Unit H/617/1143 Financial and Management Accounting Techniques for Managers
Level 4 15 Credits
You are working in the Finance Department for a retail group having successfully completed your accountancy qualifications and training. Your line manager, the Finance Director, has been asked to review the induction pack provided to new Board members. His judgement is that the existing materials assume a level of financial knowledge, which is not shared by all members.
In order to address this issue, the Finance Director has asked you to prepare a first draft of a set of materials for the induction pack for his further consideration.
The materials must provide an overview of financial and management accounting systems which:
- compare management and financial accounting systems
- analyse the financial and management accounting techniques that are used to record financial information
LO1 Assessment Criteria 1.1 1.2
To achieve a Merit the materials must evaluate the benefits of financial and management accounting systems for a specific business organisation.
To achieve a Distinction the materials must evaluate how a specific business organisation integrates financial and management accounting systems into their organisational management processes.
Due to a reduction in sales revenue and a fall in group profits, the Board of Directors is investigating inventory management, credit control and current liquidity in order to make meaningful comparisons and decisions.
Your line manager has asked a few staff in the department to analyse the final accounts of competitors and you have been selected to join this group.
You need to produce a paper for a meeting with your line manager that:
- analyses the components of working capital and explains how business organisations can effectively manage working capital
- uses ratios to measure the performance of a business organisation
LO2 Assessment Criteria 2.1 2.2
To achieve a Merit your paper must also evaluate the usefulness of ratio analysis, when assessing organisational performance.
Your line manager has been pleased with your work to date and has invited you to a meeting with the Marketing Director.
The Marketing team has completed research on a number of projects to encourage customers to return to the stores.
Your line manager has asked for your written comments on the financial viability of four projects.
The costs associated with each project are as follows:
|Project A||Project B||Project C||Project D|
|Initial Cost (Year 0)||675,000||425,000||690,000||570,000|
|Expected Cash Flows|
Table of Discount Factors
- Using appropriate project appraisal techniques assess and demonstrate the financial viability of each project.
- Evaluate the methods of investment appraisal completed in part (a). Recommend the most appropriate project for the business.
LO3 Assessment Criteria 3.3
To achieve a Distinction your written work must also evaluate the benefits of management accounting techniques in supporting financial decision making to ensure long term financial stability.
The retail group has introduced a new product and uses a standard costing system. Produce a paper for a Management Meeting using the following data. The standard costs for 1,000 kilograms of the new product are:
|Requirements||Quantity||Price per kilogram||Total Cost|
The production of 1,000 kilograms of the new product requires 1,200 kilograms of raw materials. Hence the yield is 1,000 / 1,200 or 5/6 of the input. The current materials records indicate:
|Materials||Opening Inventory||Purchases (units) in April||Closing Inventory|
|A||20,000 kilograms||324,000 @ £0.48||30,000 kilograms|
|B||24,000 kilograms||60,000 @ £0.84||8,000 kilograms|
|C||30,000 kilograms||64,000 @ £0.22||22,000 kilograms|
To convert 1,200 kilograms of raw materials into 1,000 kilograms of finished product required 25 hours of labour at £8.25 per hour. Actual direct labour hours and costs are 3,800 hours at £31,350.
Factory overhead is applied on a direct labour hour basis at a rate of £9 per hour (£5 fixed, £4 variable). Factory overhead is £36,000 with 4,000 direct labour hours. The actual overheads are £38,000. The actual finished production is 200,000 kgs. of new products.
The standard cost per kilogram of the finished product is as follows:
|Materials||£0.60 per kilogram|
|Labour||£0.24 per kilogram|
|Factory overheads||£0.20 per kilogram|
The standard selling price per unit is 25% mark up on total cost. The actual selling price is 20% mark up on total cost.
- Calculate the materials, labour and overhead variances.
- Calculate the total and unit costs of the finished product.
- Produce an absorption costing statement that compares the standard cost of the finished product against the actual cost of the finished product. This statement should also show the standard selling price of the finished product against the actual selling price of the finished product.
- Interpret the variance results (as calculated in part a) considering both financial and non-financial factors.
LO3 Assessment Criteria 3.1
Evaluate the use of different costing methods for pricing purposes.
