Management Accounting and Financial Problems

This project report delves into the concept of management accounting, which helps determine an organization's true position by preparing and serving results. Various systems and reports are identified to enhance productivity and profitability. Planning tools such as forecasting, contingency, and scenario planning are used to ensure effective control over financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
P2 Importance of various types of management accounting report.......................................2
M1Benefits of management accounting system.....................................................................4
D1 Benefits of management accounting report......................................................................4
TASK 2............................................................................................................................................4
P3 Calculating costs using appropriate techniques of cost analyses......................................4
M2 types of accounting techniques........................................................................................1
D2 Interpretation of data........................................................................................................1
TASK 3............................................................................................................................................1
P4 Advantages and disadvantages of planning tools used in budgetary control....................1
M3 Different type of planning tool helps in clearing budgets................................................4
TASK 3............................................................................................................................................1
P5 Response of management accounting system to deal with financial problems................1
M4 management accounting system helps to resolve financial issues...................................2
D3 Planning tools are responding to financial problems........................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is a process of preparing managerial reports in order to bring
efficiency in an organisation. Maim aim of this project report is to build an understanding about
the techniques and systems of management accounting in order to which a small construction
company is selected named as “C & K developments limited” which has its operations limited to
United Kingdom. In this project report, various management accounting systems are determined
along with various reporting systems (Brennan and Merkl-Davies, 2013). In order to identify the
importance of this concept in an organisation, various planning tools are ascertained which helps
in resolving financial issues of a company. Various types of costing techniques such as marginal
and absorptional are used to ascertain profits. In this project report, various tools of financial
management are also ascertained.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems
Management accounting:
Management accounting is a process of developing managerial reports which has
financial and statistical data about day to day operations of an organisation. This information is
required by managers in order to take short term decisions. This accounting system is different
from financial accounting as reports prepared using management accountant are developed
regularly instead of annually. This concept includes various systems, techniques and methods
which assist an organisation like C & K developments limited to increase their productivity and
profitability (Morden, 2016). Affairs such as debts, raw material and inventory are resolved
using this concept.
Types of management accounting systems and their essential requirements:
Cost accounting system – This management accounting system is a framework which
used to determine cost involvement in activities of an organisation. This system involves
estimation of cost for future production and operations. This system helps C & K developments
limited to ascertain all the costs which are involvement in their numerous activities. There is an
essential requirement of this system in this company as it helps in conducting profitability
analyses by which ability of earning profit can be ascertained and a true picture of a company
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can be ascertained. For example: C & K developments limited uses this system to determine
cost incurred in their operations such as constructing buildings, supplying materials and many
more and record them to manage all their expenses (Mussnig, 2013).
Inventory management system – This costing system involves managing all the affairs
related to inventory. Inventory includes raw material, warehoused stock, finished products and
stock in work in process. Managing all these inventories is a crucial task to be performed due to
which this system is used by organisations to manage all the affairs related to their stock.
Companies such as C & K developments limited uses this system to manage their inventories so
that they can acquire benefit of efficiency. This system helps a business organisation by helping
them avoiding situation of work overlapping. For example:
Price optimisation system – Under this management accounting system, an organisation
allocates prices to their products and services which are manufactured or distributed by them.
Prices of the products are allocated in such as way that these prices can help organisation to
attain profit and customers can also get high level of satisfaction. C & K developments limited is
a construction company which builds structures. With the help of this system, this company
allocates effective rates to their services by which they can earn high profit and can even get high
satisfaction of their consumers. For example: C & K developments limited will allocate prices to
their services such as restructuring building in a suitable manner that it can help this to gain
profit.
Job cost system – In this management accounting system, organisations are enable to
identify cost involvement in each job which is performed by them. C & K developments limited
uses this system to ascertain level of cost which is incurred by performed set of jobs or activities.
This system helps in ascertaining most effective areas of an organisation and most problematic
areas as well. For example: C & K developments limited attains benefit to monitor all their jobs
including its cost involvement and profitability of each job (Storey, 2014).
P2 Importance of various types of management accounting report.
Management accounting report are basically related to the collection and grouping of
useful financial data in reports. These report are prepared by internal manager in order to keep a
detail information about the business operation and various other internal activity. Manage of C
& K development limited maintain various types of report in order to record various information
related to budgets, cost, inventory, performance etc. This recording and formation of report helps
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them in analysing and evaluating the internal performance of employees so that productivity and
performance of company could be improved (Venkatesh and Blaskovich, 2012
). These also help manager to increase and improve the performance of employee if they are
lacking in some aspect and are not able to work potentially. It is necessary for development
company to formulate accounting report at every quarter so that better analysis and evaluation
can be done that further help in increasing profit and performance. Some of the basic report
prepare by manager of C&K are mentioned below:
Job cost report: This report help to ascertain the total cost accrued by companies in an
individual project and further supports them to estimate expected profit to be earned by that
particular project. This report aids managers to calculate the gainfulness of the business and
modify their activity by direction on the activity that are most profitable to company. Manager of
C&K maintain this report to record different types of job processed in an event and easily
determine the most profitable job accordingly and makes change in job if required.
