Management Accounting for Pandrol UK Limited

This assignment delves into the application of management accounting principles within Pandrol UK Limited. It examines various techniques, including marginal and absorption costing, benchmarking, key performance indicators (KPIs), and planning tools like variance analysis and simulation. The goal is to understand how these systems contribute to cost reduction, efficient resource utilization, and ultimately, the company's sustainable success.

MANAGEMENT
ACCOUNTING

INDEX OF TABLES
Table 1: Income statement using absorption costing.......................................................................6
Table 2: Income statement through marginal costing......................................................................6

INTRODUCTION
The chosen company Pandrol UK Limited is engaged in the business of manufacturing
the rail fastenings which is used to fasten the railway sleepers. In this case management
accounting has a great role to play which enables the manager to analyse the information in order
to take timely decisions which is essential for the organization. It deals with the various types of
management accounting systems which are followed in the organization and the tools which are
used for the management accounting reporting which are used for the communication of the
financial results. For budgetary control various planning tools are used to control the budgets to
control the wastage of costs.
TASK 1
P1) Management accounting and significance of its systems
Report
To,
Line Manager
Pandrol UK
As the management accountant of Pandrol UK which is engaged in the manufacturing of
rail fastenings to the railway sleepers. Management accounting is aimed at the main aspect of
management which is decision making and this is only possible when dissemination of
information is done in accurate and timely manner (Alsharari, 2017). The principles of
management accounting are- Influence: As we know the main function of management accounting is communication
of information so as to enable the decision making process and this involves the
communication of information and this gets influences by the people transmitting them.
 Relevance: The information which is transmitted should be relevant to the main
objective. The information which is not relevant should not be transmitted as this can
cause a hindrance in decision making.
Other than these principles there is its systems can be understood as: Job Costing Systems-Under this costing method, the companies where the entire output
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is measured in units which are completed in all respects. However, cost incurred for
manufacturing process are evaluated including purchasing raw materials, labour cost and
cost incurred on additional overhead. For each product the costing is done separately and
is not at all related with other products in the factory. The main Advantages of the job
costing are the factor that the estimation of raw materials, overheads is determined
separately for each job and also the profitability is also defined for the entire job and the
same is not related with other jobs. Batch Costing System- In this type of costing, there is individual production is done.
The entire production is divided into small numbers of homogeneous items known as
batches and the cost allocation and other requirement is done on the basis of entire batch
(Curry, 2010). Including this, its main characteristic is that the raw materials are not
procured in bulk and not the basis of individual units. The cost control can be easily
done as the allocation is done as per the batch. Process Costing Systems- It is appropriate for production and distribution system of the
organisation where all activities are done. The main Advantages of the process costing
are that it is very easy method to use and this method of costing is very flexible. As in
this systems the cost can be adjusted and cost saving is done.
 Service Costing Systems- The system which focuses on the services. The services are
the intangible and for that the different accounting system is taken and used. Here the
main aim is not the production of products but rendering of the services to the
customers. Another Advantage is that the problem of inventory is finished due to this.
There is no need to maintain the inventory as it deals with the services and hence the
maintenance cost is reduced.
 Financial accounting system: It includes analysis of financial statements as profit and
loss account, income statement, balance sheet, fund flow and cash flow etc. On behalf of
this, different ideas are generated for increasing revenue and decreasing expenditures
incurred on business operations. It is recognised that management accounting plays
effective role in financial development of Pandrol UK Limited. Similarly, monetary
position of entity can be enhanced efficiently that affect decision making on further
business operations. Therefore, financial accounting system is crucial for management
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of fund and proper cost effectiveness.
 Cost accounting system: All expenditures and revenue are analysed in this system by
which decisions are made for setting price on products like; purchasing raw material,
labour cost, additional overhead etc. It impacts on production and distribution of goods
also influences profitability of the organization. Therefore, variety of ideas are generated
regarding business operations and improving efficiency of Pandrol UK Limited.
