Management Accounting Report

This report explores the significance of management accounting in business operations, focusing on Jupiter PLC. It examines different costing methods, planning tools, and their applications in resolving financial issues and achieving sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Management Accounting, systems and its importance..........................................................1
Explanation regarding the methods and system of management accounting.........................2
Benefits of management accounting system..........................................................................3
Management accounting system and its reports are related to organisational processes.......4
TASK 2............................................................................................................................................4
Evaluation of Net profit by the method of absorption and marginal costing of Management
accounting...............................................................................................................................4
1: Calculation by using various costing method.....................................................................4
2: Preparation of profit and loss statement by using techniques............................................5
3: Preparation of final account after September.....................................................................6
TASK 3............................................................................................................................................7
Describing some of advantages and disadvantages of adapting different types of planning
tools........................................................................................................................................7
Analysing various planning tools adapted with the motive of preparing and forecasting the
budgets..................................................................................................................................10
Analysation of different budgetary planning tools necessary for solving the financial problem
or issues................................................................................................................................11
TASK 4..........................................................................................................................................11
Comparison of Jupiter PLC with another organisation on the ground of settling the issues of
financial problem by adapting budgetary planning tools.....................................................11
Evaluating the contribution of management accounting and system in achieving of
organisation's sustainable success........................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting refers to the presentation of accounting information in appropriate form
that is beneficial in ascertaining and maintaining the proper record of each and every transaction of
business entity on accrual basis. It also ensures the managers in performing all relevant functions
regarding the business operations as well as the function planning, organising, directing and also
in controlling (Eierle and Schultze, 2013). Although the management accountancy pertains the
accounting methods, systems and techniques which ensures excellent knowledge and ability that
is beneficial for the managers in assisting tasks in order to maximization of profit and
minimization of losses This report pertains the knowledge about management techniques,
methods and systems of accountancy which are helpful for the management of Jupiter PLC in
performing their management functioning in an appropriate manner which ensures proper
maintaining and ascertaining of operational information. In this report various management
accounting systems their reports, costing techniques, planning tools and the way in which
management accounting helps to resolve financial problems have also been discussed.
TASK 1
Management Accounting, systems and its importance
Management Accounting includes methods and concepts crucial for effective planning
for proper planning for selecting among business actions and for coordinating and controlling the
process of evaluation and interpretation of the performances. Beside this the management
accounting helps the management in performing the administrative and economic functioning
which pertain planning, directing and decision making, it leads to increment in effectiveness of
operational activities of business entities like Jupiter PLC. There are several importance of the
management accounting and systems.
Helpful in planning: It is the essential part of business entity like Jupiter PLC as useful
in its management activities which involves forecasting and budgeting for future. management
accounting systems ensures contribution to entity's cash forecasting and also for financial
planning by facilitating the information about the interest rates, costs and revenues will prevails
in future. besides this, the management accounting helps the entity in preparation, monitoring
and controlling accordance with agreed policies and procedures. the techniques of management
accounting in process of standard costing and budgeting (Granlund and Lukka, 2017).
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Helpful in Controlling: Management accounting systems are helpful for business entity
like Jupiter PLC in process of standard performance and setting the entity's standards in real
results like variance if any. it is possible by the technique of Variance analysis. the variations are
the material facts for the mangers of the entity as they are responsible for them. responsibility
accounting helps in this process.
Helpful in Decision Making: The management accounting provides the adequate
information regarding the business operational activities and it the entity like Jupiter PLC in
maintaining the efficiency in decision making and also ensures the management in avoiding the
delays in decision making.
Different types of management accounting system are as follows:
Cost accounting system: It is used by the management of Jupiter PLC in order to
determine the cost of all the activities that are performed by the organisation. it guides the
managers to set the appropriate cost so that large number of customers get attracted toward the
organisation.
