Introduction
The report has significantly entailed the management accounting process of the company Dell, which has ensured an effective financial performance in the financial years to make proper business progression. The report has highlighted the discussion about different accounting systems that has been judged for deriving the particular assessment regarding efficient performance of the company. Different purpose of management accounting reporting has been highlighted and proper aspects of utilizing these significance has been discussed within the report.
P1: Explanation of management accounting and essential requirements of management accounting systems
Management Accounting refers to the accounting processes that include the combination of the financial and non-financial statements with the objective of providing effective decision-making opportunities for the organization. Financial managers are able to make use of accounting information for taking controlled decisions. Management accounting plays an important role in management decision making, planning and performance management systems and integrated financial reporting. Dell, currently is facing severe issues for which the immediate need for effective decision making has been felt. Management accounting is the yardstick for offering a detailed outline about the profit percentages, product lines and customer bases.
Dell Inc. now is attempting to use advanced management accounting for improved decision-making purposes. Management accounting provides a detailed picture of profits figures, customer bases, products & services; financial accounting helps in reporting & addressing the absolute result of the business. Financial accounting portrays a clear picture of the profitability position of the business and management accounting ends up finding out the key causes of managerial problems (Chenhall, & Moers, 2015). Financial accounting helps in preparing financial statements and managerial accounting will enable Dell Inc. to focus upon the operational reports that are allocated within the organization only. Dell Inc. so far had to comply with several accounting standards, but with the improvisation of managerial accounting, the management need not need comply with any of the accounting standards if the information is used for internal control and accounting purposes.
As small & medium scale entrepreneurs usually come up unlimited accounting issues in their daily life, management accounting is a useful tool that uses accounting information from the operations for producing an idea about the business performance. Via management accounting, Dell Inc. will be able to easily determine the quantity of laptops sold out. The accountant can easily determine the related costs among the advertisements overlooking the common costs. Through the implementation of management accounting techniques, Dell Inc. would be able to determine the activities for developing such product lines in all over the world (Cooper, et al.,2017). Management accounting offers information about manufacturing and helps in preparing budgets for continuous improvement of the managerial practices.
The widely used management accounting techniques are cost accounting; inventory management accounting and job costing systems. Application of cost accounting technique will enable Dell Inc in recording, analysing, summarizing, allocating and categorizing all the actions for controlling the total managerial & operational costs. Inventory management techniques play an important role for computer multinational companies like as Dell Inc. as the former will enable the managerial accountant in knowing the time of restocking the inventory, exact manufacturing volume etc. Inventory management therefore involves the process of storage and restocking the organizations' inventory so as to increase the overall sales volume. Another most widely used technique is job costing and the same is another type of management accounting technique mostly used in manufacturing units of computer related products as the accountant can easily look upon the exact cost for each and every job. As Dell Inc. manufactures personal computers, laptops, network storage devices and servers, application of job costing will enable the accountant in assessing the costs for all the discrete batches, by allocating the overhead costs separately.
P2: Different methods used in management accounting reporting
Implementation of management accounting processes at Dell Inc. will enable the accountants in representing the managerial accounting information in an operative manner so that the organization is able to take strategic decisions for the smooth transition of the business. With the application of the management accounting processes at Dell Inc. the profitable operations of the management are easily visible before the stakeholders. There are different types of management accounting reports - financial statements, accounts receivable report, job cost reports and stock & manufacturing reports.
1. Preparation of the Budgetary reports will enable Dell Inc. to evaluate the current performance with the budgeted performance. Budgets are prepared based on the actual expenditures as compared to the earlier performance (Klychova, et al.,2014).
2. With the preparation of account receivable aging report, the financial managers at Dell Inc. will be able to keep an eye upon the cash inflows and cash outflows and accordingly can plan out for increasing he credit lines for the customers. Dell Inc's collection issues can be easily assessed.
3. Job Cost reports will allow Dell Inc.'s management to have a systematic review of the total expenditures for the specific projects. The overhead costs incurred for production processes for laptops and network storage devices as compared to profitability reports.
The benefits of applying management accounting at Dell Inc. can be summarized as follows:
1. Management accounting system improves the overall efficacy of the computer technology company for performing its key operations.
2. Since management accounting technique involves budgetary control, the same helps in budgetary control processes. Through this process, the business will be able to curtain the overall expenditures from the operational activities and investing activities
3. Management accounting helps in taking managerial decisions as the same provides easy reports of the financial statements and there is a clear & distinct scope for the stakeholders to assess the solvency position of the business (Klychova, et al.,2015).
