Management Accounting module – Assignment

(Warna Exporters (Pvt)Ltd.)

BSc (Hons) Human Resource Management & Organizational
Behavior (18M)
By
Dilini Piyumika Welikala

Human Resource Management Institute

Central Campus 205, De Seram Place, Colombo 10, Sri Lanka

Submission Date – 20th of April 2022

Contents.
I. Executive Summery.
II. Company Overview.
III.Part A :
1. Evaluate the use of variable costing and absorption costing.
IV.Part B:
1. An explanation of the principles of management accounting and how it differs from financial
accounting.
2. The role of management accounting and management accounting systems.
3. Explanation of how management accounting is integrated within an organization .
4. The benefits of the function to the organization .
V. References.
Executive summery
Using financial and management data, an organization can make decisions about maintaining its future activities
based on its performance. This PPT consists 2 main parts (A & B). By "A" part, Evaluate the use of variable
costing and absorption costing with your recommendations on whether one method is preferred over the other.
You may present calculations for an income statement using variable costing and absorption costing to support
your evaluation. Part "B" describes the following sub titles with examples, An explanation of the principles of
management accounting and how it differs from financial accounting, The role of management accounting and
management accounting systems, Explanation of how management accounting is integrated within an
organization, The benefits of the function to the organization. Finally, this PPT presents simple answers and
conclusions on management accounting related to the above topics based on the lessons I have learned in the
Management Accounting module based on selected Warna Exporters (Pvt) Ltd.
 Company Overview.
Warna Exporters (Pvt) Ltd is the company that formed the basis of my assignment. Warna Exporters are
the leading brusher company which holds a greater marketplace in the world recently.
Departments.
 Brush Department.
 Wood Department.
 Mix Fibber Department.
 General Maintenance Department.
 Sawmill Department.
Vision of the Organization.
“To be the leading supplier of brush - ware keeping quality standards”
Mission of the Organization.
“Manufacture & Export brush – ware according to the requirements of our customers with timely delivery
keeping quality standards”.
Part A:
Evaluate the use of variable costing and absorption costing

Absorption Costing
This is a costing system which used for inventory valuations. It consisting both
variable cost and fixed manufacturing costs and material and labor costs
Under this costing method following costs are including.
 Direct material
 Direct labor
 Variable manufacturing overhead
 Fixed manufacturing overhead

Variable costing
This costing method includes all variables in cost of goods sold. Fixed cost and
direct costs are allocated to operating expenses. This method includes costs such
as,
 Direct labor and material
 Variable production overheads
 Fixed manufacturing costs
 Selling and administrative costs
Advantages of absorption costing
 Includes the inventory costs on fixed overheads
 Accepted by GAAP
 Use in preparing tax returns
 Includes all the costs occur when producing products

Advantages of variable costing

 Fixed costs and overhead costs are independent items. As a result variable costing
representing the data which is helpful for CVP analysis
 Fixed cost is representing as one time costs. It does not change as inventory volume
changes.
 Managers are easy to understand the reports and overhead is changes according to
cost drivers.
 The influence of fixed costing is highlighted
Below mention the calculations for absorption costing and variable costing
based on ACL company annual reports

Absorption costing Income Statement

Sales 6,730,286
Less – Cost of goods Sold 5,631,094
Gross Profit 1,099,192
Less – Selling and Administration
Costs
Variable Costs 288,431
Fixed costs 231,642 592,402
Income 506,790
 Variable costing Income Statement
Sales 6,730,286
Less – Variable costs 599,192
Variable margin 6,131,094
Less – Selling and 288,431
Administration Costs
Contribution margin 5,842,663
Less – Fixed costs 500,000
Fixed costs 231,642 731,642
Income 506,790
Part B:
An explanation of the principles of management accounting and how it differs from financial
accounting.

