Management Accounting for Nero Ltd

This assignment delves into the application of management accounting principles at Nero Ltd. It analyzes various financial issues faced by the company, such as communication gaps in operations and inventory control, and proposes solutions using techniques like key performance indicators (KPIs), benchmarking, and financial governance. The document also explores different costing methods, budgeting, and reporting systems to enhance profitability and decision-making.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
P1. Management accounting and its use.....................................................................................1
P2. Different methods used in management accounting reporting.............................................3
M1: Advantages of management accounting system..................................................................4
D1: Critical analysis of reporting systems..................................................................................4
P3: Calculation of net profit by using various costing methods.................................................4
M2: Analysis of various range of accounting techniques...........................................................7
D2: Analysis of financial performance of the company.............................................................8
SECTION 2......................................................................................................................................8
P4: Planning tools used for budgetary control ...........................................................................8
M3: Evaluation of planning tools..............................................................................................10
D3: Analysis of financial issues................................................................................................10
P5: Respond to various issues related with financial aspects...................................................10
M4: Analysis of the financial issues.........................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is that field of accounting which deals with providing message
to managers for their use in planning, decision making, performance evaluation, control activities
and financial reporting. It is an important aspect of any business through which company can
manage and control its daily operations (Siegel and et. al., 2010). Each organisation is trying
hard to achieve the aim and objectives by completing their activities according to framed plan. It
involves furnishing of the financial data to the management in such a way so that it facilitated the
decision making and modify the efficiency inside the organisation's.
The project assignment consists of two sections that talk about accounting functions and
its importance to the management. Different types of accounting systems are discussed in the
project. The understanding of various costing methods and planning tools which are used in
budgetary control are mentioned in this assignment. At last, how financial issues can be
overcome by using appropriate techniques are also explained here.
SECTION 1
P1. Management accounting and its use
In an organisation, there are large number of financial transactions conducted on regular
basis. To manage those transactions, company need a perfect system which can control the entire
operations into correct format. It is because; the managers cannot handle all their accounting
work manually. As accounting is connected with collection of data, recording it into concern
books of company and summarised into correct format. So that future decisions can be made in
order to achieved its long term objectives. Company can use all necessary information in
planning and controlling of their business operations (Talha, Raja and Seetharaman, 2010). It is
mostly related with management because growth and profitability of cited company is identified
through the financial statements.
Company long and short term goals are mostly dependent upon the stability and position
during the past few year. On that basis, most of the investors or stakeholders can make their
investment plans. The main reason to record all financial transactions with using appropriate
accounting system is to get effective results in the coming future. For Nero Ltd, the sole
objective is to incur maximum profit from its limited resources. In that manner, accounting
systems are more valuable to provide correct directions to company’s plan. Financial report is
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considered as one of the vital tools of company. On that basis, productivity and growth can be
determined. Accounting systems are useful for the managers to acquire competitive advantages
from other companies. In that process, they prepare regular report to analyse the impact of
implementing systems in company’s growth. It will also help to determine total cost which is
used during the production of products and services (Tayles, 2011). The management accounting
system provides reliable and accurate results from the inputs which are given by the company
during manufacturing process. Some accounting systems which are used in an organisation are
explained underneath:
Price optimisation: It refers to the use of numerical analysis by a company to establish
how customers will react to various prices for the goods and services which are produced by the
company through several modes. It is mainly based on the assumption that to determine those
costs which are more favourable for the client and they can buy it more easily without any
overlooks.
Cost accounting system: Under this accounting system, a complete set of framework is
taken into consideration to determine the overall cost of products for profitability evaluation and
cost control. It is an aim which is guides management on various course of actions that are based
on cost efficiency and its capability.
Job costing system: It is a system of distribution which is associated with the individual
cost of a product or lot size of goods. Under this, resources are enlarged to bring a well-defined
product or service to market for particular clients.
Inventory system: It is a kind of system used for analysing and tracking of the stock
level, orders and its sales or deliveries. It is the most helpful in production units where the
inventory bills and production related documents are summarised and recorded into the system.
It is a chain from which goods are transferred to industry to storehouse.
Batch costing: It is similar as job costing which is incurred when a group of goods and
services are manufactured and cannot be determined to a particular products and services within
the selected group. A batch number is provided to each lot of products.
