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CONTENT
1. Activity 1
1.1. EVALUATES IMPORTANCE OF MANAGEMENT ACCOUNTING AND
PRINCIPLE.
1.2. PROS AND CONS OF MANAGEMENT ACCOUNTING TECHNIQUES
1.3. SUGGEST A BEST MANAGEMENT ACCOUNTING PRACTICE TO
COMPANY.
2. Activity 2
2.1. PROFIT OR LOSS STATEMENT USING MARGINAL AND
ABSORPTION METHOD.
2.2. RECONCILIATION
3. Activity 3
4. Activity
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1. Activity 1
1.1. EVALUATES IMPORTANCE OF MANAGEMENT
ACCOUNTING AND PRINCIPLE
Management Accounting
The term "management accounting" refers to a method of gathering, analyzing, and reporting
data and is essentially a tool used internally by controllers. Planning, operational control, and
performance evaluation are just a few of the uses that managers have for management
accounting.
In order to help with decision-making and the pursuit of objectives through analysis and
communication, management accounting creates reports for corporate operations. To make sure
goals are reached and decisions are well-informed, management accounting is essential for firms.
Organizations can create strategies for improvement by using the data it gives on sales, pricing
trends, production costs, customer satisfaction scores, and cash flow. Management accountants
can aid firms in developing efficient plans for improvement by gathering and analyzing these
data points.
Organizations can use management accounting to help them create accurate budgets and make
sure the right resources are being used to achieve their goals. Budgets are essential for measuring
cash flow and performance, giving managers the ability to pinpoint areas that need improvement
or modification.
Management accounting approaches make it possible for managers to take preventive action and
keep clear of costly mistakes by identifying prospective problems before they become significant
ones. By possessing the proper data, management accountants offer insightful understanding into
risks connected to projects or operations, enabling relevant actions to be made beforehand. The
importance of management accounting is shown in the list below.
Enhances planning - In order to prepare for the future, create budgets, make long-term plans,
and improve cash management, management accounting is essential for business success. Profits
and growth are maximized by being aware of this important factor.
Accurate budgeting, keeping tabs on the financial position, and developing conservative
estimates all depend on management accounting. The creation of customized budgets that
account for necessary costs without going overboard and help businesses stay on track with their
financial objectives is made possible by tracking expenses and income.
An effective financial system is necessary for good long-term planning, which is vital for
successful corporate operations. A company's financial health can be evaluated, and accurate
projections of future revenues and costs can be made with the aid of good management
accounting. The ability to plan investments and prospective long-term opportunities is provided
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by this knowledge. Businesses can spot possible cash flow problems early with the use of
accurate records, enabling proactive financial management and preventing costly errors. To
maintain financial transparency and increase returns on investments and projects, firms need
management accounting.
Decision-making supports - With its ability to shed light on a business's financial performance
and direct decision-making, management accounting is essential for making wise business
decisions. Businesses are able to reach their objectives and maintain their competitiveness by
using tools like financial planning, budgeting, and forecasting. As a result of the analysis of
financial data and trends, better resource allocation, operational optimization, and improved cash
flow control are made possible, decisions that have a substantial impact on a company's longterm success. Effective financial management also makes it possible to control risks better.
By anticipating trends and dangers, accurate analysis assists organizations in making long-term
plans that result in wise judgments. For firms to make educated decisions, management
accounting is essential.
Improvement of Managerial Performance - Management accounting is an essential area of
finance that provides helpful information about how businesses operate and succeed. Its main
objective is to offer timely information to decision-makers so they can boost productivity and
profitability. Managers can find possible cost-saving possibilities and boost efficiency by
gathering and analyzing financial data on cost inputs. Better resource allocation and cost
containment decisions are made as a result of this knowledge. The ability to foresee the future of
the company, get insights into its direction, and make more precise judgments about resource
allocation and investment opportunities are further ways that management accounting improves
manager performance.
Strategies for Cost Control - As it assists organizations in managing expenses, comprehending
financial performance, and coordinating spending with strategic objectives, management
accounting is essential for enhancing cost control strategies. Accurate cost information optimizes
budgeting processes and informs strategic decisions. Businesses can effectively estimate prices,
set budgets, and alter those budgets as necessary by using precise cost data. This helps them
avoid overspending or underspending, both of which can put them in financial trouble.
For firms to decide on pricing and profit margins intelligently, accurate cost data is essential.