Price optimisation system: This system is used by the managers of Jupiter PLS to
analyse the mind set of customers so that appropriate price can be set for all the products that are
offered by the company. This is very beneficial for the company as it can help to determine the
actual price which needs to be set for the products.
Inventory management system: It is mainly used by the manufacturing companies who
want to keep a track record of all the inventory which is involved in the production process. This
is used by the managers of Jupiter PLC to keep detailed data of all the inventories so that
productivity can be enhanced. This system is very beneficial for the company as it can help to get
the exact information of inventory.
Job costing system: In Jupiter PLC it is used to analyse the cost which in involved in the
different jobs that are performed by the company according to the specification of customers. It
is very beneficial for the organisation because it can guide to analyse the exact cost which ic
related to various tasks that are performed by the organisation.
Explanation regarding the methods and system of management accounting
The management accounting involves various functions such as planning, controlling and
decision making and for performing all these functions there is the requirement of managerial
reports which are prepared with the help of this concept and its planning tools (Mussnig, 2013).
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This methodology and tools are used for the proper classification of the operational transactions
and costs as well as revenues generated from the business operations. All important business data
are to recorded in well maintained reports of management in order to make their proper
evaluation for ascertainment. Some of the managerial reports are described below.
Cost Reports: All relevant costs incurred in operating the business are to be recorded in
cost reports maintained by the management of the organisation (Hofstede, 2012). Costs incurred
in the activities like production, different costs are involved in production activity like labour,
fuel, raw materials etc. are record as well as analysed under the preparation of the costs reports
accordance with their nature that either these are fixed costs or variable costs. It is very important
for the company as it helps to analyse the actual cost for the products that are manufactured by
the company.
Budget reports: Budgets are the predetermined frame of different respective costs and
revenues which may or may not be incurred or earned by performing the future business
activities of entity like Jupiter PLC. The budgets are embattled on the basis of past business
records and are useful in approximation of the future business operations. Each and every
business entity prepare and maintained the budgets for the future business projects. This report is
very beneficial for the organisation because it helps to allot appropriate funds to all the departments of the
organisation.
Benefits of management accounting system
Management accounting system Benefit
Cost accounting system It helps the managers to determine the cost which is faced
by the company for a specific production.
Inventory management system It guides the managers to keep an eye on the processes that
are related to inventory and track the exact location of it.
Job costing system Managers can analyse the cost involved in separate jobs that
are performed according t the customer’s specifications.
Price optimisation system It is very beneficial for the organisations as it helps to set the
appropriate price for the products that are manufactured by
the company.
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Management accounting system and its reports are related to organisational processes
All the management accounting reports and system help the managers of the company as
price optimisation system help to set right price according to mind set of customers, inventory
management system guide to keep a track record of all the stock. Cost reports help to analyse the
cost involved in different organisational processes and budget reports directs while allotting
funds to the different departments of the company. All of them help the organisation to achieve
success by guiding throughout the way.
TASK 2
Evaluation of Net profit by the method of absorption and marginal costing of Management
accounting
Absorption costing: Absorption costing refers to the method of analysing the relevant
costs of the manufacturing and which are absorbed by the production of units (Absorption
costing, 2018). These are the costs of producing output, recorded in the inventory stock and it
includes the direct costs such as material, labour etc. Although, the fixed costs as well as the
variable costs incurred in production of goods and services of the business entity.
Marginal costing: Marginal Costing refers to method used for costing and in analysing
the variable cost incurred in producing output units and the fixed costs of production, which is to
be charge form the contribution. moreover, Marginal costing refers to ascertainment of the
marginal cost and the analysing the variations occurs in amount of profit as well as the amount of
output by separating of fixed costs and variable cost (Schaltegge, Etxeberria and Ortas, 2017).
The illustrative example of these two costing techniques are as follows.