The accounting systems are used for making effective future plans for the company. It is
used to analyse the performance so that long term goals can be achieved. Other essential use of
this is to gain competitive advantages over the other companies.
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P2. Different methods used in management accounting reporting
Accounting reports are the collection of financial data that is copied from company's
accounting records of a business concern. The company can analysed its performances with the
help of various reporting statements which includes: Income statements and balance sheet.
Starting and keeping perfect accounting practise is necessary for the growth of a concern entity.
The manager are responsible for controlling every transactions into correct manner so that less
chance of mistakes can be arises. This can only be possible for identifying and analysing the plan
through use of accurate accounting reporting (Tucker and Parker, 2014). Reporting is necessary
to evaluate the financial performance of Nero Ltd. The managers look out for all the related
reports which are necessary in order to maintain records according to prescribed policies
regarding records keeping. Investors and stakeholders would make their effective decision on the
basis of those accounting reporting which are prepared by the managers during the year.
Different reporting which are analysed by the managers are discussed as below:
Performance reporting: In this report, performance of employees as well as
organisation is analysed based on the current year’s performance. It is done on the regular or
yearly basis. The individual’s performance is based on the ability and experience that they gain
during the year. While, organisational performances are analysed through its financial position.
Accounts receivable reports: It refers as that report which is summarised with time
duration, amounts collection from the debtors. This is prepared to know about how much funds
are coming with the company from its debtors (Albu and Albu,2012). It provide manager a
complete list of amount and time duration of capital which a company will get from the concern
parties.
Inventory management reporting: In this report, position of inventories are
summarised and recorded in order to maintain balance among demand and supply. It also help to
control the wastage and to organising the resources which are necessary for the company during
the time of delivery. There are some of the methods which are used by the managers in order to
keep its level of inventory. Such as EOQ and ABC controlling.
Job costing reporting: The costs which are related with the individual segment of
products are considered under this report. It also consist of total time and size of lots produce
during the year. An estimation regarding the cost which are incur in that particular process are
recorded into it.
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Operational budgets report: This reports is prepared by analysing the total cost which are
incurred over the production of a products and services. The expenses which are used in that
process are recorded under it (Burritt, Schaltegger and Zvezdov, 2011). The base of net profit are
identified by the use of this reporting system. It includes sales and production budgets.
M1: Advantages of management accounting system
As it has been observed that for any business entity accounting systems are utmost
necessary in order to manage their daily operations. By using such kind of system management
as well as individual both can get effective advantages in their regular course of actions. The
above mentioned accounting system can be more effective to generate maximum profit for the
company. The other benefits are related with developing harmonious relation among its
employees and top authority so that efficiency can be enhanced (Management Accounting,
2017.). With the use of this system, there is huge chance of getting competitive advantages over
the other. For the future expansion these systems can be more crucial for the company.
D1: Critical analysis of reporting systems
The Nero Ltd is trying to grab opportunities which are coming in front of them. In that
process the above used reporting systems can be more useful. As they are prepared after making
overall analysis of costs and expenses which are incurred by the company during the production
process. The job costing and inventory management reporting are more effective tools which
provide more effective results in quick time. According to Cooper-Ezzamel and Qu, 2017 the
extra cost can be minimised by using operation reporting. The major aspects of the reporting
systems are they firstly, analysed and summarised into proper format before posting it to the
books of final accounts.
P3: Calculation of net profit by using various costing methods.
Costing: It is a method and procedures which is used by the company in order to
ascertain costs. The costing techniques consists of various principles and regulations which
regulate the process of estimating costs of goods and services. The costs includes historical or
conventional costing, absorption costing and marginal costing.
Absorption costing: It refers as all those costs which are related with the production costs are
absorbed by the units produced during time. The cost of final units in stocks are consist of direct
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materials, labour and other related variables as well as fixed costs. In other term, it is considered
as full costing (Hiebl, 2014).
Marginal costing: It considered fixed costs as total period costs. It mainly based on fixed cost
which are for business and required not to be apportioned. Therefore, these costs in total are
reduce from total contribution to get net profit for the company. It is said to be the techniques
which are used by the company to bring out relation among profit and volume.
Difference between absorption and marginal costing
Basis Absorption costing Marginal costing
Classification of cost
s and overheads
It consists of factory selling and
distribution and administration costs.
It is categorised into fixed and
variable costs.
Component of costs In the cost of production fixed costs are
included.
Under this head fixed costs are
not taken into consideration.