Businesses can determine pricing that maximize profits while maintaining competition by
compiling information on production, overhead, and material costs. This helps prevent clients
from being overcharged or undercharged, which can have a detrimental impact on profitability
and customer loyalty. Long-term cost reduction, cost reduction methods, and increased
profitability all benefit from management accounting. Businesses can identify project-related
expenses and make the appropriate adjustments by using budgeting strategies based on
managerial accounting principles, maximizing efficiency and accomplishing strategic objectives
within budgetary constraints.
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Management accounting's role in maximizing profit - For companies and organizations to
maximize revenues by recording, monitoring, and analysis of corporate performance,
management accounting is essential. It aids in the efficient resource allocation and prioritization
of growth initiatives for firms. Better strategy planning and resource allocation are made possible
by management accounting's ability to foresee future performance. It helps examine historical
performance, generate knowledgeable estimates, and keep tabs on spending by delivering timely
financial information, ultimately maximizing profit margins.
In a rising economy, management accounting is essential because it enables businesses to
budget, track their financial health, analyze data, and estimate their financial success. It is
necessary for making strategic decisions, locating opportunities for efficiencies, cutting costs,
and maximizing profits. Management accountants are able to make better investments and
maximize profitability by analyzing historical performance to find methods to increase
productivity and cut costs. Additionally, they shed light on existing operations in comparison to
budgeted levels and possible hazards or possibilities. Long-term success depends on having
access to skilled individuals who have a thorough understanding of business processes.
https://datatrained.com/dt-finance/importance-of-management-accounting/
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1.2. PROS AND CONS OF MANAGEMENT ACCOUNTING
TECHNIQUES
ADVANTAGES
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Enhanced ability to make decisions - The information provided in charts, tables, and
predictions by management accounting facilitates decision-making by allowing for
thorough analysis and the right choices.
The efficiency of the organization - By assessing performance, identifying deviations,
and putting appropriate remedial measures in place, management accounting increases
business efficiency.
Financial Statement simplification - In order to make financial statements easier to
grasp, the accounting branch presents data in simplified tables or charts.
Transparency in costs - Management accounting ensures cost transparency, keeps track
of cash inflows and outflows, and coordinates closely with IT to manage spending that
are under budget.
Increasing Profitability - Using capital budgeting and budgetary control, management
accounting increases firm profitability by lowering expenses and product costs while also
generating higher profits.
DISADVANTAGES
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Insufficient Specification - Lack of specific rules and regulations in management
accounting results in inaccurate information.
Dependency - Accounting for finances and costs is a foundational component of
management accounting, assuring the accuracy of records and information.
Individual bias - Due to limitations in its ability to understand and analyze data,
management accounting is subject to personal bias.
Only Provides Data - While lacking in action plans or decision-making, management
accounting but provides data to help management in their job.
Uncertain - Management accounting offers information for making future plans, but
results may be impacted by unclear futures.
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1.3. SUGGEST A BEST MANAGEMENT ACCOUNTING
PRACTICE TO COMPANY.
Each of the Principles serves as the foundation for the practice areas that the management
accounting function must master in order to guarantee their stakeholders long-term financial
success. So, for the L Limited, these are the suggested practices.
Internal audit - Internal auditors are unbiased professionals who report directly to top
management or the board of directors. They evaluate how well departments and company
operations adhere to predetermined criteria. Their job is to provide input for improvement in
order to strengthen existing enterprises. Although not exactly a management accounting
function, this is included as a practice area because management accounting contributes so
greatly to the aspects of the business that an internal audit looks at.
Decisions about price, discount, and product - The business and management accounting
collaborate to determine the best items or services to offer, as well as the selling price and
potential discount structures.
Resources Management - Resource management must be done correctly and on time for
organizational decision-making. Management accounting may assist the company in making
continuous, efficient, and effective improvements by matching resources with strategic
objectives. Roles, responsibilities, policies, procedures, and strategies for hiring, training, and
performance are all laid out in a comprehensive human resources management plan for L
limited. Thus, if we practice this for a short period of time, we can advance further.
Risk Management - Improvements in financial performance, market position, client services,
and employee productivity are all advantages of L Limited risk management. Improvements in
location-specific and macroeconomic indices are examples of secondary impacts. In order to
detect, evaluate, and address risks that result from an organization's actions, this practice area
takes both internal and external elements into consideration. Therefore, if we can reduce the risk
or turn it into an opportunity, we can deal with the situation.