1: Calculation by using various costing method
Production cost per unit Amount Details
DM 10
DL 20
VOH 5
Total fixed production overhead cost = £100000
Use standard volume of 20000 units to absorb the
fixed production overhead cost
Selling price = £50
Absorption cost = £40
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Absorption Costing = £40/unit {10+20+5+100000/20000=40}
Total production cost:
Budget: Absorption Costing
technique Sep 2018
Production Cost
Per Unit Total
£ £
DM 10 18000x10 180000
DL 20 18000x20 360000
VOH 5 18000x5 90000
FOH 5 90000
40 18000x40 720000
Cost of sales:
BUDGETED COST OF SALES :
SEP 2018 Amount
£
Cost of production w1 720000
Opening Inventory 0
Closing inventory -80000
COST OF SALES 640000
2: Preparation of profit and loss statement by using techniques
ABSORPTION COSTING: BUDGETED PROFIT
OR LOSS STATEMENT SEP 2018
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 5 90000
40 720000
OPENING INVENTORY 0
CLOSING INVENTORY -80000
COST OF SALES -640000
STANDARD PROFIT 160000
ADJ. FOR UNDERABSORPTION -10000
BUDGETED PROFIT 150000
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MARGINAL COSTING: BUDGETED PROFIT
OR LOSS STATEMENT SEP 2018
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 35 630000
OPENING INVENTORY 0
CLOSING INVENTORY -70000
COST OF SALES 35 560000
CONTRIBUTION 15 240000
FOH PRODUCTION -100000
BUDGETED PROFIT 140000
3: Preparation of final account after September
Actual cost by using absorption costing methods:
ABSORPTION COSTING: ACTUAL PROFIT
OR LOSS STATEMENT SEP 2018
PER
UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 190000
DL 20 380000
VOH 5 95000
FOH 5 95000
40 760000
OPENING INVENTORY 0
CLOSING INVENTORY -120000
COST OF SALES 40 -640000
STANDARD PROFIT 10 160000
ADJ. FOR UNDERABSORPTION -5000
BUDGETED PROFIT 155000
Difference among budgeted and actual cost:
PARTICULAR BUDGET ACTUAL
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£ £
FOH CHARGED TO PRODUCTION COST 90000 95000
under FOH charged to Profit or Loss account 10000 5000
FOH CHARGED IN THE MONTH 100000 100000
FOH TRANSFERRED THROUGH CLOSING
INVENTORY TO NEXT MONTH OCT 2018 10000 15000
FOH CHARGED 90000 85000
TASK 3
Describing some of advantages and disadvantages of adapting different types of planning tools
Management accounting pertain three kinds of planning tools in order to perform
controlling the budgetary process in most effective manner, as these are the part of managerial
accounting and are crucial for the business entity like Jupiter PLC. There are advantages and
disadvantages of various types of the planning tools.
Forecasting planning tool: The forecasting planning tools used by the management
while performing the process of forecasting of budgets as well as the expenditures may or may
not be incurred in processing the business trading operations with a need to obtain revenues for
business. Forecasting is classified in two kinds of methods namely, Judgement forecasting and
Quantitative forecasting (Booth, 2018). Some of the advantages and disadvantages of forecasting
are mentioned below.
Advantages Disadvantages
The goodness of adapting the quantitative
forecasting technique is that predictions are
based on the past business performance
recorded in past financial report of the business
entity such as Jupiter PLC.
Future is unpredictable and no one can exactly
predict it, the predictions made in process of
the judgement forecasting are based on
individual’s judgement and opinion which may
be right or wrong. These predictions are almost
not trustable.
The estimation made under the quantitative
forecasting are estimated by the experienced of
Adoption of quantitative budgeting the chances
of unexpected occurrences arises and it
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qualified executive and employees by proper
evaluation of past performance of business that
is growth of entity in recently past year.
imprecise forecasts in context of dynamic
nature of environment.
