Management Accounting Report

This report analyzes management accounting systems and their application in Zylla Company, a UK-based supplier to the construction industry. It examines different costing methods, including marginal and absorption costing, and analyzes the benefits and drawbacks of various planning tools used in budgetary control. The report also discusses financial issue resolving tools like financial governance, benchmarking, and Key Performance Indicators (KPIs) to overcome financial challenges.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Types of management accounting systems and its essential needs..................................1
P2: Different methods used for management accounting reporting.......................................4
M1: Benefits and application of management accounting systems........................................5
D1: Critical evaluation of various reporting method and accounting system integration......6
TASK 2............................................................................................................................................6
P3: Calculation of cost using an appropriate techniques........................................................6
M2: Various types of accounting techniques.........................................................................7
D2: Data interpretation...........................................................................................................8
TASK 3............................................................................................................................................8
P4: Merits and demerits of using planning tools used in budgetary control..........................8
M3: Use of different planning tools and their applications....................................................9
TASK 4............................................................................................................................................9
P5: Comparison with other organisation to overcome financial issues..................................9
M4: Roles of management accounting in analysing financial problems..............................11
D3: Evaluation of planning tools for respond financial issues.............................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is a process of preparing and maintaining management reports
and accounts that will facilitate management in getting accurate and timely financial and
statistical information which enable them to make day-to-day and short term decisions. Such
management reports assist employees It mainly emphasis on inside information received through
financial accounting which further be communicated with the stakeholders of an organisation.
Zylla, a UK-based company which supplies to customers ranging from main contractors in the
construction industry to the Trade is selected for the purpose of preparing this report. It has
undergone a number of changes over some time, the result of expansion into new markets and
locations, restructuring and acquisitions. The project includes the various management
accounting systems and reports with brief explanation. Different costing methods to calculate net
profitability is also covered under this report. Along with this, various tools used to control
budget along with their merits and demerits are briefly described under the report. The project
also explains financial issue resolving tools which assist company to maintain their strong
financial stability in market (Boyns and Edwards, 2013).
TASK 1
P1: Types of management accounting systems and its essential needs
Definitions of Management Accounting:
Institute of Management Accountants (IMA) defined management accounting as an
integral part of an organisation which drives them to achieve financial stability through making
an effective decisions with the help of taking support from information collected through various
financial reports.
Meaning: Management accounting refers to the determination of financial data which are
converted into useful information so as to assist management in making reliable and accurate
decisions in order to support an organisation to achieve its desired goals and objectives.
Difference between management and financial accounting:
Basis Management accounting Financial accounting
Meaning It is an integrated part of an
organisation which
It is also considered as a
valuable part of an
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management to make an
effective decision and plans
with the help of information
collected from annual financial
reports.
organisation which are
responsible to prepare financial
reports at end of each
accounting period so as to
determine the actual and true
financial performance of
company.
Requirement Required only when there is
need of company.
Compulsorily required.
Information Communicate data to company
both in monetary as well as
non-monetary terms.
Gives only monetary
information.
Time frame The report is made on when
there is requirement of
business.
Essentially required to
maintain on annual basis.
User Useful for internal parties
only.
Useful for internal as well as
external parties such as
investors, suppliers etc.
Management accounting system consists of internal systems which an organisation can
use to measure and evaluate the processes for the management of an organisation. Such internal
systems includes price optimisation, inventory management system etc. For this, the
management of an organisation is held liable to adopt such systems which drives company to
achieve strong financial stability in competitive market through maintaining financial reports on
annual basis. For this, an accounting manager is held liable to maintain such reports and interpret
it carefully so as to provide useful informations to management regarding formulation of plans
and policies. Zylla company is large-sized business which is engaged in execution of different
business functions thus the management tried to expand into new markets and locations, through
restructuring and acquisitions which can be possible only through integration of management
accounting (Carlsson-Wall, Kraus and Lind, 2015). The accounting manager of Zylla company is
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responsible to have knowledge about various accounting systems such as price optimisation, cost
accounting, inventory management system etc. and implement them in order to maintain
financial reports of company. Here are the such accounting systems along with their benefits to
an organisation:
Cost accounting system: Such accounting system is adopted for the purpose of
identifying the actual cost incurred in the execution of different business activities. It help in
reducing wastage of money through allocating costs to producing particular products after
analysing the outcomes received by selling such products in the previous year. It ensures
management in getting profitable result on the investment made to certain business activities
which directly enhances the profitability of company as well. Therefore, it will be more useful
for Zylla company to achieve financial stability in market.
