Management Accounting - Babcock International Ltd Assignment

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
Management accounting and requirements of different management accounting system.........3
Different methods for management accounting reports..............................................................5
Integration of management accounting system and management accounting report sin the
organisation.................................................................................................................................6
ANNEX A........................................................................................................................................6
ANNEX B......................................................................................................................................12
ACTIVITY 2..................................................................................................................................13
Different planning tools and its advantages and disadvantages................................................13
ANNEX C......................................................................................................................................17
Different tools of management accounting system used to solve the financial problems........18
CONCLUSION..............................................................................................................................19
REFERENCES...............................................................................................................................21
Online........................................................................................................................................22

INTRODUCTION
Management accounting is the accounting which helps the managers in decision making
and it includes planning, decision making. management accounting system helps in preparation
of reports which is used by the internal stakeholders of the company.
Babcock International Ltd is the multinational business or corporation which is UK based
company . The company is specialised in managing the complex infrastructure and assets. this
also provides the skilled and engineering services which helps customers to improve their
performance with reduction ion costs.
The present study includes different types of Management accounting system and reports
which helps the managers in aiding decision making. Computation of income statement using
different costing techniques will also be explained in the report.
Furthermore, the report will include different planning tools and management accounting
tools which will helps the organisation in solving their financial problems and ensuring financial
stability.
ACTIVITY 1
Management accounting and requirements of different management accounting system
Management accounting is considered to be the accounting which involves partnership
of the management decision making, planning and performing the management systems and it
also leads in providing the expertise in the financial reporting and controlling in order to assist
management in the formation and implementation of the organisation strategy(Yigitbasioglu,
2016).
Management accounting system helps in efficiently preparation of the internal reports
which helps in aiding the managers of Babcock International Ltd to make effective and efficient
decisions. This system involves different systems of accounting which generally involves cos
accounting, job costing system, price optimisation etc( van Helden and Uddin, 2016). which
helps in making different decisions related to different activities in the organisation.
Management accounting plays essential role in the organisation as it performs different
function which includes effective and efficient planning, organisation, controlling and the
decision making . These are considered to be the most important role performed by mangers and
are possible with the efficient implementation of the management accounting systems.

Some different management accounting system are as follows:
Job costing system
This system is considered to be the method of recording and accumulating the cost or
recording of the cost of a each product or manufacturing job rather than the entire process. With
the help of this method and system , mangers and accountant of the organisation' are able to track
the cots which incurred on each job in order to maintain the data which is used to be relevant
data in the operations of the business(Temelli,2018).
It is the system which helps in monitoring the costs and expenses which are assign to the
manufacturing cost to each of the product and also enables the managers to keep the track of the
job expenses.
Price optimization system
This method is the program or tool which helps the mangers in calculating that how much
demand varies at the different price levels which helps in combing the data and the information
on costs and the level of inventory which helps in recommending the best price to charges in
order to earn improve profits and also to make the most useful and efficient decisions in the
organisation. This method is generally used by the mangers to find out the best price of the goods
and service son order to generate good amount of profit( Sutheewasinnon, Hoque and Nyamori,
2016). This also use the mathematical analysis to determine that the customer's response to
different prices for the company's product and services through using different channels. Price
optimization also helps the business organisation in determining the best price which will help
them in achieving their objectives of maximising operating profit.
Management accounting reports are the reports which are generated by using the data
through financial accounting and is also used for making decisions , controlling and planning
functions. These reports helps the managers and organisation in planning, regulation, controlling,
decision making and also helps in measuring the performance.
These reports are generally different from the financial accounting as these reports helps
the internal stakeholders by providing them useful information which helps them in adding the
decision making and it also emphasis on the planning and controlling purpose( Schaltegger and
Burritt, 2017). This reports are basically generated by collecting and tracking the data from
different departments by measuring their performances and also helps in making them present in
more understandable manner .

Different methods for management accounting reports
There are different type of management accounting reports which helps the internal
stakeholders of the Babcock International Ltd and some of them, are as follows:
Budget reports
Budge reports are considered to be the most essential reports of the organisation as it
helps the business in understanding the costs and expenses of the business and also helps them
to control the costs .this reports help in measuring the performance the company and in large
organisation, individual budget reports are made for each different departments(Otley, 2016).
Company focuses on achieving their goals and objective by matching their actual
performance by budged and through using these reports they are able to know the reasons for the
deviation so that in future they can take corrective measures in order to eliminate the deviations.
this reports help in analysing overall performance of the business for trimming cost and
improving the performance as well.
Account receivable ageing reports
This reports are considered to be the critical tool in the organisation as it helps in
managing the cash flow if they are extending the credit to the customer of the business. These
reports generally includes the maintenance of the separate columns for invoices which are 30
days late, 60 and 90 days late and by using these reports it can be helpful for the manger to find
out the problem for company' collection process( Sutheewasinnon, Hoque and Nyamori, 2016).
Through this reports, organisation can make the powerful and tighten policies for the customers
which are unable to pay their debts.
Performance reports
These reports are created by the organisation in order review the performance of the
company and its staff . In large organisation departmental performance are also generated so that
performance and activities scan be measured on the basis of departmental functions. For making
key strategic decisions mangers generally make use of these performance reports(Otley, 2016).
These reports also helps in awarding the individuals of the company on the basis of their
performance reports also helps in finding the reason foe the difference between the actual and
estimated performance in order to make further decision in context to direct the performance on
direction of the achievement of organisational goal( Muda, and et.al.,2017).