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Scenario planning tool: The scenario planning tools is another important and effective
technique of budgetary control and also called Scenario thinking and scenario analysis. This
technique followed by organisation like Jupiter PLC with the intent to know the facts regarding
future such as social, technical, economic, environmental and political future tendencies that can
influences the running of organisation and these are required to analysis or predicting for the
purpose of making effective decisions for future business activities. the advantages and
disadvantages of adapting scenario planning tool for budgetary control are as follows.
Advantages Disadvantages
Scenario planning tool assures the reactivity,
flexibility and for complex analysis as well as
for predicting the future business environment.
Scenario planning involves a lot of time in
processing and needed the experienced
individual or perfection for preparation of
model.
low data is needed in case of making the
scenario analysis.
Challenging to validate the potential scope
creep in projects.
Contingency planning tool: the contingency planning tools is prepared with the need to
understate the effects of unfavourable contingencies and uncertainties happen with the business
entity and influences its operations (Bradbard, Alvis and Morris, 2014). The advantages and
disadvantages of the contingency planning tool adapted for budgetary control are mentioned
below.
Advantage Disadvantages
The contingency planning helpful in
understating the unfavourable effects of
uncertainties happens with organisations like
Jupiter PLC.
Contingency planning, concerned as the
accretion or back supporting plan, so it requires
the additional costs and time for preparation.
Understating the unfavourable effects on
potential consumers and suppliers while
happening of a major uncertainty.
It is crucial to make constant update; the figure
and scope of potential disasters can change
over time.
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Analysing various planning tools adapted with the motive of preparing and forecasting the
budgets
There are three major planning tools applied in relation to budgetary control and to create
and forecast the budget for the subsequent operations of the business. These following are the
major planning tool and their applications:
Forecasting planning tool: Forecasting planning a tool for making future prediction
mainly used by organisation to take futuristic decisions. There are two methods of future
projections under the forecasting tool namely, Judgement forecast and quantitative forecasts.
Mostly the quantitative forecast is used by the business organisations such as the Jupiter PLC.
The possible applications of forecasting planning tools are as follows.
Generally, it is used in forecasting or planning in relation to the production target as it has
importance in relation to effectiveness in production schedule, effective inventory management
etc.
Quantitative forecasts are simply used to forecast the presentation of the business entity and
evaluation of the organisation like Jupiter PLC on the basis of subsequent, present and future
performance of the entity.
Scenario planning: It is a planning tool that is used by the business organisations like
Jupiter PLC for divine the information about future facts like social, technical, economic,
environmental and political future tendencies (Barnabè and Busco, 2012). These tendencies are
necessary to analyse or predict with the purpose of making effective decisions for future
operational activities. This tool can be applied in following manners.
The scenarios assist in the amended understanding of various issues which are crucial for the
future of the organisation, also assisting in developing the plans for the settlement of future
problems.
The scenario planning scheduled by the organisation like Jupiter PLC, for completing
several intentions regarding enhancement of the knowledge of future period of environment of
business and preventing the influencing factors also it assist in pointing and removing the
respective issues of different departments.
Contingency planning tool: this planning tool also called the back-up planning for
uncertainty, it refers to the contingency planning regarding the future uncertainties and having
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importance related to managing the unfavourable future obligations occurred from happening of
contingent event. This contingency planning can be applied in following conditions.
It is mainly used for the smooth workings of the business trading by removing the effects of
uncertain future events such as natural disasters, financial crisis etc.
It is used in rare case like unsuccessfulness encountered in planning because of any error, in
this context or situation with an aim of developing the effective contingency plan is used.
Analysation of different budgetary planning tools necessary for solving the financial problem or
issues
There are three budgetary controlling tools used by the organisations like Jupiter PLC
and these planning tools are forecasting, scenario, contingency tools (Abdul-Baki and et. al.,
2013). These tools are adapted in order to analysis the future issues arise with the tendencies of
environmental factors which influence the operational as well as the financial performance and
also assist in understating the impacts of financial problem by utilising the methodologies such
as Benchmarking, and Key performance indicator.
