Conducting An In-Depth Analysis On Accounting: Management Accounting And Financial Accounting

Evaluating the need for investing in the latest software of management accounting as well as financial accounting in an organisation

Discuss about the Conducts an in-Depth Analysis on Accounting.

The report mainly evaluates the significance of management and financial accounting, which are used by companies to make adequate decisions. In addition, the study also focuses on evaluating the significance of latest software’s that could improve the financial growth decision of an organization. Furthermore, the study also shows the overall classification of cost, which might help organizations in making adequate decisions. In addition, the novices with the help of examples are able to portray the objective of preparing budgets, standard cost and variance analysis. Lastly, the study sheds light on favourable and adverse variances of budget, which might help organizations in making budgets that are more suitable for its future growth.

In addition, with the help of latest software’s in management and financial accounting J Sainsbury Company could effectively increase the efficiency of the report generated by accounting software. Moreover, the boost in technology has mainly helped in increasing the overall accuracy of analyzing the demand and sales on particular seasons. Furthermore, with the help of this advanced software’s Sainsbury could effectively minimize the overall expenditure and maximize its profitability. Gogus and Ozer (2014) argued that continuous investments in latest software’s could increase the overall expenditure of the company and might affect its cash reserves. However, Boulianne (2014) stated that adoption of latest technology in the business could help in improving the overall decision-making process and might increase investment scope of an organization.

Financial accounting	Management accounting Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
It mainly helps in communicating financial position of the company	It helps in the decision making process of the company
It is a mandatory system that need to be adopted by organist ions	It is not mandatory for organizations
Financial accounting mainly regulates under GAAP, IAS and IFRS	It is does not have any kind of guidelines or regulations
Its only portrays the past transactions conducted by the company	It mainly portrays the overall future growth estimated by the company
It is prepared for external audience like shareholder, government etc of an organization	It is mainly prepared for internal directors committee of a organizations

Table 1: Showing the difference between financial and management accounting

(Source: Taipaleenmaki and Ikaheimo 2013)

Estimating and evaluating cost in organization is a significant role, which mainly helps companies to survive in the competitive market. In addition, with the help of cost classifications companies are able to evaluate the overall expenditure conducted on different levels. In this context, Drury (2013) stated that organizations with the help of cost classifications companies are able to effectively price their products and maintain the competitive edge in the market. On the other hand, Mensink et al. (2013) criticized that wrong classification of cost could results in loss and might reduce the overall capital invested by the company.

Figure 1: Showing the different Cost classification in a manufacturing organization

(Source: Lopez et al. 2015)

With the help of figure 1, the overall different costs that are conducted in a manufacturing company can be effectively evaluated. In addition, these classifications mainly help in evaluating the different cost, which are currently conducted by the company. Huynh et al. (2014) stated that cost classification also help management to make adequate investment and expansion decisions, which might help in improving productivity of the organization. Refer to appendix 1 for examples of cost classification. The main significance of cost classifications are as follows:

Evaluating the significance of classifying costs on the basis of behaviour, function, relevance and types in business decision making

In addition, with the help of cost classifications on different organizations are able to segregate the indirect and direct costs that are related to production. Moreover, theses segregation mainly helps in reducing excess expenditure conducted by the company. Lopez et al. (2012) mentioned that companies that use cost classifications effectively are able to reduce their expenditure and maximize their profits from sales. However, Wang et al. (2014) argued that cost classification is an expensive process, which is mainly conducted by organizations to manage their uncontrolled expenditure.      

Furthermore, with the help of effective cost classifications manufacturing companies are able to evaluate different costs situated within the levels of production. In addition, cost classification also helps the management to make adequate decisions regarding adoption of new machinery or budgeting process to reduce the overall rising costs. Marshall et al. (2011) mentioned that cost classification mainly help companies to make adequate expansion plans, which might help in increasing their revenue generation capacity. On the contrary, Pan et al. (2015) argued that during an economic crises cost classification could lose its friction due to the rising expenditure and low revenue generated by the company.

ABC being a manufacturing company has both direct and indirect cost, which helps in generating the required revenue.  However, cost classification could help ABC Company to make adequate decisions in reducing its overall expenditure on non-productive activities. Furthermore, it could be effectively concluded that ABC Company could increase efficiency of its decisions and reduce excess expenditure conducted in its manufacturing process.

Budgets are an essential part of planning, which help companies to identify the required liquidity needed in their production function. In addition, budget also helps in reducing the overall expenditure and improves profitability of the company. In this context, Taft et al. (2013) stated that with the help of budget companies are able in effectively managing their liquidity and productivity, which in turn increases their capacity to make sustainable profits. On the other hand, Li and Dong (2014) criticized that change in future inflation rate is not included in budgets, which in might raise projected expenditure and reduce profits of the company. Moreover, the objectives of budgets are as follows.

