MANAGEMENT Table of contents

Page 2 of 12 Introduction The accounting system is an important component for an organisation to find out its performance by using financial and managerial data. Based on it, an organisation can make decisions about running its activities. The study is going to focus on different components of management accounting system of Dell and its comparison with Lenovo. P1 Explanation of management accounting and proving essential requirements of different types of management accounting system Management accounting: It is the procedure of using the different information of an organisation such as report, variance analysis, reports and more to generate statistical and financial data that is helpful in decision-making process to run its operational activities (Hilton and Platt, 2013). Difference of management accounting from : ● In financial accounting, the financial data is used by external stakeholders of an organisation. The management accounting focus on diverse range of information related to the that can be used by both internal and external stakeholders ad it can be derived from financial accounting. ● Profitability and efficiency of a can be measured by financial accounting and management accounting deals with organizational drawbacks through variance analysis and developing budget. ● Financial accounting reports can be displayed through and income statements. Management accounting reports can be displayed through future, making decisions derived from financial reports, flow statements, fund flow statements and budgetary statements (Fullerton et al. 2014). Primary users of management accounting information: The primary users of management accounting in Dell include management personnel, investors, shareholders and employees of the organization. Management accounting system: It is the system of analysing both financial and nonfinancial information that is useful in planning and making decisions for an organisation. Principle of management accounting: Dell needs to consider certain principles of management accounting as follows:

Page 3 of 12 ● The information related to accounting, reports, evidence and statements are gathered by using past and present information of the organisation to forecast future. ● It is helpful to represent the organisation information in structured manner. ● The return o investment can be calculated. ● All the required information to run the management of an organization can be incorporated through management accounting. Basic management accounting systems as follows: accounting system: A cost schedule is used by Dell in this procedure to keep records related to the manufacturing operations. The direct and indirect related to the manufacturing needs to be considered by in this procedure. The benefit of this system involves find out per unit production cost for Dell and based on its price can be set. Inventory management system: It is used for of the materials in inventory by using procedures like FIFO, LIFO and AVCO. Benefits of inventory management system involve Selling price, any loss of products, requirements of products can be identified by Dell. Job-costing system: The data regarding cost of the production can be identified by an organisation (Fullerton et al. 2013). This data can be used by Dell to determine the accuracy of its estimation procedure, set price of products and any reimbursement for the customers, which is the benefit of this system. Price-optimization system: This procedure is used to determine the demand of the customers and the possibilities for paying more to get a product. Dell can increase the price of its products based o it to increase margin that is the benefit of this system. P2 Explanation of different methods used for management accounting reporting Management accounting procedure helps in managing the performance of a company. As per the study, Dell needs to use different management accounting procedure. This accounting process will help the company to determine the different procedures through which managerial aspect can be undertaken in efficient manner. The different management accounting methods that can be used in the company are as follows: 1. Budget report: Budget report helps in analysing the budgetary control of the company and also determines the future performance of the company. Budget allows creating a

Page 4 of 12 spending plan for money and also ensures the amount of money that is being required to spend over the period (Figge and Hahn, 2013). 2. An operating budget: An operating budget helps in estimating the income and expenditure over a period of time and it is developed by forecasted sales. Dell needs to consider different such as sales budget to develop this. It is a short-term budget that excludes capital outlays. 3. Accounting receivable aging: It is useful to identify unpaid invoice of the customers that are unpaid and credit memos that is unused according to date along with contact information for the customers. Dell can identify effectiveness of the collection and credit function of the customers. 4. Job cost reports: It is a list of job and its related costs in previous time that involves labour costs, field overhead, material cost and more. Dell can use job cost report to find out expenditure related to each activities and it can plan accordingly to complete those. 5. Inventory and Manufacturing: It is useful to find out the materials in stock, sales rate, any loss of products and more. Dell can identify whether it needs to manufacture more products or not based on it. 6. Profit and Loss Statement: It is developed by an organization to identify expenditure, generation and costs for a certain time period such as a quarter or a year (P. Tucker and D. Lowe, 2014).