Inventory management report: The manager of companies prepare these report to keep
a detail information about total inventory that is being purchased during production of product. It
is useful do those manufacture entity that have a low fault tolerances. With the help of these
report manager keep centralised information on inventory cost, labour and other addition
overheads that engaged in the process of producing a product (Virtanen, Tuomaala and Pentti,
2013). In C&K, manager maintain these report to make a full specific information about total
inventory involved in formation of large building and infrastructure. They keep detail
information about the raw material, goods in transit and total inventory cost to determine the
total expenses so that profitability could be maintained.
Budget report: In every organisation it is very important to know about the total
expenditure done during an accounting year, so that when income are generated actual profit can
be ascertained. This is the almost fundamental written document for business proprietor to
realize and control the costs crosswise the company. Budgets report are prepared by the data
collected form present activities and information for past scenarios, that help in formation of
better polices. Manager of C&K formulate this report by evaluation of previous years budgets,
and they can cut the extra cost in budget.
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M1Benefits of management accounting system
Management accounting system is very helpful in increasing the efficiency of the
company. As increase efficiency leads to the more profitability for company. It helps in
simplifying the decision making in business. These systems helps companies to segregate their
cost effectively according to the products range. The main benefit of system is, it helps
management for planning for future. As it gives the flexibility to management which helps the
company to achieve their goals.
D1 Benefits of management accounting report
Management accounting reports are very helpful for company for to function efficiently.
These reports are prepare for helpful in planning for the future according to data. As it helps the
company to control and monitor the plan accordingly. It is prepared internally and used for
internal purpose so it helps the company to take effective decision for company for betterment of
company.
TASK 2
P3 Calculating costs using appropriate techniques of cost analyses
Cost:
Cost is a monetary value which is involved in manufacturing a unit, performing an
activity or acquiring resources. Cost is referred as the expenses which is involved in production
or distribution of products and services. Cost ascertainment is a significant task to be performed
as it helps in maintaining profitability of an organisation.
C & K developments limited is a construction company which operates in United
Kingdom. This company performs various operations related to construction. Costs involved in
their activity are ascertained by using costing techniques such as marginal and absorption
costing. These cost are ascertained in order to determine net profit which is ascertained by a
company. These costs are classified into two categories that is variable cost and fixed cost. It is
considered that fixed cost is static and it does not variate according to the operations or profit
earned by an organisation. Whereas variable costs are related with operations of a company and
changes according to it.
Marginal costing – This costing technique helps an organisation to ascertain all the costs
which are incurred by the operations of a business firm. By using this technique, an organisation
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can ascertain profit in which variable costs are compared with sales revenue in order calculate
contribution (Wagner, 2015).
Absorption costing – In this costing methods, all the costs involved in operations of an
organisation are absorbed in the profit which earned by them, These costs are cost of goods sold
and selling and distribution costs.
Calculation of net profit with the help of margial costing method:
Particulars Amount
Total revenue 33000
Marginal Cost 9600
Total production 12800
Closing stock 3200
Total contribution 23400
Fixed costs 5900
Net profit 17500
Calculation of net profit with the help of absorption costing method:
Particulars Amount
Revenue 33000
Cost of sales 14025
Gross profit 18975
Selling & Administrative expenses 3300
Net profit/ operating income 15675
Break even analysis: Break even is a state in which organisation faces situation of no
profit and no loss. Break even analysis is a concept by which an organisation ascertains there
sales revenue in order to identify what amount of units they has to manufacture and sell in order
to earn reliable profits (Wennblom, 2012).
a. Calculation of BEP in units:
Sales per unit 40
Variable costs 28
Total contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of BEP in amount:
Sales per unit 40
Variable costs 28
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Total contribution 12
Fixed costs 6000
Profit volume ratio PVR 30.00%
BEP in sales 20000
c. Calculation of desired profit which is 10000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is the difference between inbuilt value and industry value of the
product. It is the value of investing in which an capitalist only buy products when their market
price is lower then the constitutional value. It is the diminution in gross revenue that can happen
before the break even point of a business is achieved.
d. Margin of safety if company is selling 800 units:
Total sales in units 800
Break even 500
Margin of safety 37.5
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M2 types of accounting techniques
Management accounting techniques are basically related to the various method that help
in ascertaining the net profit margin for an accounting year. The basic tools are such as historical
and marginal tool.