 Inventory management system: Management accounting deals in inventory management
of Pandrol UK Limited that is linked with productivity and proper management of entire
business operations. In this regard, various tools are applied for utilizing resources and
managing inventories efficiently. Including this, all inventories are managed
systematically by analysing them and preparing strategies to manage them. Thus,
inventory management system is essential for managing business operations and
creating balance between production and supplement of product services.
 Performance management system: As management accounting system considers as
multidisciplinary approach, it also handles performance of entity and workers. In
accordance to this, working efficiency of employees get increased as well different ideas
are generated for improving them. Moreover, it is able to encourage workers for better
quality work affect organization's effectiveness and efficiency. Thus, performance
management system also impacts for management of entire business operations.
This management accounting systems are useful for analysing actual performance of Pandrol
UK Limited on which decisions are made to improve performance and quality services.
Including this, optimum utilization of resources and fund can be gained affect productivity and
profitability of the enterprise (Otley, 2015). However, different ideas are generated for further
implementation and managing entire business activities. Therefore, management accounting
systems play significant role in decision making and enhancing quality level of its products and
services efficiently.
As every organization survives in the world of uncertainties it is very important for the
organizations to integrate these systems as per the organization needs (Goddard, 2014). This
helps in planning of the tasks in the organizations and it defines and prepare the employees of
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the organization for confronting the worst case scenarios. The main is decision making and
decisions will be good only if the information which is transmitted from various departments is
accurate and relevant for decision making.
Management Accountant
P2 Explain different techniques and methods of management accounting reporting.
Report
To,
Line Manager
Pandrol UK
The management accounting reporting deals with the management accounting systems
and with that it also deals with the reporting of the decision to the users and this is facilitated by
the way of management accounting reporting. To monitor the company's performance a regular
check is required and this can be done by the way of various reporting method (Mokhtar, 2015).
The previous year's performance of the company is determined on behalf of which further
business operations are forecast. However, different management accounting systems for the
organisation can be recognised as: Budget Report- It is one the essential management accounting system for allocating
resources and the budget on the specified tasks. As all the activities in the organization
require different budget to carry out the activities hence the allocation should be done
properly. The main use of the budget report is that to the owners and the managers so as
to decide the incentives to be distributed to the employees and the budget report shows
the utilization of the budget and if it is over utilized then efforts to be made to built the
things in control. Job Cost Report- Job cost report estimates the efficiency in the production system by
seeking to the expenses of the project undertaken and the estimation of the costs which
are to be consumed and which have already consumed. The areas with high profit
earning potential are identified and this gives the direction to the company to move
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ahead in the direction of areas which are high profit earning potential are more focused
and all the resources are directed towards the same. This aims at identifying the cost per
unit of the product of the job. It aims at facilitating the movement of resources from the
loss producing areas to that of the producing areas. Income Statement- As the name suggests, income statement depicts the incomes and
expenses for the particular yeas and this helps in identifying the net profit ad loss for the
organization. Income Statement is the indicator of the profitability and thus the users
use this income statement to ascertain the profitability of the company which enables
them to divide whether to invest in the company or not. It helps in identifying the areas
which are generating more profit and comparing the same to the areas which are
generating less profit (Otley, 2015). Ratio Analysis- Ratio analysis is a comparison tool which enables the comparison of
the data of the two periods and calculating the results and this in turn is used as a tool
for comparison of the data. The data is compared on the basis of the liquidity, solvency,
profitability and thus it enables to estimate and compare the data on various aspect and
framing our decisions on that basis.
 Cost Variance Analysis- It is a useful tool for controlling the costs incurred on business
operations of the organization. Here the standards is set for the costs and other estimates
and then the actual production is done and then finally the actual cost is compared with
the standards cost and the deviations are noted down and further the corrective steps are
taken in order to control the costs' ans in turn increase the optimum utilization of the
resources.