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Activity 2
2.1. PROFIT OR LOSS STATEMENT USING MARGINAL AND
ABSORPTION METHOD.
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2.2. RECONCILIATION
June
July
Profit using absorption costing
373,150
499,900
(-)fixed overheads in closing inventory (5000*8)
(40,000)
(+)fixed overhead in opning inventory (5000*8)
profit according to marginal costing
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3. Activity 3
The planned import ban will have a significant negative effect on enterprises that rely on
imports, especially Micro, Small, and Medium Enterprises. The Sri Lankan tech sector will also
encounter challenges, as will street vendors, firms that deal in raw materials, construction,
textiles, and other industries.
Reduced competition will increase economic losses by forcing customers to pay more, create less
employment, and engage in less activity. As a result, exports and imports of necessary goods
would suffer. This will also help to create new illegal markets and corruption.
The current approach is counterproductive since investments will be made in non-tradable
commodities and import substitutes rather than exports. An export-oriented economy is essential
to solving the nation's serious difficulties. Bans and limitations on imports will prevent this
transition. In order to shift output from non-tradeable to tradable, experts advise combining
expenditure cutting and switching policies. Import restrictions will worsen the non-tradable bias,
hindering the shift to an export-oriented economy.
Imposing import restrictions in Sri Lanka would have a favorable influence
for L Limited.
Advantages of imposing restrictions
1. Defending native industry against international competition. The ease with which
international products and services can be accessed domestically boosts domestic
competitiveness.
2. Keeping budding industries alive until they are fully developed and competitive globally.
Some nations wish to guarantee the success of their strategic sectors. These sectors
typically contribute to the economy, employment, technology, and value chains with a
variety of other sectors.
3. Obtaining domestic work and revenue. Due to the money flow from domestic to foreign
producers, imports are advantageous. Additionally, they will raise production when
imports rise. It generates cash and jobs there, but not domestically.
4. To bring in money for the government. Import tariffs provide the government with a
revenue stream aside from corporate and personal taxes.
5. As retaliation for restrictions of a similar nature imposed by trading partners. Countries
dislike unfair trade tactics used by their trading partners, such as dumping. Therefore, it is
in their best interest to exact revenge on the partner nation.
Disadvantages of imposing restrictions
1. Higher price - Costs and selling prices are raised by trade obstacles. For instance,
domestic customers pay more when tariffs on consumer goods are in effect. If it holds
true for imports of capital goods and raw materials, production costs will increase. The
rise in costs will probably be passed on to consumers through the product's selling price.
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2. Less Choice - Consumers have more options thanks to free trade. Because they are not
domestically manufactured, some products, like luxury goods, rely on shipments from
abroad for their supply. As a result, they have more options in terms of both price and
quality.
3. Damaging future competitiveness - Initially, trade restrictions were put in place to
safeguard domestic businesses. However, occasionally, this protection discourages
indigenous producers from innovating in favor of making them more efficient and
competitive. Their level of competition has remained unchanged over time. Additionally,
they grow to rely heavily on government protection.
4. Activity 4
Ways In Which Organizations Could Use Management Accounting To Respond
To Financial Problems.
The following are some of the approaches that the accounting management system uses to
achieve its goals:
Margin Analysis
Margin analysis is mostly focused on the gains that come with product optimization. One of the
crucial tasks of accounting management is margin analysis. It contains a break-even analysis
evaluation, which is used to determine the best product mix for a company.
Constraint Analysis
An organization's product line analysis can help pinpoint the bottleneck, problems it causes, and
how it affects the company's ability to generate income.
Capital Budgeting
Analyzing the data necessary to make critical decisions about capital expenditures is known as
capital budgeting. Analysis of capital budgets aids management in determining net present value
and rate of return for budgetary purposes.
Integration Of Accounting Management To The Organization And Its Benefits
Accounting management plays a significant role in cost control and assisting organizational
decision-making. In order for management to make good decisions for the organization, it is
necessary to evaluate information.
The advantages are as follows:
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Increasing organizational effectiveness is facilitated by accounting management.
Fixing the objective and product pricing is made easier with accounting management.
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Accounting management facilitates forecasting and budget preparation, making it simple
for management to project costs and revenues.
Accounting management aids in the development of improved organizational decisionmaking.
Accounting management aids in identifying strategies for businesses to reduce production
costs and increase profitability.
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