Analyzing Management Accounting & Finance Accounting | Break Even Analysis | Operational Budgets | Variance Analysis

Management Accounting

Management accounting is a main part of accounting which is fundamental for every firm. Management accounting helps the managers of a firm to take the decisions about entire functions of a firm. It also aids the firm to take management over organization’s cost.

It is also a part of accounting. Fundamentally, this accounting part is helps the organization to make some financial reports and accounts to recommend a consistent and trustworthy information to the managers of the company to make better decisions (Kaplan and Atkinson, 2015). Management accounting helps the manager of a company to make better decisions.

It is another element of accounting. In financial accounting, annual reports are prepared by the organizations. This report is mainly prepared by the companies to provide information about the company to the external stakeholders. It is the crucial field of accounting and it helps the accounting to be more significant (Davies and Crawford, 2011). Financial accounting helps the manager to make decision about the organization. Mainly, income, assets, expenditure and liabilities of an organization are considered in this element.

It has been found that both the financial accounting and management accounting are significant elements of accounting. Both of these types are helpful for the organization to make decision about the company. Difference of both of these elements has been discussed below:

Basis for comparison Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Financial Accounting	Management Accounting
Meaning	It is an accounting system which focuses on the financial statement preparation of an organization to depict the information related to finance to the concerned parties.	It is an accounting system which focuses on the non financial statement preparation of an organization to depict the information related to management to the concerned parties.
Information	Monetary transactions information are required to prepare these statements.	Monetary and non monetary transactions information are required to prepare these statements.
Required	Financial accounting reports are mandatory for the organizations.	Management accounting reports are not mandatory for the organizations.
Format	A specific format must be followed.	There is no specific format.
Objective	It provides the knowledge to the external stakeholders regarding the firm’s performance.	It provides the knowledge to the internal stakeholders regarding the firm’s performance.
User	These reports could be used by anybody.	Managers and employees could access these reports.
Time Frame	After an accounting period, these statements are prepared.	It could be made any time.
Reports	These reports are in summary form to make it easy for everybody to understand it.	These statements are in detailed format.

(Hansen, Mowen, Guan, 2007, Weston and weaver, 2011 and horngren et al, 2005)

Cost classification is a significant process for every production house. It assists the firm to. In cost classification, many aspects of the cost like direct and indirect cost, fixed and variable cost etc are investigated and the each head of the cost is allocated cost accordingly.

Direct cost explains about the cost that directly affect over the manufacture of a firm like direct material and direct labor cost etc. these costs are take place directly and directly to affect over the production of a firm. These direct costs are treated as the total direct cost in a company’s cost sheet; there are some points which shows that why must direct cost be allocated and classified properly:

• It needs the company to classify all the expenses of firm.
• It is needful to make decisions regarding the cost and pricing of the company.
• It is needful to analyze the cost that could not be reduced.
• It is needful for the firm to analyze funds.
• It is needful to maintain the trust and transparency (Hansen, Mowen and Guan, 2007).

Indirect cost explains about the cost that indirectly affect over the manufacture of a firm like indirect material and indirect labor cost etc. these costs could take place indirectly and indirectly to affect over the production of a firm (Ward, 2012). These indirect costs are treated as the total indirect cost in a company’s cost sheet; there are some points which shows that why indirect cost must be allocated and classified properly:

• It requires the firm to keep the responsibility.
• It is needful to make the purpose regarding administration cost.
• It is needful to recognize the cost that could be reduced.
• It is needful for the firm to examine the funds.
• It is needful to maintain the trust and transparency.

Financial Accounting

	Cost card
	Total	Per unit
Direct Material	10000	100
Direct labour	15000	150
Direct expenses	5000	50
Total direct cost	3000	300
Indirect Material	3000	30
Indirect labour	9000	90
Indirect expenses	1500	15
Total indirect cost	13500	135
Cost of goods sold	43500	435
Mark up amount	6500	65
Sales revenue	50000	500

This cost card shows that the total units of production house are 100 and the total revenue of firm through sales is £50000 at the same time the total COGS of the firm is £43500. It shows that firm has set a profit of £ 65 on per unit. So through this statement of cost card it could be depicted that it becomes significant for a production company to investigate the direct and indirect cost of a firm (Bromwich and Bhimani, 2005).

It is a quantitative examination technique to investigate the difference between the actual and planned behaviour. This method is used by the firms to evaluate the difference and search the reason behind such dissimilarity (Cadez and Guilding, 2008). “Trend line” method is one of the trendy techniques and it is more effective, thus the result offered through this tool is more effectual. The type of variances is as follows:

• Variable overhead spending variances
• Labor rate variance
• Selling price variance
• Purchase Price variance
• Fixed overhead spending variances
• Labor efficiency variance
• Material Yield Variance

Labour variance is quite important for a firm to recognize the dissimilarities and main derivation of the differences between the actual and budgeted figures. This variance assists the company in controlling over the cost by contributing into the main derivation of dissimilarity. Manager may resolve such problems and could make a control over the cost. This variance also assists the administrator to make decision about the labour hour which is required to run the production smoothly (Weston and Brigham, 1975). Administrators take a gaze over the variances and hire or fire the labour accordingly.  