Therefore, above mentioned all methods are beneficial to analyse actual performance of entity
for decision making and further business operations. Therefore, requirement of integration is
required so as to maintain the flow of information. This integration can be established on the
basis of the accounting systems and according to that further the management accounting
reporting systems has to b established. Hence both the accounting systems as well the
accounting reporting goes hand in hand.
Management Accountant
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TASK 2
P3) Income statement using marginal and absorption costing methods
(A): Income statement using Absorption costing
Table 1: Income statement using absorption costing
Particulars Alpha Beta
Sales revenue 207000 120000
production cots 200100 147200
Gross profit 6900 -27200
Less: Additional
overhead
Variable selling
overheads 2300 1600
Fixed administrative
overhead 27000 27000
Total fixed cost 29300 28600
Net profit/loss -22400 -55800
It is interpreted that Alpha and Beta has invested 200100 and 147200 respectively on
which revenue are gained as 207000 and 120000. Therefore, gross profit/loss for both Alpha and
Beta is evaluated as 6900 and (-) 27200 as loss. It is because of improper management of
production and distribution system for Beta. Further, for calculating net profit/loss under this
costing method, variable selling overhead and fixed administrative overhead are to deducted with
gross margin. However, variable selling overheads for Alpha and Beta are 2300 and 1600
sequentially while administration overhead is same as 27000. Thus, it is recognised that both
Alpha and Beta got net loss in business operations as (-) 22400 and (-) 55800.
(B): Income statement using Marginal Costing:
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Table 2: Income statement through marginal costing
Particulars Alpha Beta
Sales revenue 207000 120000
Cost of production 103500 60800
Margin 103500 59200
Less: Variable overhead
Production overhead 30000 14000
Selling overhead 2300 1600
Total variable overhead 32300 15600
Gross profit 71200 43600
Less: Fixed cost
overhead
Production overhead 105000 105000
Administrative overhead 27000 27000
Total fixed cost 132000 132000
Net profit/loss -60800 -88400
Interpretation: In marginal costing, the fixed and the variable costs are considered to be
separate and hence the calculation also differs in this. In this case the variable overheads are
considered to be the product cost and that is why they are included in the calculation of the net
profit. But as fixed overheads are considered to be period cost and this is the reason why they are
not included in the calculation of profit and this s the reason the profit increases. The net loss of
Alpha is (-) 60800 and for Beta is (-) 88400.
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TASK 3
P4) Critical evaluation on different types budgetary control systems
To
Line Manager
Pandrol UK
Budget is a statement which depicts the incomes and expenses for the given period.
Whereas budgetary control is a measure to control the budgets' preparation and finding the
breaks which are left uncorrected and hence taking measure to control the budget. It is aimed at
optimum utilization of the resources and taking measures to control the costs as well.
The different types of planning tools used in budgetary control are as follows-
1. Linear Programming- It is planning tool used in budgetary control and is aimed t
making the costs to be reduced to the minimum. It aims at achieving the maximum
profits at the lowest cost.
Advantages: The main advantages of using linear programming it becomes a tool for the
changing environment and makes the efficient use of the factors of production (Strauss, 2015).
Including this, it is helpful for removing the bottlenecks in the production process and informing
the same to the management.
Disadvantages: As per critical evaluation, it is recognised that linear programming does not
consider the factor of risk which always exists in the dynamic environment. Another is that in
the organization the objective is never limited to one there are many objectives for different
tasks.
2. Simulation- This is a planning tool for budgetary control which is helped to imitate a
real world situation on a model. This model can be used to see the actual working of the
model and on that basis one can predict the working of the model.
Advantages: The advantages of simulation method that the uncertain situation can be plotted on
the model and the same can be studies and ways to cope up with the same can be figured out
with the simulation model thus helping in answering all the question and doubts regarding the
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model.
