at by subtracting the expenses from the revenue totals.

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The multi-step income statement can be prepared by calculating the operational expenses then deducting from the gross profit when to yield income from operations.

D1. Critically evaluate how management accounting systems and management accounting reporting is integrated into organizational processes. The primary role of management accounting information in an organization is to support and provide a firm ground for decision-making processes. The process of management accounting in supporting a competitive decision moves collecting, processing and communicating the feasible ideas to the management organs of the company. The communicated information will eventually help the company and the management to plan, evaluate and control the business processes which aim at the company’s strategies (Zhao, 2013, pg. 325). While sticking to these processes, the companies integrate both the management accounting systems and the management accounting reporting methods to arrive at desired objectives. From the basic types of the management accounting systems, cost accounting systems are framework used by the companies to estimate the cost of their products. The cost accounting system must be integrated with the management accounting reporting received from the budget report and the operating budgets. After the company has set it to cost accounting goals, the managers must then evaluate whether the set goals for cost accounting fit within the budget report. This will help the company focus on better cost strategies in the next financial years or quarters to avoid losses which result from the overestimated costs. At some point, the company may want to achieve some of its goals even if the profit margins that are not feasible. The profit and loss statements will act as the appropriate guide to the pricing strategies for sound decision makings.

Under situations when the cost of products is reimbursed, the managers will require the jobcosting system top supply the required information to the customers. Therefore, an existing operating budget is necessary in this case (Ward, 2012, pg. 10). The operating budget for quarterly periods will enable the customers to learn about the changes in the prices of the products and services and hence adjust accordingly. Besides, a company may wish to invest in a certain project based on its profitability index. Before engaging the project and funding it, the managers must first engage in fact findings of the profitability of the project. They must research the existing similar projects to invest in a sure deal. In this case, the job costing system is

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necessary. In the job costing system, necessary information about the project will be availed for analysis. An operating budget of any organization should work in close conformity to the price optimization systems. While the known and the future expenses are noted down in the operating budget, the company for revenue estimation, the price optimization also targets revenue optimization as well. Even though price optimization targets to optimize the outcome of the products and services, it should...