Stock valuations In this costing, the valuation is done on
production costs.
It will be included prime costs.
Decision making It is not that much effective for
decision making
It is much more effective to take
valuable decision's.
Statement of profit and loss using absorption costing
Quarter 1
No. Of units ￡/unit ￡ ￡
Sales 66.000 1 66.000
less Cost of sales
Opening inventory 0 0.85 0
+Production 78.000 0.85 66.300
66.300
-closing inventory (12.000) 0.85 (10.200) (56.100)
Gross profit 9.900
less Expenses
Selling &Administration costs (5.200)
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Profit 4.700
-Under absorption (2.800)
Reconciled profit 1.900
Quarter2
No. Of
units
￡/unit ￡ ￡
Sales 74.000 1 74.000
less Cost of sales
Opening inventory 12.000 0.85 10.200
+Production 66.000 0.85 56.100
66.300
-closing inventory (4.000) 0.85 (3.400) (62.900)
Gross profit 11.100
less Expenses
Selling &Administration costs (5.200)
Profit 5.900
Computation of Net profit by using marginal costing
Quarter 1
No. Of
units ￡/unit ￡ ￡
Sales 66000 1 66000
Less: Cost of good sold
Opening inventory 0 0.65 0
Production costs 78000 0.65 50700
50700
Less: closing inventory 12000 0.65 -7800 -42900
Contribution 23100
Total fixed costs -16000
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Less: Selling
&administration -5200
Profit 1900
Quarter 2
No. Of
units ￡/unit ￡ ￡
Sales 74000 1 74000
Less: Cost of sales
Opening inventory 12000 0.65 7800
Cost of Production 66000 0.65 42900
50700
Less: closing inventory 4000 0.65 2600 -48100
Contribution 25900
Less: Fixed costs -16000
Less: Selling
&administration -5200
Profit 4700
b) From the above information the changes whcih are seen is all becacuse of fixed costs. The
impact is directly seen over the net profit (Hopwood-Unerman and Fries, 2010). These changes
are results by over and under absorption in the production activities. Those are deternien
underneath.
For quarter 1
Absorbed overheads =(66.000×￡0.20) 13200
Total fixed cost 1600
Under absorption -2800
For quarter 2
Absorbed overheads =(74000×￡0.20) 14800
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Total fixed cost 16000
Under absorption -1200
c) Reconciliation statements.
It is used to prepared in order to determine the variation in the profit of by using both the
costing methods. These are illustrated below:
Particular Q1 Q2
Profit under absorption 4700 5900
-2800 -1200
Profits under marginal 1900 4700
Working Note
a) Fixed cost =16.000 Total units = 66.000×0.20=13.200
Under absorption = (2.800)
b) With the same fixed cost of 16000 , total units of 74.000×0.20=14.800
Under absorption=1.200
M2: Analysis of various range of accounting techniques
In the above analysis of accounting system for the Nero company. It has been found that
a proper plan need to be prepared in order to make effective decision in the favour of the cited
company. The future growth and performances are based on the these accounting techniques
which are used to analyse the company position (Hoque, 2011). The historical cost techniques
and standard costing are more effective to taken necessary decision about the future existence of
eh company. Inventory accounting as well as performance reporting that can be more useful
techniques which are used to by the managers.
D2: Analysis of financial performance of the company
According to the above mentioned costing methods it has been found that the results are
fluctuating from both the costing methods. If the company is going with absorption costing the
under absorption of -2800 and -1200 is recorded in it. The net profit from absorption costing is
around 5900 while by using marginal costing they are getting a profit of 4700. The best option
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for the Nero company is the marginal costing as they are getting more effective results from this
only. These are more effectively tools for making proper decision making for the coming future.
SECTION 2
P4: Planning tools used for budgetary control
Budget: It refers as the balance estimation of expenses and receipts of a given period of
time. It is prepared by taking support of past data. In the other words, a budgets is a set of pre-
determine report of management decisions and polices for the coming time period. The budget is
the highlight of the company's financial positions and it potentials. In relation to manage its
operations company need to prepare various budgets (Jansen, 2011).
Signification of budgets are:
Budgets are more useful for the company in order to determine its future and to increase
the market reputation in front of others.
One of the major aspect of the Nero company is to enhance the productivity through using right
techniques and budgets which will increase the profitability of the company.