4. Through the application of the management accounting at Dell Inc. the management can work easily with the IT department as well as ensure budgetary actions. This ensures cost transparency within the business.
Dell Inc. the leading American multinational company producing computer technology products will face different opportunities by applying the integrated solution ofmanagement accounting as an integral accounting technique as summarized below:
- Management accounting helps the accounting managers in identifying and monitoring the environmental and social trends of using mobile phone chargers that definitely creates value over time.
- Through the application of the management accounting techniques, Dell Inc. can develop new KPIs and can evenly sustain overtime by overcoming the managerial issues
- Management accounting system will help in integrating the business operations with the scenario planning of the company's resources and accordingly helps in lifecycle costing (Lopez-Valeiras, et al.,2015)
- Dell Inc. will be able to make budgetary decisions, pricing decisions, investment appraisals, and strategic decision making.
- Management accounting will help to integrate the cost management systems as the cost of inputs and accordingly will value for the production processes
- The quality related costs are monitored through management accounting and thus leverages the operational functions
P3: Calculation of the cost per unit under absorption costing and marginal costing
In this section, the derivatives of the financial activities are revealed so as to understand the financial performance achieved from the business operations.
Marginal Costing
|
PARTICULARS
|
AMT (£)
|
Unit Price (£) (200000 units)
|
|
Sales revenue
|
9000000
|
45
|
|
Marginal Cost of Sales
|
|
|
|
Direct materials
|
4000000
|
20
|
|
Direct labour
|
800000
|
8
|
|
Variable manufacturing overheads
|
800000
|
4
|
|
Contribution
|
3400000
|
|
|
Less Fixed Cost
|
-50000
|
|
|
Profit
|
3350000
|
16.75
|
Absorption Costing
|
PARTICULARS
|
AMT (£)
|
AMT (£)
|
Unit Price (£) (200000 units)
|
|
Sales revenue
|
|
9000000
|
45
|
|
Marginal Cost of Sales
|
|
|
|
|
Direct Materials
|
4000000
|
|
20
|
|
Direct Labour
|
800000
|
4800000
|
8
|
|
Gross Profit
|
|
4200000
|
|
|
Variable manufacturing Overhead
|
800000
|
|
4
|
|
Fixed manufacturing overhead
|
50000
|
850000
|
|
|
|
|
|
|
|
Profit
|
|
3350000
|
16.75
|
It can be said that the budget prepared on the basis of the overall value provided for the company Dell has sufficed that the business operations entailed are highly successful and can generate successful operation in determining the success. It has been revealed that the sales made by the company has been targeted to be higher enough for compensating the values attributed towards the overall profit that will generate higher sustenance in the business in the long run. Therefore, the consequences determines the abilities of forecasting which ensures that the company will acquire higher profit percentage after covering cost associated regarding the purchase of production of finished goods for the firm. In view of that, the company can easily predetermine the objectives of making excess sales by which higher reserves will be maintained as per the demand in the industry.
P4: Explanation of the advantages and disadvantages of different planning tools used for budgetary control
A budget usually estimates the future results of a business along with the financial position of a company for one or more financial year. Budgets are usually prepared for future planning purposes, performance measurement needs, rolling out of new products and services and controlling processes. A budget usually enables the business in estimating the time-to-time financing needs. Organizations that are already using budgets review their budgets for keeping close eye upon the reality and they are able to assess the causes of variances in the actual results as planned before. The advantages of budgetary control on Dell Inc. can be summarized as below:
1. Budget primarily helps the entity to move its focus from its short-term goals towards long term objectives.
2. Budget will help the financial managers at Dell Inc. to think about the competitive position and the solvency position along with the corrective measures to remove all variances (Otley, 2016)
3. The preparation of a structured flexible budget will help in pointing out the key monetary aspects by assessing the overall productivity of the firm. Budget will help the company to decide whether it shall end up at shut-down point or must expand its operations
4. Overall performance of the Dell Group can be assessed through the budgets
5. The operational overhead costs incurred by Dell Inc so long can be ascertained which however makes the company to stay financially sound in decision making processes.
6. Budgets will produce a clear idea of the total amount cash inflows and outflows into the business (Quattrone, 2016).
7. The total overhead costs are evenly allocated among all the departments through the budgetary control.
A budget has a number of discrepancies irrespective of the above advantages and the same are summarized as below:
1. Budgets are bureaucratic in nature
2. Often budgets can pursue an intimidating nature and the accountable managers need to enforce control over the total manpower for alternating the absolute chances of intimidation
3. Since budgets are made up of a set of hypothetical assumptions that is totally different from the reality, that can cause discrepancy in assessing the operational efficiency of the company.