P3 Calculation of cost per unit under absorption costing and marginal costing and preparation of under marginal costing and absorption costing

Particulars Variable cost Absorption cost

Direct material £ 150.00 £ 150.00 Direct labour £ 45.00 £ 45.00 Variable manufacturing overhead £ 25.00 £ 25.00

Page 5 of 12 Fixed manufacturing overhead £ - £ 20.00

Product cost per unit £ 220.00 £ 240.00 Table 1: Per unit cost calculation for Westfield Company (Source: Self-developed)

In the books of Dell

Income statement under marginal costing

Particulars Amount Amount

Sales £ 9,000,000.00 Less: Variable

Beginning inventory £ - Add: Cost of goods manufactured

Direct labour £ 1,600,000.00 Direct material £ 4,000,000.00 Variable manufacturing overhead £

800,000.00 Goods £ 6,400,000.00 Less: Ending inventory £ - Variable £ 6,400,000.00

Page 6 of 12 Total variable cost £ 6,400,000.00 £ 2,600,000.00

Less: Fixed expenses

Fixed manufacturing overhead £

150,000.00 Total Fixed cost £

150,000.00 £2,450,000.00

Table 2: Marginal costing calculation (Source: Self-developed)

In the books of Dell

Income statement under absorption costing

Particulars Amount Amount

Sales £ 9,000,000.00 Less: Cost of goods sold

Beginning inventory £ - Add: Cost of goods manufactured

Direct labour £ 1,600,000.00 Direct material £ 4,000,000.00 Direct expenses £

800,000.00

Page 7 of 12 Fixed manufacturing overhead £

150,000.00 Goods available for sales £ 6,550,000.00 Ending inventory £ - £ 6,550,000.00 Gross margin £ 2,450,000.00

Less: Selling and administration expenses

Administrative overhead £ - Selling and marketing overhead £ - £ - Net income £ 2,450,000.00 Table 3: Absorption costing calculation (Source: Self-developed)

Particulars Amounts

Profit under marginal costing £ 2,450,000.00 Adjustments for fixed portion £ in closing inventory -

Profit under absorption costing £ 2,450,000.00 Table 4: Reconciliation of costs (Source: Self-developed)

Page 8 of 12 As there was no closing inventory, no adjustment has been made regarding the fixed cost potion in the inventory. In this regard, it is also to be noted that the profit under marginal costing and absorption costing are calculated as similar due to the absence of closing inventory. P4 Explanation of the advantages and disadvantages of different types of planning tools used for budgetary control Dell needs to develop budget for planning and control procedure: Preparation of budget: Certain steps need to be maintained by the organisation in order to develop its budget. It needs to identify the costs related to different activities and changing costs of the business to create a budget. The budget preparation is important for an organisation to identify different costs related to its operations and plan its activities accordingly. The disadvantages of preparing a budget is it can costlier in some cases and if the budget is not good, then the activities can be restricted (DRURY, 2013). Different budget: Dell needs to consider different types of budget as follows: Capital budget: The organization can identify long-term investments for it such as new branches, products, implementation of machinery or technology and more. Operating budget: The organisation can identify revenue generation for certain time period. Roll over budget: Dell can develop this budget based on previous budget in this procedure. However, if the costs and expenditure changes, then it can create problem in long term. Budget preparation process: Dell needs to identify certain budget preparation process as follows: ● Develop budgeting goals ● Interpret previous information ● Develop base budget ● Incorporate present data ● Develop actual budget ● Compare preset activities ● Make changes as per requirements (Chenhall and Moers, 2015) Pricing: An organisation needs to set price of its products based on manufacturing cost and required profitability. The advantages of correct pricing are to gain sales volume and profitability. However, if the pricing is not good, then a organization can experience reduce sales and lose.

