Critically evaluate the management accounting systems of quantum company

Division A: According to Averkamp 2017 The cost process is a term used in cost accounting to describe a method of collecting and allocating production costs for production units." The co

National Economics University International School of Management

and Economics

MANAGEMENT ACCOUNTING

Student: Le Tra My_10170441_MA_A1

Pham Tai Thien _10170481_MA_A1 Luu Thuy Linh_ 10170330_MA_A1 Lecture: Nguyen Thi Phuong Hoa Tutor: Le Quang Dung

A INTRODUCE: 2

B THEORY: 2

C QUANTUM COMPANY: 2

Question 1: Management accounting systems and essential requirements of different types of management accounting systems. 3

I Division A: 3

II Division B: 3

III Division C: 4

Question 2: Explain different methods used for management accounting reporting 5

I Division A : 5

II Division B: 6

III Division C: 6

IV Division D: 7

IV The company: 8

Question 3: Critically evaluate the management accounting systems of Quantum company 10

I Division A: 10

II.Division B: 11

III Division C: 11

IV.Division D: 12

V.Company : 12

D REFERENCE LIST: 13

A INTRODUCE:

The company has 4 Divisions: Division A,B,C and D Division A focuses on purified water and juice, Division B produces contrucstion projects, Division C is a retailer of foods and drinks Division D is of fitness and beauty There is an accounting department in each division In this assignment, we will to research about Quantum’s management accounting systems and report methods

Accounting is the recording of financial transactions plus the storage, classification, access, synthesis and presentation of information in various reports and analyzes (Averkamp, 2017)

- Accounting have two branches: financial accounting and

management accounting

+ Financial Accounting: mainly provides information to the public, to users outside the business periodically such as quarterly, half yearly or yearly

+ Management Accounting: Provides current information to internal users (mainly managers-managers) including cost, budget implementation information Management accounting information is considered internal information, not disclosed to the outside because it may adversely affect the operation of the business

C QUANTUM COMPANY:

Question 1: How the management accounting systems work and what are the fundamental prerequisites of different

types of it?

I Division A:

According to Averkamp (2017) The cost process is a term used in cost accounting to describe a method of collecting and allocating production costs for production units." The costing process is used when the production unit is almost identical and now process costing is applied by accountant of division A Division A produces pure water and juice, after production, shipped a large quantity to division c and d to bring to the supermarket for consumption so the accountant applied process costing On the other hand, because the product is sold everyday so the accountants of Division A apply normal costing: i.e actual values for raw materials and labour costs, while budgeted values for overheads At the end of the month, allocated (budgeted) overheads are adjusted to actual overheads

In process costing system, unit cost equal to

Unit cost =

Total cost of process

Total number of products in the process After all, the Division accountant uses management accounting reports to check, and make decisions on production and sales

II Division B:

Job costing is defined as the method of recording the cost of a production job, not the process." The cost of a job, project manager

or accountant can track expenses The cost of each job, data

maintenance is usually more relevant to the work of the business

(Wilkinson, 2013) Division B implements construction projects, not the same Accountants of B use the job costing Each construction project is considered a job and record it Normal cost is used That means the actual value

is used for raw materials and labor costs, while the value of the budget for production costs Adjustment of production costs allocated (budget) for actual value is made once a month

III Division C:

Inventory management systems are the combination of technology (hardware and software) and the processes and procedures for monitoring and maintaining stored products, whether those products are property or not vendor or end user ( Pontius, 2018) Accountant of Devision C applies inventory management system because Division C is a retailer of ped water and juice so inventories include diferent types and account for a large portion in total assets The inventory management system helps to ensure that there is always merchandise for sale while reduce inventories to low levels Because Division C import goods from division A and other places to perform your retail duties, and division C has many different branches

IV Division D:

Activity-based costing (ABC) s applied by the accountants of Division D to calculate the cost of each activity then charge customers based on services provided because division D provide 3 services According to Investopedia Activity-based costing (ABC)

is the accounting method that determines and allocates

costs for overhead operations and then assigns those costs to the product.") ABC recognizes the relationship between cost, operating costs and products and through this relationship, it allocates indirect costs for products less than traditional methods Regarding pricing systems, the market price is used for division A for its products; target pricing is used by Division B; Divisions C and D use cost-plus pricing

Question 2: Clarify diverse strategies utilized for management accounting reporting.

I Division A :

Monthly, the accountant do the report the price of production and the cost difference for each factor, report the unit cost and revenue each product and period of each product line's inventory Divisional manager use these reports to check, make decisions and sales The manager also requires every year reports and product quality but not yet implemented by accountants

Cost item Factory 1 Factory 2

Unit costs Revenue Inventory Inventory costs variances costs variances

DLC

Purified

waterRMC

MOJuice

II Division B:

Every 2 months, the accountant prepares reports to the manager on the costs and the difference of costs and progress each project and revenue report for the Divisional Manager The Divisional Manager may manage the actual costs, progress and

may interpose in time The manager was concerned with the cost

of reworks each projects, but the accountant can not provide that

information

An accountant can make reports in a variety of charts because

when using the management chart it is easy to track the difference

between the price of the product

III Division C:

At the end of the month, accountants make the report time

and balance (amount) for each type of inventory; and report the

revenue and profit for each branch However, department

managers request weekly sales reports and monthly profit reports

for each Inventory type The divisional manager claims that the

market competition is very strong and he tries to control costs and

increase prices whenever possible

g

Cost of good sold

Opening

Purchase

Ending

Cost of good

sold

IV Division D:

