Management Accounting Report

This report examines the role of management accounting in Johnson Jewellers Ltd., a UK-based jewelry manufacturer. It analyzes various management accounting systems, reporting systems, costing methods, and planning tools, and their impact on the company's profitability and sustainability. The report also includes a critical analysis of financial issues and measures to resolve them, highlighting the importance of key performance indicators (KPIs) and financial governance.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Various management accounting systems and its benefits to an organisation.................1
P2: Various types of accounting reporting system.................................................................3
M1: Merits and demerits of using accounting systems .........................................................5
D1: Critical analysis of reporting system...............................................................................6
TASK 2............................................................................................................................................6
P3: Different types of costing method in determining net profitability of company.............6
M2. Application of management accounting techniques:......................................................8
D2 Costing techniques helpful in providing financial reports that accurately apply and inter
prate data for a range of business activities............................................................................9
TASK 3............................................................................................................................................9
P4: Advantage and disadvantage of using planning tools use in budget................................9
M3 Use of different planning tools and their application.....................................................10
TASK 4..........................................................................................................................................10
P5: Various financial issues and measure to resolve it.........................................................10
M4 Analyses of management accounting which can lead towards sustainable success......11
D3 Use of planning tools to solve financial problems.........................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is an activity of preparing managerial reports in order to
facilitate management to make an effective decisions and plans for achievement of desired goals
and objectives. Managerial reports include Profit & Loss a/c, Balance sheet, Cash flow statement
etc. that shows true and fair financial position of company which directs management to make
changes in their existing policies so as to attain a good financial position of company in
competitive market. For this, the manager is required to take responsibility of collecting data
from various managerial reports and take an effective decision for the purpose of increasing
profitability of an organisation (Amidu, Effah and Abor, 2011).
The present assignment is based on Johnson Jewellers Ltd. which is engaged in
manufacturing and selling different deigns of jewellery items to the people of UK. The project
explains various management accounting systems along with their benefit to an organisation. In
addition, with this, management accounting reporting systems, methods of calculation of net
profitability are briefly described under the report. The project also summarises different
planning tools to control budget and other tools to resolve financial issues of an organisation.
TASK 1
P1: Various management accounting systems and its benefits to an organisation
Management accounting: It is a profession that requires specific skills and knowledge
which assist management in collecting relevant information from the managerial reports in order
to make an effective decisions and suitable plans for the betterment of an organisation. Such
managerial reports include Profit & Loss a/c, Balance sheet, Cash flow statement etc. which is
prepared on annual basis.
Benefits of management accounting systems:
Forecasting cash flows: With the help of using various accounting systems, the
accounting managers are able to prepare various kind of reports which makes easy for them to
acquire knowledge about inflow and outflow of cash during an accounting period. This will
assist management to execute business operations without fearing any shortage of funds
(Carlsson-Wall, Kraus and Lind, 2015).
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Increase profitability: Using cost accounting system help in preparation of budget for
execution of each business activities and allocate cost accordingly. This will minimise the cost of
operations which directly makes positive impact on the profitability of company as well.
Increase customer’s strength: Using price optimisation system help in identifying the
actual perception of buyers towards the pricing strategies made by company on their products
and services. This will enable management to make changes in existing pricing policies in order
to influence buying behaviour of customers in favour of their offerings. Therefore, using such
system provides an opportunity to company to achieve loyalty of targeted people and attain huge
customer strength.
Every organisation irrespective of the size whether small, medium or large always try to
enhance their business operations which can be possible through maintaining managerial reports
on specific time period. The management is held responsible to prepare managerial reports which
contains the information related with accounting transactions which were made during the
accounting period. It assists them to make an effective decisions and plans for the growth and
success of an organisation. Therefore, the management of Johnson Jewellers Ltd. is required to
prepare various kinds of managerial reports with the help of different management accounting
systems such as cost accounting systems, price optimisation system etc (Granlund, 2011). which
provides relevant information about the current position of company in competitive market. Here
are the brief explanation of various management accounting systems along with their benefits:
Cost accounting system: It refers to such accounting system which help in providing
information about the total cost invested in the execution of different business activities. It
assists management to prepare budget and accordingly allocate cost to different department
which minimises the chances of wastage of money. The main aim of using such system is to
reduce cost of operations so as to make positive impact on the profitability of an
organisation. Therefore, it is very important for Johnson Jewellers Ltd. to adopt such system
in order to identify the total cost incurred in business activities so that it can be recover from
the customers along with their certain percentage of margin. For example, manufacturing and
designing jewellery items requires huge amount to incur which enable management to
identify the total coast and on the basis of which set pricing strategies including their margin
for their targeted customers.