Principle of management accounting

 Influence
Management accounting encouraging better decision making as it is the heart of
organization.
 Relevance
Management accounting provides data such as past, present, and future from internal
and external sources on time to take correct decisions.
 Value
Management accounting helps in simulating various situations of the organization to
better understand their impact on value creation and preservation.
 Creditability
Accountability of management accounting helps for decision making. Creditability
enhance the long term value for stakeholders.
Explanation Financial Accounting Management Accounting

Users of the reports External users such as Internal Users such as

stakeholders, creditors, managers, employees, and
regulators other officer
Types of reports Includes financial Includes internal reports
statements such as income such as job cost sheet,
statements, balance sheet, production cost report and
cash flow statements cost of goods manufactured
Frequency of the reports Quarterly and annually As needed by the internal
published users
Focus reports Use GAAP structures No GAAP constraints is
uses
Nature of the reports Monetary Monetary and non monetary
information
Verification Audited by CPA No independent audits can
be seen
Explanation of how management accounting is integrated within
an organization.

 The supply of information to employees inside an organization to

assist them in making better decisions is known as management
accounting.

 Managers use accounting data to better enlighten themselves

before making decisions inside the firm, which helps to ensure
smooth operations.

 The branch of accounting that deals mostly with confidential

financial reports for an organization's top management's
exclusive use.
 The role of management accounting and management accounting systems.
Management accounting is the process of effectively using all relevant information for management and broadcasting the organization's efficient
decision-making, as well as collecting relevant data from the management accounting system's business operations and converting it into
management accounting. The following is the role of management accounting and management accounting systems.
 Planning.
• It is the preparation for the achievement of goals in advance. Planning is done with the goal of achieving the organization's short and long term
goals, so management accounting aids in forecasting budgets so that estimates for expenses and incomes can be made in advance, and
management accounting systems aid in analysing relevant data so that the organization's goals.
 Organizing.
• Management accounting assists in making decisions regarding the assignment of roles and responsibilities so that a proper hierarchy of work can
be maintained in the organization, and management accounting systems also assist in measuring the performance of management personnel so
that operations can be adjusted appropriately.
 Controlling.
• It is the process of measuring actual performance and then comparing it with estimated performance so that control can be established within the
organization, thereby improving the overall performance of the organization, and accounting helps to provide relevant information to the
organization so that performance measurement can be done properly, And the Management Accounting System helps to define the relevant
information for this.
 Decision making.
• Management accounting and management accounting systems' primary role is to provide effective decision making to
the organization, so management accounting assists management in making better decisions.

Management Accounting Systems of Various Types.

A management accounting system collects financial data from business operations such as sales data, inventory
transfers, and raw material cost changes, and then converts the information into analytical reports .
 Cost – Accounting System.
 Inventory - Management System.
 Job Costing System.
 Price – Optimizing System.
 The benefits of the function to the organization

 Management accounting helps managers in planning when providing reports which

estimates the effect of company process when achieving company goals.
 This helps in organizing by providing reports and necessary information to regulate the
light of changing conditions
 Helps in controlling function by providing performance reports to highlight the variance
between expected and actual performance.
 Plays a critical role in decision making based on evaluation of costs and other
performance issues
 Helps to decide the best procedure when launching new product
 Helping to identify staffing requirements
References
 Hopper, T., Kirkham, L., Scapens, R.W. and Turley, S., 1992. Does financial
accounting dominate management accounting—a research note. Management
accounting research, 3(4), pp.307-311.
 Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The impact of management
accounting and how it can be implemented into the organizational culture. Dutch
Journal of Finance and Management, 2(1), p.02.
 Nawaz, M., 2013. An Insight Into the Two Costing Technique: Absorption Costing and
Marginal Costing. BRAND. Broad Research in Accounting, Negotiation, and
Distribution, 4(1), pp.48-61.
 Gupta, P.K. and Parmar, N.K., 2001. Costing a hospital service product: Marginal Vs
absorption costing. Medical Journal Armed Forces India, 57(3), pp.230-233.
 Lakmal, D., 2014. Cost Analysis for Decision Making and Control: Marginal Costing
versus Absorption Costing. Available at SSRN 2417024.
 Chandra, G. and Paperman, J.B., 1976. Direct costing vs. absorption costing: A
historical review. The Accounting Historians Journal, 3(1/4), pp.1-9.
Thank you