Those costs which are incurred heavily on the production of products can be reduced so
that more effective results can be generated.
Budgets are said to be the values base for the decision making for future forecasting and growth.
Types of budgets are:
Operating budgets: It is mostly associated with the expenses which are incur by Nero
company in their production process. It include total estimation of the values of resources which
are needed for the performances of the company. It also consist of estimates of work load in
relation with the total cost accounts. It consist of sales and production budgets (Macintosh and
Quattrone, 2010).
Advantages
It will make the organisations respondent to environment.
It makes the organisations to determine their basic structure and control the extra costs by using
right kind of decision.
Disadvantage
It is more difficult to make because collection of information from each departments are not so
easy tasks.
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There is huge chance of bias among managers and top level managements.
Cash budget: It refers as the total cash inflows and out flows which are generated by the
company from its various activities. Such as investing, operational and financing. It is said to be
detailed budget determination which is incorporating both revenue and capital products. It
provided forewarning of potential issues that are arises in an organisation.
Advantages:
Company expenses are grouped by the organisation and objectives of expenses are categories
into these budgets (Pitkänen and Lukka, 2011).
Under this appropriation are made on the cash basis and also determine the annual payment.
Disadvantages
Cash deficiency can be reduce through an well planned system.
The manager need to apply correct and proper format to record cash transaction.
Master budgets: It is said to be the combination of all budgets which are made by the company
after make suggestion and collecting necessary information from the various departments
Advantages
It identified the various issues in an single sheet of report that a company is facing during the
year.
Disadvantage
It takes more time and cost to prepared such kind of budgets.
Budgeting process: It is necessary for the cited company to prepare a well classified
budget process which will help them to work according to the set plan. The past data of the
company is analysed by taking base for the year. It is techniques which every managers need to
follow during preparation of budget for the company. All the initial to ending process are need to
be considered (Quinn, 2011).
M3: Evaluation of planning tools
According to above mentioned planning tools for the cited company. It can be used for its
analysis the growth and productivity. The operating and cash budgets are necessary for the
company to manage and control is daily operations.
D3: Analysis of financial issues
An organisation is facing so many financial or non financial issues. The accounting systems are
used by the company in order to overcome those issues. Different financial problems are can be
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solved by applying correct techniques. Key performances indicators and benchmarking is an
importance techniques of solving financial problems of a company. It will help to increase the
growth and profitability of the company as well as correct the pattern of decision making
process.
P5: Respond to various issues related with financial aspects
Every businesses entity is facing the problem of financial problems which are arises
during the production activities. It is the role of the managers to identified all those issues and
plan to overcome it. There are necessary process to be taken in order to resolve company
problems. In the above mentioned Nero Ltd is facing lack of communication in managing its
operations as well as control the inventory positions. It is considered as one of the major issues
for the managers that has to be resolved as soon as possible so that more accurate results can be
achieved (Quinn, 2014). The prime objective of the company is to manage its operations in well
planned manner so that less chance of mistakes can be seen. The other issues that Nero Ltd is
facing at the time of operations are appropriate correspondence and utilisation of resources. With
the useful implementation of effective bookkeeping can be implemented by the company. Some
of the financial techniques which are used by the company to solve financial issues are:
Key performance indicators: It is used to measure the performance of the individual as
well as the organisation. The main objectives of this techniques are to analyse the progressivism
of the company performances during the year.
Benchmarking: As per this techniques, company can used to compare their own
operations with the other so that they can react to those problems which are faced by the
company (Setthasakko, 2010).
Financial governance: Under this different statements such as income statements and
balance sheets are need to be prepared according to the set guidelines which are prescribed by
the government.
M4: Analysis of the financial issues
In the above mentioned various financial issues which a company is facing in managing
its day to day operations. The performance and growth is mostly imbalance with the decision
taken on the base of financial position. All those issues which are associated with net profit of
the company can be solve through applying absorption and marginal costing. It will help to
increase the efficiency and effectiveness of the company.
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CONCLUSION
From the above project report it has been concluded that management accounting is an
crucial aspects of any business inn order to manage and formulated its daily operations. The
project summarised with management accounting system types and its usefulness to the Nero
company. It also concluded the various reporting and costing methods which are used to find out
net profit for the company. The understanding of budgets are various financial tools are
explained in the above. It also present the techniques which are used to solve financial problems
which are arises in an organisations.
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REFERENCES
Books and Journals:
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