The main objective of preparing budgets is to predict the future cash flows that could be conducted by the company. In addition, the estimations of future cash flows mainly help the company in maintaining the required funds, which could help in supporting adequate level of productivity. Joshua and Mohammed (2013) stated that projected cash flow from budgets mainly help companies to make relevant marketing decisions, which in turn increases its profitability and customer base. On the other hand, Berman (2015) criticized that budgets could lose its friction during an economic crisis, which in turn might reduce revenue generation capacity of the company.  

Evaluating the objectives of preparing budgets with appropriate examples of operational budgets

Furthermore, with the help of budget companies are able to determine different courses, which could be taken to reduce risk from external environments. In addition, budgets also help in preparing the companies for the worst-case scenario that could negatively affect its productivity. On the contrary, Raudla (2013) mentioned that budgets only evaluates financial outcomes and does not consider external factors, which might negatively affect operation of the company.   

Measuring performance:

In addition, with the help of budget companies are able to measure their overall performance. Moreover, companies mainly use variance analysis to measure difference between actual and budgetary figures, which in turn helps in evaluating accuracy of its budgeting process. In this context, Li and Dong (2014) argued that variance analysis is losing its friction as companies are using budgetary slack method to modify their budget and achieve targeted objectives. On the other hand, Arbatli and Escolano (2015) cited that increased variance could hamper productivity of the organization, which in might project the incompetency of its budgeting team.    

Moreover, budgets also help companies to make adequate financial resource allocation decisions, which mainly help them to make the required productivity level. On the other hand, Joshua and Mohammed (2013) criticized that viability and authenticity of the budget conducted hampered if inexperienced executives have prepared it. However, Berman (2015) mentioned that sound budget could only be prepared if companies have not used any unethical measures in preparing their financials report.

Income	Actual	Budget	Difference
Sales
Sales – Qtr 1	45,000	48,000	(3,000)
Sales – Qtr 2	37,000	44,000	(7,000)
Sales – Qtr 3	44,000	48,000	(4,000)
Sales – Qtr 4	55,000	53,000	2,000
Other			–
Total Sales	181,000	193,000	(12,000)
Cost of Goods
Beginning Inventory	12,000	14,000	(2,000)
Goods Purchased or Manufactured	33,000	30,000	3,000
Shipping Charges	3,500	2,500	1,000
Labour (wages and payroll)	22,000	21,000	1,000
Other	2,300	1,800	500
Less Ending Inventory	14,000	10,000	4,000
Cost of Goods Sold	58,800	59,300	(500)
Gross Profit	122,200	133,700	(11,500)
Total INCOME	122,200	133,700	(11,500)
EXPENSES
Operating Expenses
Advertising	1,500	1,000	500
Depreciation	2,300	2,300	–
Insurance	4,000	3,500	500
Office Supplies	1,200	1,500	(300)
Rent	3,600	4,000	(400)
Salaries and Wages	12,000	12,500	(500)
Other	3,600	3,800	(200)
Total Operating Expenses	28,200	28,600	(400)
Net Profit	94,000	105,100	(11,100)

Table 2: Showing the example of operational budget

(Source: As created by author)

Variance analysis is mainly conducted to evaluate the difference between actual and budgeted amount of an organization. In addition, companies use standard costing method, when actual costs are hard to derive. Furthermore, standard costing method is mainly used by manufacturing companies to derive the actual cost of production, which in turn might help in evaluating the profits derived in current fiscal year. In this context, Badem et al. (2013) suggested that standard cost method help organizations to make effective production budget and allocate adequate funds in the manufacturing process. On the other hand, Oker and Adıguzel (2016) criticized that some companies uses unethical measure in creating favourable variance to achieve targeted goals. Moreover, standard costing is mainly used as a base, which helps variance analysis to compare the actual costs of the company.

Standard Cost for Tamer Manufacturing Company
Particulars	Per unit	Amount	Amount
Material	10	1.8	18
Labour	6 hours	5.5	33
Overhead	4 hours	6	24
Total	20	13.3	75
Actual Cost
Particulars	Per unit	Amount	Amount
Materials 1	9	2	18
Labour	7	5	35
Overhead	3	5.4	16.2
Total	19	12.4	69.2
Material Usage Variance	-2	Unfavourable
Labour Efficiency Variance	3	Favourable
Variable Overheads Efficiency	2.4	Favourable
Total variance	18	Favourable

Table 3: Showing the example of Standard Cost

(Source: As created by author)

Table 3, mainly helps in evaluating the different variance that are favourable or unfavourable for Tamer Manufacturing Company. In addition, standard costing also uses favourable and adverse variance to determine the overall viability of cost conducted by the company. Furthermore, with help of favourable variance analysis the company is able in effectively maintaining its productivity and liquidity. On the other hand, CPA and Shi (2016) criticized that some companies uses unethical measures in their standard costing process, which in turn inflates their balance sheet. However, Oker and Adıguzel (2016) stated that with the help of standard costing method manufacturing companies are able to prepare adequate budgets, which help in maintaining the required level of productivity. The manipulation in standard cost might provide favourable variance, but negatively affect profit generation capacity of the company.