It is quite important for a firm to recognize the dissimilarities and main derivation of the differences between the actual and budgeted figures. This variance assists the company in controlling over the cost by contributing into the main derivation of dissimilarity. Manager may resolve such problems and could make a control over the cost. This variance also assists the administrator to make decision about the purchase level which is required to run the production smoothly. Administrators take a gaze over the variances and order the material accordingly.  

Sales variance is quite important for a firm to recognize the dissimilarities and main derivation of the differences between the actual and budgeted figures. This variance assists the company in controlling over the cost by contributing into the main derivation of dissimilarity. Manager may resolve such problems and could make a control over the cost. This variance also assists the administrator to make decision about the sales level which is the main element of every company (Radebaugh, Gray and Black, 2006). Administrators take a gaze over the variances and changes into the production and pricing accordingly.  

Difference Between Management Accounting and Financial Accounting

Variable OH variance is quite important for a firm to recognize the dissimilarities and main derivation of the differences between the actual and budgeted figures. This variance assists the company in controlling over the cost by contributing into the main derivation of dissimilarity. Manager may resolve such problems and could make a control over the cost. This variance also assists the administrator to make decision about the variable cost which is required to run the production smoothly (Weston and Brigham, 1975). Administrators take a gaze over the variances and maintain the production level accordingly.  

Budget is a statement which is prepared for future estimates. It depicts the future expenses and income of the company. It is made by the firms in advance to guesstimate and calculate the future expenditure and income to make some strong policies (Zimmerman and Yahya-Zadeh, 2011). Operational budget assists a manufacturing firm to guess every spending before and diagram the pricing strategy according to that.

Direct material budget is one of the crucial budgets for a manufacturing company. It helps the management to analyze the units of raw material which is required to produce the total production units according to the production budget (ward, 2012). It might be made by the organizations for monthly, yearly and quarterly basis.

Material budget
For the year 2017
	January	February	March
Required Units	1000	1000	1000
Material A	10000	10000	10000
Total Material Required for production	10000	10000	10000
ADD:
Budgeted ending DM	–	–	–
Less:
Budgeted opening DM	–	–	–
Budgeted DM Purchase	10000	10000	10000
Budgeted Direct material cost	£ 1,00,000	£      1,00,000	£  1,00,000

Production budget is one of the crucial budgets for a manufacturing company. Many different budgets such as purchase budget depend upon the budget. It helps the management to analyze the units which is required to produce to meet the customer obligation in next year (Simmonds, 2000). It might be made by the organizations for monthly, yearly and quarterly basis.

production budget
For the year 2017
	January	February	March
Required Units	1000	1000	1000
Material A	10000	10000	10000
Total Material Required for production	10000	10000	10000
ADD:
Budgeted ending DM	–	–	–
Less:
Budgeted opening DM	–	–	–
Total Production	10000	10000	10000

Direct labour budget is one of the crucial budgets for a manufacturing company. It helps the management to analyze the total labour hours which is required to produce the total production units according to the production budget (CODE, 1990). It might be made by the organizations for monthly, yearly and quarterly basis.

Labour budget
For the year 2017
	January	February	March
Required Units	1000	1000	1000
* Labour hour	2	2	2
Budgeted direct labour hours	2000	2000	2000
* cost per direct labour hour	12	12	12
Budgeted direct labour cost	24000	24000	24000

General and administrative budget is one of the crucial budgets for a manufacturing company. It helps the management to analyze the total expenses which could be occurred while producing the total production units according to the production budget (ward, 2012). It might be made by the organizations for monthly, yearly and quarterly basis.

Variable budget
For the year 2017
	January	February	March
Required Units	1000	1000	1000
* variable units	2	2	2
Budgeted direct variable hours and material	2000	2000	2000
* cost per direct metrical and labour	5	5	5
Budgeted direct labour cost	10000	10000	10000

Sales budget is the most basic budget for a manufacturing company. Many different budget of a production house depends upon the budget. It helps the management to analyze the units which could be sold in the next year (Hoque, 2002). It might be made by the organizations for monthly, yearly and quarterly basis.

Predicted Monthly Sales
January	February	March
1000	1000	1000

Conclusion:

Through this report, it has been analyzed that managerial and financial accounting is decisive for company’s management. They play a diverse role and assist the company to make some decisions.

References:

Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima publishing.

Cadez, S. and Guilding, C., 2008. An exploratory investigation of an integrated contingency model of strategic management accounting. Accounting, organizations and society, 33(7), pp.836-863.

CODE, S.M., 1990. Strategic management accounting.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control. Cengage Learning.

Hoque, Z., 2002. Strategic management accounting. Spiro Press.

Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D. and Schatzberg, J., 2005. Introduction to management accounting. Upper Saddle River, New Jersey: Prentice Hall.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3.

Radebaugh, L.H., Gray, S.J. and Black, E.L., 2006. International accounting and multinational enterprises. New York, NY: John Wiley & Sons.

Simmonds, K., 2000. Strategic management accounting.

Ward, K., 2012. Strategic management accounting. Routledge.

Weaver, S.C., Weston, J.F. and Weaver, S., 2001. Finance and accounting for nonfinancial managers. New York: McGraw-Hill.

Weston, J.F. and Brigham, E.F., 1975. Managerial finance. Hinsdale, IL: Dryden Press.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.