Inventory management system: This is the accounting system which is more useful for
Zylla company to maintain the adequate inventory level with them so as to meet the requirement
of their clients on time. It supports company in identifying their actual inventory level position at
present which direct management to decide whether to order further inventory from suppliers or
not. It helps in minimising the cost of storage of inventory as the order has been take place
through seeing availability of stock with company at present (Christ and Burritt, 2013).
Job-costing system: This is the accounting system which is used to identify the cost that
will be incurred in producing individual product or group of products. Using such system assist
management to allocate budget to produce specific products which help in minimising the cost of
production. Through this, the management can maintain the price of their existing products and
achieve loyalty of customers with company as well for longer period of time.
Price optimisation system: Such accounting system assist company in identifying the
interest and buying behaviour of targeted clients which directs management to make an effective
pricing policies according to the paying willingness of customers after adding their profit margin.
Therefore, using such system help organisations such as Zylla company to maintain loyalty of
customers and maximises their satisfaction level which encourage business to expand its
business operation to a large scale.
Importance of Management Accounting systems:
Maintaining loyalty of targeted clients: Using price optimisation system allows
management to identify the willingness of customers to pay for the products offered by company
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which assist them to make an effective pricing policies. This will give an opportunity for an
organisation to achieve loyalty of targeted clients so that relations with them can be maintained
for longer period of time. For example, Zylla company is performing different business functions
due to which the expansion of business are very much based on the loyalty of targeted clients
therefore to maintain healthy relation with them, the management is required to charge
satisfactory amount from them for their products and services (Herbert and Seal, 2012).
Achieve profitability: Using cost accounting system allows management to prepare
budget in advance after pre-determining the cost incurred in producing products and services. It
will minimises the wastage of funds which makes positive impact on the profitability of
business. For example, while receiving order of products and services, Zylla company is required
to prepare budget in advance so as to increase their margin of profit which can be possible
through using cost accounting system.
P2: Different methods used for management accounting reporting
Zylla company Ltd. is operated its business at large-scale engaging in performing
different business functions for their targeted customers. The management put their maximum
efforts in expansion of business into new markets and locations either through restructuring or
acquisitions which requires support from various departments such as production, marketing,
operations etc. The manager of each department is held liable to maintain reports which contains
the complete details about the transactions made by them on daily basis. It assist management to
make an effective decisions and suitable policies for the purpose of achieving growth and
expansion in competitive market (Johnson, 2013). Such reports includes performance report,
inventory report, account receivable report etc. It requires maximum support from employees as
well as head of each departments to record every transactions made by them in more reliable and
accurate ways which enhances the effectiveness of business plans and policies. It can be further
understood under below:
Performance report: It is a documentation which contains financial information of each
department so that the amount of investment made by them are properly analysed along with the
outcomes received. It enables management to make decision regarding allocation of cost to
different departments on the basis of their performance level during previous year. Therefore,
such report bring more usefulness for Zylla company in terms of gaining huge profitability.
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Account receivable report: Such accounting report is prepared to assist management in
making plans and strategies for the purpose of collecting payments from the unpaid debtors. It is
the report containing all information about the list of debtors with their undue payment and due
date so that further actions can be made to contact with them for the recovery. For the purpose of
preventing bad-debt losses, the management required to make changes in their credit policies as
well. Due to engaging in different businesses, Zylla company is dealing with transactions
involving huge amount due to operatingbusiness at large in scale thus such system will be more
helpful to adopt (Lavia López and Hiebl, 2014).
Job cost report: It is the accounting report which contains the details of total cost
incurred in manufacturing individual product or group of products. It assist management to
analyse the effectiveness of such product through identifying the outcomes recovered after
selling such products which can be possible through using such report. Therefore, it is beneficial
for Zylla company to maintain such report in order to identify the expense that to be incurred in
production process of individual product or group of products so that an effective pricing policies
can be made. Report containing information about the cost that will be incurred in producing
products which help management in preparing an effective budget. It minimises the cost of
production and thus makes positive impact on the profitability of company as well.
Inventory management report: It is the report which contains the information about the
inventory used earlier to produce products and also the remaining inventory available with
company at present. This will enable management to make decision whether to order more stock
from suppliers or not after analysing the market needs and requirements. Using such information
from report facilitate company in fulfilling the needs and demands of targeted clients which
directly maximises their satisfaction level. It will help in reducing storage cost of inventory as
the management order inventory whenever there is any shortage in warehouses.
M1: Benefits and application of management accounting systems
Zylla company may get many beneficial advantages through using various management
accounting systems which are given as under:
Management accounting systems Benefits
Cost accounting systems It helps management in preparation of an
effective budget that will minimises the
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wastage in cost of operation.