Page 9 of 12 Dell can use different pricing strategies as follows: Cost plus pricing: An organization identifies the production cost and determines the profitability of the product. After that, Dell needs to add both to set the price of the products. Marginal cost pricing: In this procedure, Dell can enhance or reduce the production costs in order to make an additional unit of its products. Target pricing: In order to estimate the competitive pricing and apply it to achieve maximum pricing of the products, target pricing can be used by Dell. Demand for price by competitors: The competitors of Dell analyse the production cost and required profitability on a product along with the price of its competitors in the market in order to set the price. Supply and demand consideration: The price can be set by considering the rate of supply and demand of certain products in the market by Dell. Common costing system: Dell can use certain costing system for its operational activities as follows: Annual costing: Dell can identify annual costs for getting an . Normal costing: Dell can conduct pricing of its products based on certain factors such as manufacturing cost, direct or indirect costs and more. Cost system differs based on costing activities: The production costs are recorded instead of the process of manufacturing in the job costing system. Dell can use process costing in order to see cost for per unit production for manufacturing in higher quantities. In batch cost, the batch number is different for different types of products but it is as similar to job costing system. The cost is associated with the contract with the clients can be determined by contract costing (Maas et al. 2016). Strategic planning: Dell needs to use strategic planning in order to achieve some short and long term goals. The strategic planning can be conducted by analysing PESTLE, SWOT, porter's five forces, developing balanced scorecard and more. P5 Comparison of Dell with Lenovo about using management accounting systems Both Dell and Lenovo are sells products like laptops, personal computer and other electronic products. Both organisation is using different types of management accounting system in order to enhance its decision-making process and develop strategies.

Page 10 of 12 In order to run the , Lenovo is using traditional accounting system mainly to calculate the costs related to its different activities. In this procedure, the total costs are divided into different activities similarly. This procedure is not much reliable because, sometimes cost for an activity can be high, which creates operational problem. The organization allocate financial resources separately for those procedures (Www3.lenovo.com, 2018). On the other hand, Dell is activity based costing system to analyse different activities related to its business, costs of different activities and make decisions appropriately. Some cost drivers are considered by the organisation based on which the costs are allocated for different activities. This process is more reliable because, the organisation allocates accurate costs for different activities (Dell.com, 2018). Apart from this, Lenovo uses non-integrated computing system which is not efficiently connected with all the activities in the organisation that can create communication problem in some cases. The management and employees face hardship to use required data for completing the tasks. However, Dell is using cloud computing system which is more reliable for using required information effectively by the stakeholders and can increase the level of communication within the organization. Conclusion The management accounting system is important for an organization to analyse its different financial and nonfinancial data to forecast future and develop strategies. Different management accounting system such as job costing system, inventory management system and other are used for different procedures for an organisation. Along with this certain planning tools such as budgeting and pricing can be used to plan the strategies and activities appropriately.

Page 11 of 12 Reference list Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, and Society, 47, pp.1-13. Dell.com. (2018). Dell United Kingdom Official Site | Dell UK. [online] Available at: http://www.dell.com/en-uk [Accessed 9 Jun. 2018]. DRURY, C.M., 2013. Management and . Springer. Figge, F. and Hahn, T., 2013. Value drivers of corporate eco-efficiency: Management accounting information for the efficient use of environmental resources. Management , 24(4), pp.387-400. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), pp.50-71. Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of , 32(7-8), pp.414-428. Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education. Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, pp.237- 248. P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics are from Venus? An investigation of the research-practice gap in management accounting. Accounting, Auditing & Accountability Journal, 27(3), pp.394-425. Www3.lenovo.com. (2018). Lenovo Official UK Site | Laptops, Tablets, Desktop PCs, Data Center. [online] Available at: https://www3.lenovo.com/gb/en/ [Accessed 9 Jun. 2018].

Page 12 of 12