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Price optimisation system: It is such accounting system which help management in
identify the perception of targeted people towards the pricing strategies made by the
company on their products and services. It assists management to analyse the satisfaction
level of customers after buying their products and services on certain price. This will make
easy for management to set an effective pricing policies for their products and services which
can maximises the satisfaction level of customers and can easily attract them towards
purchasing their products and services. Therefore, Johnson Jewellers Ltd. is required to adopt
such accounting system as it help in achieving huge customer strength through charging an
appropriate amount from them on their product and services (Johnson, 2013).
Inventory management system: It is such accounting system which facilitate
management to maintain the sufficient amount of inventory with company so as to meet the
customer requirements on time. It assists management to decide whether to place an order for
further inventory to meet future requirements or not. Therefore, it helps in allocating
resources to different departments after identifying the shortage. Johnson Jewellers Ltd. is
engaged in manufacturing jeweller items which are always more in demand therefore it is
necessary for management to maintain the adequate level of inventory with company to meet
customers’ requirements which can be possible through implementing such accounting
system.
Job costing system: It is mostly used by every organisation which facilitate management
to identify the cost incurred in producing individual product or bunch of products at
particular period of time. This will help in identification of cost invested in particular
products which can be helpful in determining the net profit earned after selling such products
into market. It assist management to decide that which product will bring profitable outcome
to company after analysing their cost and profitability. Therefore, Johnson Jewellers Ltd.
must required to adopt such accounting system due to dealing with selling different design of
jewellery items.
P2: Various types of accounting reporting system
Management accounting reporting systems contains the relevant information about the
present situation of company in competitive market which provides an opportunity to
management to maintain through implementing corrective actions and suitable plans. Such
accounting reports includes performance report, inventory management report, account
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receivable report etc. The growth and success of an organisation is very much depending on their
stakeholders who have rights to know actual financial position of company in market at present
times. Therefore, it is essential for management of Johnson Jewellers Ltd. to prepare such kinds
of reports on annual basis so to acquire knowledge about current position of company and
accordingly make further actions to improve in order to compete with their rivals in competitive
market (JOSHI and et. al., 2011). It can be further understood through describing the various
types of management accounting reports in detailed manner:
Performance report: This is the report which contains the information related with
performance of each and every department of an organisation. It assists management in identify
the deviations if any, which restricts departments to achieve their target within allotted time
period. The overall performance of an organisation is very much based on the performance of
various departments due to which it important for company to proper analyse the performance of
each department with the help of such reporting system. It will also help management to
distribute funds to departments on the basis of their performance and outcomes so that maximum
predictability can be achieved by company during an accounting period.
Account receivable report: It is such accounting report which contain the information
about the list of debtors with their unpaid amount to company for the products and services they
received from company in previous time. This will help management in making strict actions to
recover the unpaid amount from the debtors along with the pre-determined rate of interest.
Therefore, it more useful for Johnson Jewellers Ltd. to prepare such reports in order to prevent
the loss as bad debts. It further assist management make decision related with changing existing
credit policies so as to make easy for company to receive the amount from debtors on due date
(Klychova, Faskhutdinova and Sadrieva, 2014).
Inventory management report: It is such accounting report which provides sufficient
information about the current level of inventory the company have at present so that further order
can be taken from the customers. Johnson Jewellers Ltd. is engaged in manufacturing jewellery
items which are more in demand in every season therefore it is important for company to
maintain the adequate level of inventory at all time so as to meet customers’ demands on time. It
can be possible through preparing such report as it assists management on accounting knowledge
of present inventory which drives them to place an order from suppliers of any shortage found.
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This will reduce the storage cost of inventory which directly makes positive impact on the
profitability of company as well.
Job cost report: This is the report which contains the information related with the cost
incurred in producing individual product or group of products. This will help management in
comparing the net profit earned after selling particular product with the cost invested in
production process. This will make easy for management to allocate cost to production of such
product which support in increasing overall profitability of company. Thus, it must require for
Johnson Jewellers Ltd. to prepare such report so as to identify the profitability of particular
jewellery items (Mistry, Sharma and Low, 2014).
M1: Merits and demerits of using accounting systems
It has been observed that management always uses accounting systems to track to every
records and reports of financial data for delivering complete review of company performance.
They would help to design accounting systems as per the performance operation of an
organisation. This would help in increasing efficiency of every function of business firm. There
are various tools and techniques that can provide reliability and authenticity to operate there
operations in more effective manner. By the help of this, complete communication among every
level of management can be done in appropriate manner.
Types of accounting system Benefits
Cost accounting system Actual costs incurred can be compared to budgeted or
standard costs, to see if any part of a business is spending
more than expected.
Inventory management
system
Effective utilisation of floor space.
Helps in cost reduction.
Price optimisation As the economic slowdown continues, insurance companies
worry about how to retain their most profitable customers.