Disadvantages: The various disadvantages of this model are to create such model the expenses
incurred are very huge. The success is not guaranteed in this model as one cannot predict the
future as well as the condition of the future and due to this the entire model can go wrong.
3. Variance Analysis- It is management accounting tool to identify difference between
actual and expected position of the enterprise. However, its advantages and drawbacks
can be described as follows:
Advantages: Through this tool, performance of organisation can be analysed as well different
ideas are generated for cost effectiveness affect financial position of the enterprise.
Disadvantages: It is not appropriate for the organisations who work for manufacturing of
products. Including this, behavioural issues are determined which affect decision making for
business operation negatively.
Above mentioned planning tools are useful for cost effectiveness and planning
adequately to allocate resources and fund efficiently. However, systematic planning procedure
is made for managing entire business operations and improving its quality services at maximum
level.
Management Accounting Officer
P5) Management accounting tools for reducing occurred financial problems
Report
To,
Pandrol Limited UK
The esteemed organization Pandrol Limited which is engaged in the
manufacturing of the Rail Fastenings for the Railway Sleepers. As every organizations face the
financial problems during the lifetime of the organization. The main task is the management of
the financial problems through the use of management accounting.
For reducing financial issues occurred in Pandrol UK Limited can be solved out by using
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below mentioned management accounting systems as:
 Financial accounting system: Analysing monetary position of Pandrol UK Limited
generates ideas for increasing sales revenue and decreasing expenditures. Similarly, it
remains suitable for profitability and economic stability. Including this, it is able to
create balance between production and distribution of goods. As well, business
operations can be managed systematically affect financial tools and effectiveness of the
organization efficiently.
 Benchmarking: It is competitive approach that shows market position and
competitiveness of Pandrol UK Limited with different ideas regarding further business
operations. In this regard, comparison of organization with competitive entity is
identified to face competition and making place in it more efficiently. Therefore,
benchmarking is one of the essential tool for maintain balance and management of
overall business operations systematically.
 Key performance indicators: It includes different factors for analysing company's
performance like; financial, production, business operations etc. Therefore, several ideas
are created for reducing issues occurred at workplace and improving efficiencies.
However, indicators are useful for making decisions regarding further implementations
and proper effectiveness of Pandrol UK Limited.
By using above mentioned management accounting systems are appropriate for reducing
financial problems. However, Pandrol UK Limited uses key performance indicators while its
competitive entity uses financial accounting systems for allocating fund (Curry, 2010).
Therefore, actual market position of identified on which decisions are made regarding business
operations and managing finance efficiently.
The sustainable success of the business depends upon the factors which leads the
organization to its success. The main aim is reducing the costs incurred over the product. This
can be done by identifying the social and environmental trends for the organization and
focusing on the same. The society as well as the damage caused to the environment is of great
concern and it is the duty of the management accountant to consider the same and aims at
reducing the costs as well. The sustainable impacts must be identified and analyzed so that the
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impact can be calculated and thus help in analyzing the direction of the extent whether it is for
the benefit of the society as well as the environment or whether it is harmful for the society.
The use of management accounting help the managers to analyze the information so
obtained form the various department in the organization and on that basis the decisions are
been taken (Alsharari, 2017). As it is the responsibility of the management accountant to see the
past trend of data and on that basis estimating the costs to be incurred by using the various
planning tools such as the variance analysis, simulation and Linear Programming which help in
curbing the extra cost which is incurred.
Management Accountant
CONCLUSION
Through this report, different aspects of management accounting for measure to solve the
problems relating to the marginal and absorption costing which in turn changes the profit in both
the scenarios. Next it includes the study of various planning tools which are used in the
budgetary control and thus implementing the measures to ensure the cost reduction as well as the
optimum utilization of the resources which will ultimately lead to the sustainable success of the
Pandrol Limited UK. In order to choose the various accounting systems and this in turn helps in
communicating the same to the management.
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REFERENCES
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