Monthly, accountants prepare for Divisional manager report for the profit variance and profitability of each service Accountants use chart and pie to show the profitable of each service Division managers know which profit-making services to increase and that service is less profitable to reduce Management

is also concerned about the use of space in summer, winter, but this information have been not calculated by the accountants This the report division manager want to know

In Winter

Spa Aerobic Yoga

24.53%

9.43%

66.04%

In summer

Spa Aerobic Yoga

23.00%

11.00%

66.00%

Salaries

Electricit

y

Space

IV The company:

Each quarter, Quantum accountants prepare quarterly earnings reports for Quantum General Director (GD) The costs of the company have not been allocated to the departments Profits are reported with absolute values and relative values, such as ROI, ROA, ROCE Based on the information, GD understands the relative profitability of the Units and can make Better decision for the allocation of funds

Moreover, Return on investment is a measure designed to measure revenue This ratio is used to compare alternatives to alternative investments, as well as to determine whether current investments can effectively utilize resources This is one of the most popular

investor measurements, due to the easy availability of necessary information and the simplicity of the formula Calculating return

on investment is a two step process

( Bragg, 2018)

ROI = Department's Net Operating Income Average

Operating Assets of the Department

Return on Assets compares the net income of an enterprise to the total assets of the business It provides an estimate of the effectiveness of management in the use of assets to generate profits, and is thus considered an important tool for assessing management effectiveness Follow these steps to calculate your return on assets: Get net profit from legal income report This will

be the net after tax figure, not one of the gross margins previously listed higher in business results Get total assets from the balance

of the entity Do not remove any intangible property from the image Split net profit for total assets to return assets The formula is:

Net profit ÷ Total assets

Finally, according to Jan ( 2016) the rate of return on capital employed is calculated by dividing net income before interest and tax by capital It measures the success of a business in generating a satisfactory return on investment Percentage expressed in percent

Formula:

Roce ratio= Income before interest and tax

Capital employed

Question 3: Critically evaluate the management accounting

systems of Quantum company.

I Division A:

Tabularreportonproductioncostsandcostvariancesforeach of2 factories: were prepared forDivisionalManager by the accountantsofDivisionA.When you receive a statement from the accountant at the end of the month for the cost as well as the difference in costs when producing the manager can know in the production process how much money is lost in any process Or the manager will control the amount of money spent on production costs of the two plants Besides, thanks to reports he can know where the product is preferred by consumers From there, it is possible

to distribute production to suit the needs of customers Moreover, the manager requires productivity and product-quality reports but the accountant can not do it In manufacturing pure water and quality juice the product is important and it has a great influence on the company as well as the plant, so product quality reports are needed to avoid the substance The product is not guaranteed but the product is still sold to consumers Therefore, accountants have done well the report on the revenue as well as the cost

difference of the two plants but also need a report on the quality of products

II.Division B:

When there is a progress report, the manager can track the progress and progress of the project If the work is being carried out in accordance with the process and time, the manager will continue to monitor the costs as well as prevent possible risks in the process In other cases, if the work is slower than the initial schedule, the manager responsible for urging the worker to work may be to increase the working time of the worker even more with the worker to complete the project in progress The manager also requested a report

on the cost of reworking the work from the accountant but the accountant still could not do it To rework a project costs

a lot of money when asking the accountant the report manager wants to know the exact reason as well as the amount that the division has to pay when reworking the works To solve the rework of the work based on the report manager must find out the reason for the rework Due to the impact of the environment such as weather or human impact such as inadequate number of workers or the quality of human resources Here, the manager will make the decision

to solve the problem

III Division C:

Accountants of Division C prepare the report Inventory time and balance (amount) for each type of inventory; and report the revenue and profit for each store However, department managers require weekly sales reports and monthly profit reports for each type of inventory When the revenue report of the branches is created weekly or monthly,

it will be easy for division C to control costs as well as the amount of inventory left in stock to know what is the preferred consumer product profit earned from sales It will then report back to divison A to produce the appropriate quantity Based on the report, the manager can determine the next retail strategy for division C

IV.Division D:

Accountants use pie and chart to show Share the lucrative profit of each service The division manager knows which monetization services increase and that service is less profitable to reduce The report provides managers with the ability to track the number of service users in division D From here, the manager can see the number of benefits as well as the costs to be paid for each service Thanks to that, the cost for each service will be adjusted to match the number of users of the product In addition, with cost reports for managers to know the information, but basically the number of service users in each

season of the year will change Summer and winter the number of users will change significantly but accounting can not synthesize these parameters Therefore, division D still can not have a reasonable policy to suit the needs of service users

V.Company :

The costs of the company have not been allocated to the departments.Profits are reported with absolute values and relative values, such as ROI, ROA, and ROCE using the graph With the overall report of the company, the company has estimated the profit approximated from that in comparison with the status of production activities of the factory However, the company has four divisions, but because the reports submitted by the managers of each division do not correspond to the actual situation, thus leading to the distribution of funds to each division unreasonable and fair

D REFERENCE LIST:

Averkamp.H, 2010 “ What is process costing?” Accounting

Coach Available from : <

https://www.accountingcoach.com/blog/what-is-process-costing > [ 23 Sept 2018]

Wilkinson.J , 2013 “ Job costing?” The Strategic CFO Available from : < https://strategiccfo.com/job-costing/ > [ 23 Sept 2018]