Many are considering implementing price optimization.
Job costing system The job costing system is also very accurate. Based on
particular criteria, it directs specific types of costs towards
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appropriate accounts.
D1: Critical analysis of reporting system
This would be vital for every operating business to generate better results with proper
allocation of resources. It is crucial for Nero Ltd to make use of reporting systems in effective
manner to record financial transactions of the company. This happens to be the primary role of
managers to ensure that every data would be properly inserted in to their respective statements.
This will be helpful in analyse performance and their position in more effective manner. Report
are work as useful tool for the managers in order to make plan for the upcoming projects and to
draw the attention of outside investors and stakeholder to make their investments (Moser, 2012).
TASK 2
P3: Different types of costing method in determining net profitability of company
Cost: It refers to the amount which is budgeted to execute different business functions
with the purpose of gaining maximum profitable outcomes. It includes direct cost, indirect cost
and overhead costs. It is valuation of efforts, time, resources etc. which are contributed in
manufacturing products and services.
Johnson Jewellers Ltd. is engaged in manufacturing wide range of jewellery items which
involves huge cost and efforts thus it is important for valuation of such sacrifice resources in
order to gain maximum output. It is important for company to make use of microeconomic
techniques in their business operations so as to achieve more effective results. The management
is held liable to minimises cost of operations in order to maximises the net profitability of
company. For this, it is essential to prepare budget on the basis of estimation and accordingly
allocate funds to each business activity after analysing their return received in near future.
Preparing budget will also reduces the chances of wastage of funds which enhances the
profitability of company as well. To determine the net profitability of company, there are two
costing methods which are mostly used by every organisations. Such methods includes marginal
and absorption costing which are explained as under:
 Marginal costing: It refers to the costs which is charged when extra unit is produced
other than main output. It is also known as variable costing methods due to considering
only variable costs and ignoring fixed cost. Due to such, the profitability of company
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increases and hence it is adopted by most of the organisation (Schaltegger and Csutora,
2012).
 Absorption costing: It refers to such costing methods which determines the overall costs
incurred in manufacturing process. It considers both variable and fixed costs due to which
the net profitability of company decreases. As such costing method is more reliable and
accurate due to containing actual information about the cost incurred in particular
business activity which makes easy for management to determine the cost invested in
each and every business activity.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: A break-even analysis is a calculation of the point at which
revenues equal expenses. In securities trading, the break-even point is the point at which gains
equal losses. It is the situation arises at a point where firm incurs no loss and no profit situation,
all expenses becomes equal to all gains.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
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BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: Margin of safety indicates the level above from break even point,
where firm incurs some profit but at break-even point firm incurs no loss no profit. At break even
point all expenses becomes equal to all incomes.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2. Application of management accounting techniques:
 MARGINAL COSTING: the marginal costing one uses the break-even point analysis
based costing, where only, fixed cost and variable cost come into decide the cost of a
product. That is material cost and conversion costs, plus assigned fixed costs, according
to usage rate or prorated basis. Marginal costing systems focus on contribution: in a
standard costing system, there is a standard contribution per unit, equal to the difference
between the standard selling price and the standard marginal cost.
 STANDARD COSTING: In standard costing, supply/demand based costing is under
taken, where high demand is responded with higher mark ups, without bothering about
the income or cost effects to economic outcomes. Absorption costing systems focus on
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profit per unit, and the standard profit per unit of product is the difference between its
standard sales price and standard full cost.
Both the costing techniques are crucial and helpful in providing relevant financial
information regarding costing and also helpful in financial reporting.
D2 Costing techniques helpful in providing financial reports that accurately apply and inter prate
data for a range of business activities.
Under costing, to calculate net profit two techniques where used one is Marginal costing
and another is absorption costing, under marginal costing to calculate contribution all operating
expenses are include but, under absorption costing only those expenses are included which are
related to production only. That is why the profit calculated is different in both techniques. By
marginal costing profit is 17500( in above illustration) and by absorption costing the profit is
15675. Hence, marginal costing is better technique of calculating profit under costing. Because it
depicts the actual profit under costing, but absorption costing minimises the profit unnecessarily.
TASK 3
P4: Advantage and disadvantage of using planning tools use in budget
Planning is essential requirements of every organisation on the basis of which future
business activities are properly executed. The management of Johnson Jewellers Ltd. are held
responsible to prepare an effective budget for each business activity after analysing the profitable
outcomes received future period of time. Budget are prepared to manage and control cost which
is going to use in manufacturing quality products and services. There are various planning tools
which are more useful in controlling budgets which are mentioned under the below:
Forecasting tools: It is considered as more useful tool which is used to identify and
estimating the cost incurred in future project activities after analysing the cost incurred in past. It
is more reliable and accurate as all the data and information are available and collected from
internal and external departments (Ward, 2012).