TASK 4
Comparison of Jupiter PLC with another organisation on the ground of settling the issues of
financial problem by adapting budgetary planning tools
Financial problems occur due to lack of monetary resources the financial problems that are
faced by Jupiter PLC are as follows:
Unexpected expenses: These are the expanses that are not planned by the company but
occur suddenly. Managers have to spend funds on such expenses that result in shortage of
finance.
Late payments by clients: When the clients pay the owed amount late then financial
problems take place and affect the organisation by creating issues.
There are different methods used for the process of budgetary control, which are helpful
for resolution of the financial issues in the business entity like Jupiter PLC. The generally used
methodologies are mentioned below.
Key performance indicators: KPI refers to the method adapt with the motive to
measuring the performances of the employees working in the organisation. This method can be
used with the intention to measures the performance of the organisation also. Not only this, KPI
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ensures the comparative analysis of the organisation on the basis of its previous performances
and the performances of the other organisation. The organisation normally used this method for
the motive of comparing the growth of business by examining past and present performance of
the business (Askarany, 2013). The KPI methodology facilitates the performance appraisal for
the potential employees of the organisations and also helps in improving productions and
performance of the organisation, this all helps in understating the situations of financial shortage.
It also help to resolve the problem of unexpected expanses as it helps to identify the expenses
and then make strategies to ignore the same.
Benchmarking: It is another effective methodology which can solve the financial issues
of the organisation. It is followed by the entity with the purpose of measurement of the
performance of output of organisation in the market, means it is used to measures the wants
satisfying power of the goods and services produced by the organisation (Lääts and Haldma,
2012). By using this the management of the organisation measures the satisfaction level of
consumer by consuming the products and services produced by the organisation like Jupiter
PLC. The method concentrating on the improvement of the efficiency and effectiveness in
business activities and assures the high-quality standards products as well as the betterment in
the performance of the organisation. It helps to resolve the financial issue of late payment by
clients as it can guide to compare the credit policies with other companies so that it can be
tighten and the problems in Jupiter PLC’s credit policy can be identified. When the matter with
late payments is analysed than it can be resolved by implementing strategies to tighten the credit
policies.
The comparison of the Jupiter PLC with the EveryJoy enterprise in context of responding
the financial issues.
Jupiter plc. Ever joy enterprises
In company that is involved in manufacturing
method use inventory management system. As
it records inventory that will be ascertain
opening and closing cost.
It is construction organisation which involves
in construction process uses job costing system
as it boosts efficiency if price of every project
and job will be determined. Some technologies
are used in this. It takes resource from other
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firm that bring effectualness.
Financial indicators are proper tools so that
they handle and control price in company
which cause major issues. As there are scarcity
of resources and they required to place for
alternative use.
Some financial risk like improper budgeting
which will be resolve by using the budgetary
system reports in industry. It helps to trace
record of expenses and income.
Evaluating the contribution of management accounting and system in achieving of organisation's
sustainable success
The management accounting prosecutes the analysation and performance the managerial
operations for the accurate evaluation of the business activities. With the aim of exact reporting
of business operations to the management which is essential for the management of the
organisation like Jupiter PLC. It is also crucial for administration of the organisation in order to
make the futuristic business decisions. By analysing these reports, the top-level authority can
make more effective futuristic decisions regarding the future business operation.
CONCLUSION
From the above report it has been concluded that the management accounting is crucial
part of the business entity as it is responsible for the managing the business activities by adapting
several methodologies pertain under the management accounting system. These methodologies
help the entity in solving the financial issues facing the contingencies, facing the future ordeals
or competition and helps in accomplishing the desired goals of the business entity. Various types
of planning tools like scenario, contingency and forecasting are used in budgetary control and to
resolve financial issues. Benchmarking and KPI both can be used by companies to resolve the
money related issues.
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