Inventory management system Zylla is able to meet needs and demands of
customers through maintaining sufficient level
of stock at the time of delivery.
Price optimisation system It help Zylla company to maximises the
satisfaction level of customers through offering
them products at an effective prices.
Job costing system It help management to decide which products
are more beneficial and allocate cost
accordingly.
D1: Critical evaluation of various reporting method and accounting system integration
It has been determining that accounting system and reporting used to provide valuable
information about the current position of Zylla company. It is crucial for the accountant to make
proper information about both of them or its integration. The phenomena of link among these
two important aspects within an organisational process is said to be integrated accounting
system. It used to provide standardised process for recording various transaction and use of
finance is effective manner.
TASK 2
P3: Calculation of cost using an appropriate techniques
Cost: It refers to the amount that has been paid to acquire something in order to execute
different activities. In business organisation, cost is usually a combination of various aspects
whose values are determined the actual cost. Such aspects includes effort, material, resources,
time etc. It includes opportunity as well which is foregone in production and delivery of a good
or service (Luft and Shields, 2010).
Zylla company is engaging in performing different business functions which requires
funds in order to arrange and manage adequate resources. Therefore, it is more important for the
management to determine the actual cost incurred in execution of different business process so
that it can be recovered along with margin from the clients. There are mainly two types of
costing method which assist management to determine the actual net profitability of company.
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Absorption and Marginal costing methods are two such methods which are used to calculate net
profitability. It is further explained under the below:
Marginal costing: It is such a method that will be used when to produce extra unit of
output other than main output. It includes variable cost only and ignoring fixed cost due to which
the net profitability of company are increased. It is also named as variable cost due to inclusion
of labour and material cost along with the estimated portion of fixed cost.
Absorption costing: It is another effective method for calculation of net profitability
which consider both variable as well as fixed cost. It is required to Generally Accepted
Accounting Principles (GAAP) external reporting. By using such costing method, the net
profitability of company decreased as compared with marginal costing method as there is
inclusion of fixed cost. Illustration of calculation of net profitability are given as under:
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
M2: Various types of accounting techniques
There are mainly two methods to calculate net profitability through considering all costs
and expenses. Such technique are given as below:
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Standard costing: It is the method in which the decision has been taken to identify
desired cost that will be incurred in execution of future business activities.
Marginal costing: It is a costing methods in which decision are taken through
ascertainment of total costs which makes easy to determine net profitability of company.
D2: Data interpretation
As above, marginal and absorption costing methods both are utilised to determine net
profitability of company. From above calculation, it has been observed that the income under
marginal costing is much higher than the profit comes under absorption costing method which is
17500 and 15675 respectively. The differences in profit is due to inclusion of variable cost i.e.
9600.
TASK 3
P4: Merits and demerits of using planning tools used in budgetary control
Budgetary control: It is A forecasting tool which is used by business organisation with
the purpose of controlling their expenses and enhance their revenue savings. It assist managers to
utilise budgets in orders to monitor and control costs and operations in a given accounting
period. It can also be referred as the process for managers to set financial as well as performance
goals with budgets, compare the actual results and adjust performance, if it is required.
Process of budgetary control:
Consult with manager: This the first step in which the managers of various departments
works for the betterment of an organisation are meet together and discuss about the business
activities that will be executed in near future to achieve growth and success (Maher, Stickney
and Weil, 2012).
Do assumptions: After collecting and analysing relevant and useful information from the
accounting reports, the management of Zylla company make assumptions regarding future
business activities with a hope of getting profitable outcomes.
Fix data to attain business targets: In this step, the management allocate cost to different
departments on the basis of their outcomes and performance level during their previous year.
Compare actual data with budgeted information: Under this step, management compare
the cost incurred in previous year with the cost required to incurred in future business activities.
Review analysis: This is the final step in which the management review all above steps
more carefully and rectify if any deviations are found.
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Planning tools:
Forecasting tool: It is estimating tool which is used to assume future cost after determining and
analysing cost incurred in previous accounting period. It is used to reduce cost of operation
which impact on their profitability. Merit: It gives an appropriate data which facilitate management in understanding future
condition that will make easy for employee to deal with future uncertainties.
 Demerit: Due to less reliability and accuracy of estimation, the management may failed
to get expected result from future activities.
Scenario tool: It is also an effective tool which help management in identifying the various
alternatives that will may use to execute business activities more smoothly. This tool assist and
guide the managers to perform different functions. Merit: It help in gathering useful data about the various options and assists in executing
business activities in expected manner (Moser, 2012).