Moreover, adverse variance mainly helps the company to reduce their overall cost of production, which in turn might help in improving its overall profitability. In addition, the adverse variance analysis mainly indicates the incompetency of the accountant in determining the standard cost of a particular production process. Badem et al. (2013) cited that unfavorable variance analysis motivates the organization to make suitable changes in their administrative department, which could help in supporting its future endeavours. On the other hand, CPA and Shi (2016) criticized that standard costing loses its friction due to intense competition, which eventual reduces profitability of the company and hamper its future endeavours.

Conclusion:

The study mainly helps in evaluating different cost and budgeting process that could be used by companies to increase their productivity. In addition, the report also sheds light on the use of latest financial and management accounting software. Furthermore, the novice effectively evaluates the significance of cost classification, which could help in reducing overall cost of production. Moreover, the assignment also provides details on the objective of preparing budgets and an effective example of operational budget. Lastly, the novice provides details on impact of standard cost in variance analysis, which could help companies determine favourable and adverse variances.

Reference:

Arbatli, E. and Escolano, J., 2015. Fiscal transparency, fiscal performance and credit ratings. Fiscal Studies, 36(2), pp.237-270.

Badem, A.C., Ergin, E. and Drury, C., 2013. Is standard costing still used? Evidence from Turkish automotive industry. International Business Research, 6(7), p.79.

Berman, L., 2015. The Office of Management and Budget and the presidency, 1921-1979. Princeton University Press.

Boulianne, E., 2014. Impact of accounting software utilization on students’ knowledge acquisition: An important change in accounting education. Journal of Accounting & Organizational Change, 10(1), pp.22-48.

CPA, A.B. and Shi, Y., 2016. Leaning Away From Standard Costing. Strategic Finance, 97(12), p.38.

DRURY, C.M., 2013. Management and cost accounting. Springer.

Gogus, C.G. and Ozer, G., 2014. The Roles of Technology Acceptance Model Antecedents and Switching Cost on Accounting Software Use.Academy of Information and Management Sciences Journal, 17(1), p.1.sss

Huynh, D., Laeyendecker, O. and Brookmeyer, R., 2014. A serial risk score approach to disease classification that accounts for accuracy and cost.Biometrics, 70(4), pp.1042-1051.

Joshua, O. and Mohammed, N.A., 2013. Budget Target Setting and Effective Performance Measurement in Nigerian Hospitality Industry. Journal of Finance & Economics, 1(3), pp.39-50.

Li, X. and Dong, H., 2014. On the Preparation and Implementation of Research Budget in Agricultural Institutes. Asian Agricultural Research, 6(8), p.98.

Lopez, V., del Río, S., Benítez, J.M. and Herrera, F., 2015. Cost-sensitive linguistic fuzzy rule based classification systems under the MapReduce framework for imbalanced big data. Fuzzy Sets and Systems, 258, pp.5-38.

López, V., Fernández, A., Moreno-Torres, J.G. and Herrera, F., 2012. Analysis of preprocessing vs. cost-sensitive learning for imbalanced classification. Open problems on intrinsic data characteristics. Expert Systems with Applications, 39(7), pp.6585-6608.

Marshall, D.H., McManus, W.W. and Viele, D.F., 2011. Accounting. McGraw-Hill Irwin.

Mensink, T., Verbeek, J., Perronnin, F. and Csurka, G., 2013. Distance-based image classification: Generalizing to new classes at near-zero cost.IEEE transactions on pattern analysis and machine intelligence, 35(11), pp.2624-2637.

Öker, F. and Adıgüzel, H., 2016. Timeâ€Âdriven activityâ€Âbased costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.

Pan, S., Wu, J. and Zhu, X., 2015. Cogboost: boosting for fast cost-sensitive graph classification. IEEE Transactions on Knowledge and Data Engineering, 27(11), pp.2933-2946.

Raudla, R., 2013. Fiscal retrenchment in Estonia during the financial crisis: The role of institutional factors. Public Administration, 91(1), pp.32-50.

Taft, M.K., Hosein, Z.Z., Mehrizi, S.M.T. and Roshan, A., 2013. The relation between financial literacy, financial wellbeing and financial concerns.International Journal of Business and Management, 8(11), p.63.

Taipaleenmaki, J. and Ikaheimo, S., 2013. On the convergence of management accounting and financial accounting–the role of information technology in accounting change. International Journal of Accounting Information Systems, 14(4), pp.321-348.

Wang, J., Zhao, P. and Hoi, S.C., 2014. Cost-sensitive online classification.IEEE Transactions on Knowledge and Data Engineering, 26(10), pp.2425-2438.