LO3 Assessment Criteria 3.2
Guidelines for assessors
The assignments submitted by learners must achieve the learning outcomes and meet the standards specified by the assessment criteria for the unit. To achieve a merit or distinction grade, the learners must demonstrate that they have achieved all the criteria set for these grades. Where work for the pass standard is marginal, assessors can take account of any extension work completed by the learners. The suggested evidence listed below is how learners can demonstrate that they have met the required standards.
|LOs and AC||Suggested evidence
|Suggested additional evidence MERIT||Suggested additional evidence DISTINCTION
AC 1.1, 1.2, 1M1 and 1D1
|AC 1.1 and 1.2
The materials should be appropriately presented for the intended audience. The learner is expected to use a suitable presentational format and produce a clear comparison so that the differences between management and financial accounting systems are understood. This should include an overview of financial record keeping. The learner should refer to Income Statements (profit and loss accounts) and statements of financial position (balance sheets) for different types of ownership, ensuring all technical terms are clearly explained. This could be included in an appendix. The learner should analyse a range of accounting techniques used for recording financial information, examining each in turn and stating why they are important. The learner should relate their work to actual practice.
For the merit task the learner needs to consider the benefits of both financial and management accounting systems for a business organisation of their choice. The learner may need support with the choice of organisation. He/she should use a business organisation with which they are familiar and have a working knowledge or use a case study. The evaluation should be balanced identifying strengths as well as areas for development.
The same business organisation could be used for the distinction task. There must be a full evaluation of how the integration of financial and management accounting systems has taken place. The evaluation should lead to balanced and evidenced judgements.
AC 2.1, 2.2 and 2M1
|AC 2.1 and 2.2
AC 2.1: The learner is required to produce meeting papers that analyse the components of working capital. The analysis should be detailed and the learner should examine each point in turn. The learner must also explain with clarity how business organisations effectively manage working capital. It would be advisable for the learner to use practical examples to support their written work.
AC 2.2: When measuring the performance of a business organisation, the learner must draw information from the published accounts of a chosen business organisation. These can be downloaded from the internet or supplied by the tutor or assessor.
The learner should calculate a selection of ratios for their chosen business organisation. The published accounts will enable learners to calculate profitability, liquidity, efficiency and shareholder ratios. The learner could choose a particular area on which to concentrate their answer or provide a wider overview of business performance. It would be advisable for the learner to calculate the ratios for a minimum of two consecutive years to allow meaningful conclusions to be drawn.
To achieve this standard the learner must evaluate the usefulness/ assumptions of ratio analysis and the problems associated with using ratio analysis to assess business performance. The evaluation must identify strengths and weaknesses of the approach and methodology and lead to sound, evidenced judgements.
AC 3.3 and 3D1
In their work, the learner should use appropriate terminology to meet the needs of a readership who have a non-financial background.
The learner is expected to use a range of investment appraisal techniques and show all stages of any calculations. The learner should be able to use discount factor tables; and calculate exact discount factors using extrapolation. Any decisions made should be supported by clear justification explaining why a particular project has been accepted or rejected.
The methods of investment appraisal are payback, accounting rate of return and the discounted cash flow methods of net present value (NPV) and internal rate of return (IRR). A range of techniques should be used to evaluate the financial viability of alternative projects.
The work (numerical and textual) provided should be submitted in a suitable format and be well-structured and clear.
The learner needs to produce a written piece of work in an appropriate format which evaluates how management accounting techniques can support financial decision making to ensure long term financial stability. The evaluation needs to consider the range of information which organisations must consider in taking strategic decisions on long-term financing.
Examples of management accounting techniques include:
-Activity based costing
-Capital investment appraisal
This list is not exhaustive.
AC 3.1 and 3.2
The learner is expected to use an appropriate presentational format and produce a paper, taking into account the end users.
The learner needs to use the budgeted and actual figures to calculate and interpret variances. The learner should provide clear workings for all of their calculations – parts (a) to (d) inclusive.
The task involves the flexing of budgeted costs in relation to the factory overheads.
The learner is expected to evaluate the use of different costing methods for pricing purposes, using a suitable format.
Examples of cost-oriented methods for pricing are cost-plus pricing, mark-up pricing, break-even pricing and target return pricing.
The work should be evaluative and consider the strengths and weaknesses of each method/technique leading to judgements.