 Merits: It helps in determining the estimation of cost which are going to incurred in
future project activities that makes company ready with the sufficient resources.
 Demerits: Estimations are sometimes not accurate due to which the chances of getting
profitable outcomes in ear future will be low.
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Contingency tools: Such tools is more useful to deal with contingent condition that may
occur in execution of future business activities. This will help management in determining the
risk which may influence the profitability of company. To deal with them in more effective
manner, suitable contingency tools are required to prepare for the purpose of analysing risk.
 Merit: It may not influences even at the time of contingencies which empowered
employees to make an effective decisions in order to cope up with future challenges.
 Demerit: It consumes more time and money which affects the profitability of company.
Scenario planning: It is also an effective tool which is used to adopt in order to deal with
flexible situation at may arise in the process of long term business activities. This, such tools are
adopted by every organisation in order to achieve better possible outcomes from future business
activities.
 Merit: It brings beneficial result to company through analysing the uncertainties and
complexities which may affects profitably.
 Demerit: It is much difficult for management to analyse future contingencies and
flexibilities due to which lots of issues and challenges ay arises in the process of future
business activities (Wickramasinghe, 2012).
M3 Use of different planning tools and their application
Planning tools such as forecasting, contingency and scenario are the techniques which
can be used by an organisation such as Johnson Jewellers Ltd to forecast their future events.
Future is uncertain so their contingencies. Tool like forecasting can be applied to predict future
sales by using trend analyses. Contingency tool should be applied by a company to ascertain
future harmful events and accordingly should prepare budget for future accounting period. Not
only these two, but scenario tool can also be applied to prepare budgets as this tool helps in
ascertaining range of future scenarios.
TASK 4
P5: Various financial issues and measure to resolve it
Every organisation tried to achieve strong financial position in market so as to compete
with the rivals in more effective and efficient manner. For this, it is important for management to
implement various financial tools which can help company resolving financial issues and
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maintain their stable financial stability in market. Such tools includes KPI, Corporate governance
etc. which are briefly discussed under the below:
Key Performance Indicator (KPI): Such tools is more effective to use as it help in
identifying the performance of company through comparing actual performance with standard
performances. This will help in identifying the deviations if any, which restricts company to
achieve strong financial position. Therefore, the manager need to make an effective polices to
rectify the errors if made in financial accounts and recover from the losses (Windolph, 2012).
Financial governance: It is related with government’s rules and regulations formulated
for company to show its actual financial performance towards its stakeholders such as investors,
shareholders, employees etc. It bring trust and loyalty of stakeholders due to which the company
can successfully gain the support from them in operating their business operations more
smoothly. Non-compliance of such rules will bring financial issues which affects their
sustainability as well.
Johnson Jewellers Ltd. JK Jewellers Ltd.
Using KPI tool brings more beneficial result
to company as it help in comparing the
actual with past year performance and
resolve issues that may arise due to conflicts
among employees.
The financial position of company will be
measure through using Balance scorecard
approach.
Financial governance are also an effective
tool which need to be more effective to
resolve financial issues.
Benchmarking tool becomes more effective
in order to attaining their financial position
and compete with Johnson Jewellers Ltd.
M4 Analyses of management accounting which can lead towards sustainable success
Management accounting is a process which includes various tools and techniques that can
help Johnson Jewellers Ltd to be lead towards sustainable success. Technique of benchmarking
can help in tackling the financial issue of product quality by setting a fix quality of all products.
Apart from benchmarking, lagging key performing indicators helps in handling the issue of low
productivity. Other KPI can help in handling the problem of shortage of funds. These tools of
management accounting helps a company to grow which ultimately results in sustainable success
(Zainun Tuanmat, 2011).
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D3 Use of planning tools to solve financial problems
The most important and influential financial issue is shortage of funds which can be
tackled by planning tool of forecasting as this technique involves prediction of future revenue
and expenses. Other planning tools such as contingency and scenario also helps top solve
financial problems. As the issue of product quality can be handled by scenario planning as they
develop range of possibilities for every product. Contingency planning involves development of
plans for future contingencies which almost evades the issue of uncertainties.
CONCLUSION
It has been concluded from the above project report that management accounting is an
essential need of every organisation which supports in running business operations more
smoothly. For this, the management is required to have proper knowledge about various
management accounting systems such as cost accounting, price optimisation system etc. It also
required for company to prepare various reporting systems such as inventory management report,
account receivable report etc. in order to provide relevant information to management about the
current position of company at preset times. To achieve financial stability, there are various
financial tools which help in preventing financial issues such as KPI, Benchmarking etc.
Different planning tools to control budget is also more important to adopt in order to minimise
the cost of operations and achieve huge profitability.
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REFERENCES
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