Corporate Reporting: Preparation of Budgeting Profit and Loss Statement using Marginal and Absorption Costing Methods, Importance of Accounting and Corporate Reporting in Modern Business

CORPORATE
REPORTING

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART A: Preparation of Budgeting Profit and Loss Statement of ABC Ltd using different
costing methods...............................................................................................................................3
a) Marginal Costing:...............................................................................................................3
b) Absorption Costing:...........................................................................................................5
PART B: Importance of accounting and corporate reporting in modern business..........................8
An explanation on principles of management accounting:....................................................8
Role of management accounting and management accounting system:................................9
Methods and techniques used in management accounting:..................................................10
Explanation on how management accounting is integrated within the organisation:..........11
Benefits of functions to the organisation:.............................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Corporate reporting deals with presentation and disclosure aspects of reporting made by the
organisation. It mainly consists of integrated reporting, financial reporting, corporate
governance, corporate responsibility etc. The main objective of corporate reporting is to ensure
that the information which is provided by the corporation to their investors and other
stakeholders so that they could make rational decision regarding the investment they have made
in the company. In this statement the profit and loss statements are being prepared of ABC Ltd
by application of absorption costing method and marginal costing methods and then the
suggestion has been given to the entity that which method they need to apply in their
organisational structure. At the end of this statement the management accounting principles are
being explained in a depth manner. Further methods or techniques that are being used in
management accounting are explained. At last how management accounting is being combined
with organisation has been explained (Morrison and Lowe, 2021).
MAIN BODY
PART A: Preparation of Budgeting Profit and Loss Statement of ABC Ltd
using different costing methods
a) Marginal Costing:
It is the additional cost which is required to prepare an additional unit of output. It refers to
increase or decrease in the total cost due to the production of an additional unit of output. It is
calculated by accumulated all variable cost. Variable costs include direct material, direct labour,
direct expense. Fixed costs are excluded in marginal costing. It is known as incremental cost.
The formula for marginal costing has been laid down below:
Marginal cost = ∆C
∆Q
where,
MC = Marginal cost
∆C = Change in cost of production
∆Q = Change in quantity
Elements of marginal costing:

1. Direct material: It refers to those materials which is directly used in the production
process of goods and services.
2. Direct Labour: It refers to the employees and temporary staff who work directly on
manufactured a product.
3. Direct expense: It denotes those expenses that businesses incurred and directly
associated with cost object.
Advantages of marginal costing:
1. It is simple to understand and easy to operate because it avoids the complexities of fixed
costs.
2. This technique is used to determine the price of the product.
3. It helps in controlling the cost of the product.
4. It helps the management for taking crucial decisions (Buck, 2018)
5. It is the best method because under absorption or over absorption of overhead is not
arises in this method.
Disadvantage of marginal costing
1. This method does not include fixed cost so it provides less information to externals for
judging the efficiency.
2. This method is not applicable in all type of businesses where full cost is charged.
3. Semi variable cost or Semi fixed cost is not considered so it is difficult to evaluate
overhead.
4. There is undervaluation of stock in this method so it is not accepted by higher authorities
5. In short run fixed costs are constant but in long run all the costs become variable cost.
The profits are being calculated of ABC Ltd using marginal costing method is being mentioned
below:
Particulars Amount (£)
Sales
Less: Variable manufacturing cost:
Direct material consumed
Direct Labour
10,832,000
1,976,000
3,458,000