Historical Tool: This tool is related to the recording values of assets at the time of
purchase in the present accounting year. It helps in ascertain the actual values of profit at the
time of valuation for financial year.
Marginal tool: This tool is related to determining the actual value of additional amount
used in producing extra unit of output..
D2 Interpretation of data.
From the above solved example company uses different type of costing tool such as
marginal and absorption. Net profit ascertain by Marginal costing is $17500 and from absorption
costing techniques the actual net profit is $15675. so it is clear from the result that the marginal
costing method is more effective and gives $1875 more profit than other method.
TASK 3
P4 Advantages and disadvantages of planning tools used in budgetary control
Budget and budgetary control: Budget is a detailed plan in which all the information of
financial spendings and income is recorded. It is based on the data of previous years. It consist
information of planned and sales revenue, costs and expenses, resource quantities etc. In other
words it can be defined as an estimation of of expenses and revenues. It is mainly generated by
the companies to attain future goals and objectives by reducing overspending. In C & K
Developments Limited Budgets are formulated by the managers to keep a track record of all the
incomes and expenses over a specific time period. It is also very important for the company to
control the budgets so that operations can be executed effectively. In budgetary control actual
spendings and incomes are compared with budgeted so that it can be analysed that organisation
is performing well or not.
Budgetary control is a complex process but if the organisation is following it properly
than it may help to control the budget in an effective manner (Weygandt, and et. al., 2015). There
are various steps that the company needs to follow. These steps are establishing a target

performance, recording actual performance, comparison of both recorded performances,
identification of the reason of variances between them and the last step is to take right and
immediate action. Three different planning tools are used by C & K Developments Limited and
all of them are explained below:
Scenario tool: It is a tool which is used to analyse possible future events by considering
mutually exclusive assert-able outcomes of all the actions that are taken by the management of
an organisation. In C & K Developments Limited scenario tools are used to project the result of
the activities that are performed by the business entities. Advantages and disadvantages of these
tools are explained below:
Advantages Disadvantages
It helps to enhance understanding by
considering all the outcomes of the actions.
Sometimes it may result in in accurate results
which is because of inappropriate assumptions.
It guides the decision maker to identify the
variables that are required to analyse outcomes.
The managers have to face various challenges
like insufficiency of funds while implementing
these tools.

Contingency tool: It is mainly used to analyse negative events that can affect the
operations of the company and have possibility to occur again. In C & K Developments Limited
these tools are implemented to determine negative consequences that may occur in future and
leave negative impact upon all efficiency and productivity of the organisation. Advantages and
disadvantages of such tools are explained below:
Advantages Disadvantages
Guides managers to deal with such type of
problems that may occur suddenly.
Sometimes the solutions found with the help of
such tools are not appropriate.
Helps to find solutions in advance for business
challenges.
Very complex to implement within the
organisation as it requires professional
knowledge (Woods, Taylor and Fang, 2012).
Forecasting tool: These tools are used to estimate favourable or unfavourable events that
may take place in future and result positively or negatively. In C & K Developments Limited
these tools are to predict future conditions that are based on past data and current market trends.
It also guides the managers to estimate those events that may take place in upcoming years.
Advantages and disadvantages of forecasting tools are explained below:
Advantages Disadvantages
Help and guide managers to cooperate with
risk or positive events effectively.
Forecasting accurate future is not possible.
Analyse the future growth opportunities that
may be grabbed by the company.
Cost involved in these tools are very high and a
small company like C & K Developments
Limited is not able to bear higher cost.
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M3 Different type of planning tool helps in clearing budgets
Scenario: these tools helps in budgetary control process to determine the particular case
scenario for bifurcating the cost. This helps in creating a specific scenario for making and
framing budgets for better planning and organisational control.
Forecasting: this tool helps in consolidating the process with creating the process in
various form. By analysing the forecasted information and analysing tools accountants be able to
consolidate the details for better formation and control.
Contingency: This helps in consolidating the cost aspects which remain uncertain in
general organisational control and process. This creates a certain scenario with adequate cost
structure.
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TASK 3
P5 Response of management accounting system to deal with financial problems
Financial problems may take place when organisation is not having sufficient funds to
operate business activities. It the company is not having a good financial management than it
affect the effectiveness of the company. C & K Developments Limited is also facing few of the
financial problems that needs to be resolves by managers by identifying good and effective
solutions for the problems. These problems are related to monetary funds which are not
sufficient and not able to resolve the issues. Following are the problems that C & K
Developments Limited is currently facing:
Unforeseen expenses: These are the expense that are not previously planned and
suddenly take place (Sisaye and Birnberg, 2012). C & K Developments Limited is also facing
this problem as there are various expenses are taking place that are not planned in prior years.