Budgetary reports are prepared for executing an assessment of the actual results with the anticipated results in the future years. The budget preparation process shall be regimented so that the same is used in the next financial year. The various planning tools that are involved in the budgetary control procedure are described below:
I. Marginal cost pricing: Once the actual cost-price volumes are accomplished within the company, the management is able to adopt marginal cost pricing method.
II. Competitive pricing: Decisions taken based on competitive pricing within the organization will enable Dell Inc. to understand the existing competitive prices of the key competitors, like as HP, Lenovo etc. in the market and they can constantly survey the market prices (Soltani, et al., 2014).
III. Cost plus pricing: Computer technology MNCs like as Dell Inc that are able to set up prices can avail cost-plus pricing as the cost of service rendered is computed upon the excess amount for generating additional amount of contribution to the company's reserves.
IV. Activity Based Costing: ABC is basically applied in any manufacturing firm where with increase in the technological growth, the ultimate productivity has reduced the relative proportion of the direct costs of the company, while the indirect expenses are still on a higher side.
V. Standard costing: Standard costs are the estimated costs and are developed from the historical data derived. As budgets are prepared by executing an assessment of the actual performances with the planned performance, the accounting manager always takes into account the standard costs and the actual costs for doing a manufacturing job to highlight the causes of variances.
A budgetary plan is therefore a complete financial plan that is decided by the existing accountable managers at Dell Inc for accomplishing the functional and operational objectives. It is basically considered as a yardstick for strategic planning process within any business. It validates the direction & harmonisation of exercises between different divisions while adjusting the respective exercises to the master plan - the organization's core plan. It gives a scope to improve the managerial responsibilities through the planning procedures involved & through leadership obligations and accordingly regulates the administration's duty. With a strong managerial plan, all the accountable managers at Dell Inc. will be working towards a similar objective. Again, budgetary control procedures improve the planning of performance appraisals - giving a typical construct to exchange information with respect to how well the managers met his objectives and giving an argument concerning why actual outcomes varied from the budgetary plans. It energizes all departments inside the business to end up more proficient, which moves up to a more noteworthy effectiveness far reaching. Engagement in the planning procedure is an essential piece of every multinational computer technology companies alike Dell Inc.
P5: Ways in which organisations could use management accounting to respond to financial problems
Today's organizations are continuously adapting with the competitive environment and management accounting techniques help the companies in responding as well as solving the financial problems. Dell Inc. tries to focus upon the financial gains through applying management accounting technique. Management accounting is used as a benchmarking tool for pointing out the key financial areas where the company is ahead and accordingly can help the financial managers to improve the overall standard of the operational practices at Dell Inc. Management accounting is the source for streamlining internal benchmarking. Financial performance measurement is often considered as the critical success factor for large MNCs like as Dell Inc and therefore shall be managed effectively (Wagenhofer, 2016). Through the improvisation of the management accounting techniques at Dell Inc., the management can find a sound monitoring facility for the financial performance as compared to its other competitors like as Lenovo or HP. Management accounting techniques are sound systems enduring in financial governance in computer software companies like as Dell Inc.
Another major technique applied at Dell Inc. is Balanced Scorecard, which is an illustrative model for financial performance evaluation, and these play a succinct role in improving the overall performance and sustainability of the organization. Management accounting software may provide Dell Inc. with a better scope for improved financial decision making (regarding how much capital to invest, how much profit to plough back into the business etc.). The financial managers and accountants can easily view the profitability position before the creditors so as to extend their credit limits and this will foster the organizational growth of the business (Otley, 2016). Since, profit percentage, market share, economic value added, EBIT, depreciation, ROC, ROE etc. are the key factors affecting the financial performance, profit seeking concerns like as Dell Inc. endorse management accounting techniques to overcome the conventional short term financial issues that currently is faced by Dell Inc. Therefore, Dell Inc. will be able to generate sustainable financial information by the use of financial statements for effective operational practices as compared to the key international competitors like as Lenovo or HP.
Conclusion
Thus, management accounting system improves the overall efficacy of the computer technology company for performing its key operations. Since management accounting technique involves budgetary control, the same helps in budgetary control processes. Through this process, the business will be able to curtain the overall expenditures from the operational activities and investing activities.