 Demerit: Such tool requires more time in identifying various alternatives due to which
the effectiveness of business activities and results are much affected.
Contingency tool: This is another tool which management make itself to stand at the time of
financial contingency. This protect the organisation to fight any kind of contingency plans. Merit: It facilitate management in minimising business cost and operation that brings
positive impact on the net profitability of company
 Demerit: Such tool is suitable to deal with emergencies thus not applicable and suitable
for every situations (Management Accounting, 2016).
M3: Use of different planning tools and their applications
Budgetary control is crucial activity which facilitate company in maintaining business
cost through distributing it to such department who can provide maximum outcomes to company.
For this, manager is held liable to control, monitor and operate the budget prepared to execute
business activities more effectively.
TASK 4
P5: Comparison with other organisation to overcome financial issues
Zylla company is large-sized organisation operated at international level which has
undergone a number of changes over some time. It required company to maintain its financial
performance which can be affected through various financial issues such as missing accounting
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reports, non-performance of employees, rivals competitor strategies etc. For example, the
company may faces quality issues in their existing products which affects their existing brand
position in adverse manner (Parker, 2012). It makes negative impact on their profitability as
well. Therefore, it is important for Zylla company to eliminate such issues through adopting
various financial tools which includes the following:
Financial governance: It is an effective tool which directs company to collect, managers,
monitors and controls financial information. There are some rules and regulations framed by
government which direct company to show their true and fair financial data towards its
stakeholders so that the present value of company can be identified into market. This will be easy
for investors to acquire proper knowledge about the actual financial position of company and on
the basis of which took decision to invest in company (Vaivio and Sirén, 2010).
Benchmarking: It is also considered as an effective tool which encourage employees to
focus towards their allotted work so as to achieve desired result. Using such tool, the
management is able to set target for their employees through analysing the rivals strategies,
customers needs and requirements so that the employees can work according to the given
directions and allotted task and brings desired result for company. Therefore, increasing
performance level of employees maximises the contribution of employees which directly make
positive impact on the overall performance of an organisation (Weygandt, Kimmel and Kieso,
2015).
Zylla company has facing tough competition from many rivals in market such as RL
Maynard which is currently attain good financial position in market through maintaining their
financial accounts. The management of RL Maynard mainly uses KPI as financial resolving
tools. It is further understood as below:
Key Performance Indicator (KPI): It is an effective tool which assist management of RL
Maynard to maintain the performance level of employees through identifying the deviations
which unable company to achieve desired outcomes. It consists of two types such as Quantitative
and Qualitative indicators which reflects the performance through statistical or numerical form or
through practically analysing respectively. Therefore, it is more useful for RL Maynard company
to adopt such tool so as to bring maximum output from their employees through which it can
successfully enlarge its business operations to new market. As Zylla company is operates its
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business at large scale due to which it consumes more time and money to analyse the
performance of each employees therefore not much suitable to adopt(Budgetary Control, 2017).
M4: Roles of management accounting in analysing financial problems
There are various financial issues which causes cash unavailability, product defects and
others which affects the profitability of an organization. For this, KPI and Benchmarking are the
most preferable financial tool which helps in identifying and resolving financial issues which are
ascertained by an organisation.
D3: Evaluation of planning tools for respond financial issues
There are mainly two types of financial tools such as KPI and financial governance are
more suitable financial tool for Zylla company in order to resolve financial issues that restrict
them to expand its business to new market.
CONCLUSION
It has been concluded from the above project report that management accounting is
essential need of every organisation which supports them to provide relevant and useful
information through adopting various management accounting systems such as cost accounting,
inventory management system etc. Along with this, different accounting reports are also required
to be prepared which includes performance report, price optimisation report etc. The
management have two costing methods such as marginal and absorption among which is selected
on the basis of their needs and requirements. The management is held responsible to make
decisions regarding adoption of various planning tools such as scenario tool, contingency tool
etc. in order to control budget and achieve desired result at minimum cost.
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REFERENCES
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Herbert, I. P. and Seal, W. B., 2012. Shared services as a new organisational form: Some
implications for management accounting. The British Accounting Review. 44(2). pp.83-
97.
Johnson, H. T., 2013. A New Approach to Management Accounting History (RLE Accounting).
Routledge.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
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Moser, D. V., 2012. Is accounting research stagnant ?. Accounting Horizons. 26(4). pp.845-850.
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Vaivio, J and Sirén, A., 2010. Insights into method triangulation and “paradigms” in interpretive
management accounting research. Management Accounting Research. 21.(2). pp.130-
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Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting.
John Wiley & Sons.
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