High level of debts: Main goals of the company is to to enhance the sales whether it is
credit or cash and this step of the company increases the debts for the company as clients prefer
to buy good on credit. C & K Developments Limited is also dealing with the same problem as
company has chosen to sale products on credit.
Money management system: It is very important for a business enterprise to have a
proper money management system within an organisation so that all the finance related
information can be recorded appropriately. In C & K Developments Limited employees are not
following the principles for accounting and managers that are set by the regulatory authorities of
the country which has resulted in financial issues.
Various techniques are used by the managers of C & K Developments Limited to resolve
all the above mentioned problems. The techniques are as follows:
KPI (Key Performance Indicators): it is used by the managers of the organisation to
examine factor view as it is essential for the success for the company there are two different
types of KPIs that are used by C & K Developments Limited:
 Financial KPI: These are concerned with financial strength of the company and C & K
Developments Limited use this tool to resolve the issue of unforeseen expenses as it is
used to ignore extra and unnecessary expenses.

 Non financial KPI: It is used to identify long term trends of the market so that C & K
Developments Limited can implement effective strategies.
Financial governance: It refers to the government's policies, rules and regulations that
are required to be followed while recording transactions in the books of accounting. As C & K
Developments Limited is facing the problems of improper money management system than this
technique can help to resolve this issue as it guides the companies to record all the informations
appropriately (Smith, Brännström and Jansson, 2015).
Benchmarking: It refers to the comparison of one business to another to enhance
financial strength. This technique is used by C & K Developments Limited to resolve the issue
of high level of debts because the company can compare the credit policies with competitors and
that make plan to tighten the same so that the debts can be recovered earlier.
C & K Developments Limited Ovation system
KPI is used by the managers to determine
growth opportunities.
Just in time approach is used b y the managers
to reduce the production time.
Financial governance is used to manage the
financial information within the organisation.
This technique is used to increase the
efficiency of the production process.
Benchmarking is used by the managers to set
higher goals to be achieved.
KPI is used by the managers to identify the
trends of the market.
M4 management accounting system helps to resolve financial issues
Different financial issues are faced by organisations such as sudden expenses, late
payments from clients and other. To resolve all of them managers use three different techniques
that are benchmarking, KPI and financial governance. All of them help and guide the
organisation to identify the problems and then take effective steps to deal with the same.
D3 Planning tools are responding to financial problems
Three planning tools are used by the managers of the company in budgetary control but
these tools may also help to deal with financial problems as they may help to predict these in
advance so the managers may plan in advance and make plan to resolve them.
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CONCLUSION
From the above project report, it has been concluded that management accounting is a
concept which helps in preparing and serving results in order to determine true position of an
organisation. Various systems and reports are identified in this report which helps an
organisation to effectively enhance their productivity and profitability. Planning tools such as
forecasting, contingency and scenario are used in this report to ensure that all financial problems
can be effectively controlled.
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REFERENCES
Books and Journals
Brennan, N. M. and Merkl-Davies, D. M., 2013. Accounting narratives and impression
management (pp. 109-132). Routledge, London.
Morden, T., 2016. Principles of strategic management. Routledge.
Mussnig, W., 2013. Von der Kostenrechnung zum Management Accounting. Springer-Verlag.
Storey, J., 2014. New Perspectives on Human Resource Management (Routledge Revivals).
Routledge.
Venkatesh, R. and Blaskovich, J., 2012. The mediating effect of psychological capital on the
budget participation-job performance relationship. Journal of Management Accounting
Research. 24(1). pp.159-175.
Virtanen, T., Tuomaala, M. and Pentti, E., 2013. Energy efficiency complexities: A technical
and managerial investigation. Management Accounting Research. 24(4). pp.401-416.
Wagner, B., 2015. A report on the origins of Material Flow Cost Accounting (MFCA) research
activities. Journal of Cleaner Production. 108. pp.1255-1261.
Wennblom, G., 2012. Mapping management accounting and trust: An extended literature review
(Doctoral dissertation, Örebro universitet).
Weygandt, et. al., 2015. Managerial accounting. Wiley.
Woods, M., Taylor, L. and Fang, G. C. G., 2012. Electronics: A case study of economic value
added in target costing. Management Accounting Research. 23(4). pp.261-277.
Sisaye, S. and Birnberg, J. G. Eds., 2012. An organizational learning approach to process
innovations: the extent and scope of diffusion and adoption in management accounting
systems. Emerald Group Publishing Limited.
Smith, D., Brännström, D. and Jansson, A., 2015. Redovisningens språk. Studentlitteratur.
Online
Benchmarking. 2018. [Online]. Available through:
<https://www.tutor2u.net/business/reference/what-is-benchmarking>.
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