Essential Requirement of Management Accounting.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1. Essential requirement of different types of management accounting systems.................1
P2. Different methods used for Management Accounting reporting.....................................3
M1. Benefits of application of the management accounting system in an organisation........4
D1. Management accounting system and management accounting reporting is integrated in an
organisation............................................................................................................................5
LO 2.................................................................................................................................................6
P3. Cost analysis with the help of an income statement under Marginal and Absorption Costs.
................................................................................................................................................6
M2. Financial Reporting documents......................................................................................6
D2. Financial report interpretation.........................................................................................7
LO 3.................................................................................................................................................7
P4. Explaining the advantages and disadvantages of different planning tools of budgetary. 7
control.....................................................................................................................................7
M3. Analyzing the usefulness and application of different planning tools..........................10
LO 4...............................................................................................................................................11
P5. Different types of management accounting systems that are used by the organization to11
resolve the financial problems..............................................................................................11
M4. Analysing how the management accounting systems leads to organizational success.12
D3. Evaluating how the planning tools help in solving the financial problems...................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDICES...............................................................................................................................16
Annexure A..........................................................................................................................16
Annexure B...........................................................................................................................17
Annexure c............................................................................................................................20

INTRODUCTION
Management accounting is concerned with the process of making sound business strategies,
plans and concepts which aids in the preparation of management reports, accounts and
statements which provides accurate and timely information related to financial and statistical
data of the company thereby assisting the managers in decision making process. The present
report is based on Hochtief Construction Ltd which falls under the category of reputed
engineering firm. Hochtief is engaged in the business which provides Construction
services, project and facility management to customers worldwide. The report will discuss about
various types of management accounting systems available and how its benefits Hochtief
Construction Ltd. Further the report will discuss about the concept of management accounting
reporting and its uses in decision making. Income statement of Hochtief using appropriate
technique for analyzing cost factor will be disclosed. At last the report will disclose budgetary
concepts and how it aids in decision making process. The report will also provide advantages and
disadvantages about different budgetary planning tools and how it assists in solving financial
problems of the company.
LO 1
P1. Essential requirement of different types of management accounting systems.
Management accounting system is the internal systems by which Hochtief organization
uses various means and methods so as to measure the performance of business operations and
activities and also assist in evaluating its processes for the management.
Essential requirements of different types of Management Accounting System are as follows:
1. Cost Accounting System – It is a method of management accounting system with the
help of which Hochtief can make estimation and analysis of cost for their products and
services. This method aids Hochtief in assessing the profitability level or profit amount
earned against their quality service (Bromwich and Scapens, 2016). It also helps in
making business plans and strategies for controlling the cost incurred for carrying own
production and manufacturing functions. This methods has two sub parts:
1. Job Order Costing Method – This part of cost accounting system helps in assessing
the cost value incurred for producing or manufacturing a specific unit or group of
products.
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2. Process Costing Method – It is a method which can be used by Hochtief for gathering
and making assignment of cost related to manufacturing processes or to the units
produced. It is helpful in when large production has to be made of identical units.
2. Inventory Management System – This method focuses on managing inventory and
stock level of the company. Hochtief can assess and track the quantity of goods,
inventory or stock through supply chain or with the help of areas in which business
operations takes place. This method helps company in making inventory valuation and
also improves the accuracy of inventory by maintaining continuous workflow
(Panchenko, 2018). It also assists in evaluating the level of inventory available with the
company and its reorder so as to facilitate smooth functioning of business operations.
Valuation of inventory can be done with the help of following two methods:
1. LIFO – It stands for Last In First Out. In this method, goods which are bought or
purchased at last are available for sale at first place.
2. FIFO – This stands for First In First Out, it emphasizes on selling first of that stock
which is purchase or bought in at first place.
3. Job Costing System – It is a method in which Hochtief can gather or collect information
related to the cost incurred with the production function of some specific job or product
group. This method considers every information related to direct materials, labour and
overhead costs. Under this system, information related to cost incurred for every job
work completed is submitted to customer for getting cost reimbursed.
4. Price Optimisation System – In this method, Hochtief can understand that how demand
for their products or services varies due to change in the price levels of company’s
product over time (Uyar and Kuzey, 2016). This helps in improving the profit level of
company by charging that price which brings success and growth to the business along
with customer satisfaction.
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P2. Different methods used for Management Accounting reporting.
Management Accounting Reporting is a process which provides accurate deep insight
about the business operations and procedures especially related to statistical and financial
information to the management of the company in timely manner as required for making day to
day as well as short term decision making.
Different methods used for management accounting report are:
1. Budget Report – This report assist Hochtief in making budgetary plans and strategies for
the smooth functioning of business operations. With the help of budget report company
can assess the level of performance as well as profit and cost amount. Budget are
prepared on the basis of previous experience business has met with (Brandau, Endenich
and et.al., 2017). With proper estimates and budget, company can deal with future
contingencies and cost expenses.
2. Performance Report – On the basis of this report, Hochtief can review the performance
of its business operations and processes along with performance level of each employee
and as a team. By using these performance reports management of company can make
important strategic decisions and plans about the future of business organization.
Performance-related reports provide deep insight about the working process of the
company. With the help of performance report, company can monitor or measure their
strategy and plans formulated for successful attainment of business goals and whether
these strategies are working towards mission statement or not.
3. Cost Managerial Accounting Report – This managerial accounting report helps in
assessing or computing the amount of cost incurred for manufacturing or producing any
product. For this assessment all cost related to raw material, overhead, labor and others
added are taken in consideration. This helps managers in realizing the cost and selling
prices of their products and services thereby helps in estimating the profit margins for the
company in near future.
4. Account Receivable Aging Report – When company conducts its business operations
with the help of acquisition of raw material, labour on credit basis or rely at large level on
credit amount for carrying on business activities, then accounts receivable aging report is
helpful (Rikhardsson and Yigitbasioglu, 2018). With the help of this report, the manager
of Hochtief can determine defaulters of non-payment of money as well as it also helps in
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assessing the problem or issues which the company is facing in its money collection
process.
M1. Benefits of application of the management accounting system in an organisation.
By adopting effective management accounting system, Hochtief can get following benefits:
Management Accounting
System
Benefits to Hochtief
Cost Accounting System 1. It helps in budget compliance i.e. actual
costs incurred can be compared with
budgeted cost for assessing most costly part
of business.
2. It helps in measuring the operational
efficiency of business (Brandau, M.,
Endenich, C. and et.al., 2017).
3. It also assists in providing information
related to cost factor and any improvement
required to be made for reducing cost
expenses.
Inventory Management System 1. It helps Hochtief in minimizing the cost
expenses incurred for inventory production
and manufacturing.
2. By managing inventory, company can
improve its delivery performance.
3. Stock out situation or excess stock quantity
can be avoided by managing proper
inventory.
Job Costing System 1. With the help of job costing system, Hochtief
can calculate or track cost per job assigned.
2. It helps in tracking the performance of
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