Integration of management accounting system and management accounting report sin the
organisation
Management accounting system are the system which helps the mangers in generating the most
useful information for the organisation which helps them in making the most useful and efficient
decisions(Messner, 2016). This system involves cost accounting system which is further than
helps to prepare and present the costing reports which helps the Babcock International Ltd in
monitoring and controlling the cost of the products and organisational activities. Other
management accounting system includes job costing system, price optimising, inventory
management system.
These all system helps in preparing and presenting the Individual field data through
which individual reports can be made for the different activities and useful information can be
generated which ultimately helps the business in making the most efficient decisions and also in
reviewing and controlling the activities in order to run the entire business activities in the
direction of the achievement of organisational goal and implementing effective and efficient
organisational process of planning, organising and controlling(Maskell, Baggaley. and Grasso,
2016). These all can be efficiently done through proper analysing the reports by internal
stakeholders of the company.
ANNEX A
Data: 1st period
Heads Amount in (£)
Production
Dining table(A) 5000
Chair(B) 20000
selling price
A 590
B 90
Direct material
A 215
B 20
Direct labour
A 90

B 30
Variable production overheads
A 25
B 5
Fixed cots 410000
Sales units
A 4350
B 16000
production cost
A 330
B 55
fixed cost per unit 16.4
total production cost
A 346.4
B 71.4
Income statement under marginal costing method
Particulars details Amount(£)
Sales revenue
A 2566500
B 1440000
4006500 4006500
less
Direct material 935250
A 320000
B 1255250 1255250

Direct labour 391500
A 480000
B 871500Interpretation: 871500
Variable production
overheads 108750
A 80000
B 188750 188750
2315500 2315500
Less-closing stock 214500
A 220000
B 434500 434500
Contribution 1256500
less- Fixed cots 410000
Net profit 846500
Income statement under absorption costing method
Particulars details Amount(£)
Sales revenue 2566500
A 1440000
B 4006500
less 4006500
Direct material 935250
A 320000
B 1255250 1255250

Direct labour 391500
A 480000
B 871500 871500
Variable production
overheads
A 108750
B 80000
188750 188750 2315500
less- Fixed cots 410000
Less-closing stock 410000
A 225160
B 285600 510760
510760
Net profit 770240
Interpretation:
From the above table and income statement it can be interpreted that under marginal
costing method and absorption costing method if income statement of year 1 representing
different net profits which means in marginal costing contribution is ascertained by deducting
only variables costs whereas in absorption costing technique net profit is ascertained after
deducting all costs of production that is variable and fixed costs.
Fixed cost remain constants till certain period of level than after it starts decreasing as
level of production increases and in absorption method, fixed cost is also deducted which is
reason for ,low net profit under this technique compared to marginal costing technique of income
statement of the Babcock International Ltd.
RAW DATA: 2nd period
Head Amount in (£)
Production

Dining table(A) 5200
Chair(B) 22000
selling price
A 590
B 90
Direct material
A 215
B 20
Direct labour
A 90
B 30
Variable production overheads
A 25
B 5
Fixed cots 482000
Sales units
A 1700
B 19100
production cost (variable)
A 330
B 55
fixed cost per unit 17.72
total production cost (variable+fixed)
A 347.7
B 72.7
closing stock units==opening
stock+purchases-sales
A

650
4000
opening stock
A 4150
B 6900
Income statement under marginal costing method
Particulars details Amount(£)
Sales revenue
A 1003000
B 1719000
2722000 2722000
less
Direct material
A 365500
B 382000
747500
Direct labour
A 153000
B 573000 726000
Variable production
overheads
A 42500
B 95500 138000 1611500
Less-closing stock

A 1369500
B 379500 1749000 1749000
Contribution -638500
less- Fixed cots 482000 482000
Net loss -1120500
Income statement under absorption costing method
Particulars details Amount in (£)
Sales revenue
A 1003000
B 1719000
2722000 2722000
less
Direct material
A 365500
B 382000
747500
Direct labour
A 153000
B 573000 726000
Variable production
overheads
A 42500
B 95500 138000
1611500 1611500
less- Fixed cots 482000 482000

Less-closing stock
A 1443040
B 501772
1944813 1944813
Net loss -1316313
Interpretation: From the above computation it can be depicts that company has earned
higher loss under absorption costing method which clearly indicates that company is not able to
recover the fixed and variables costs and hence suffering from losses. Whereas under marginal
costing company is earning loss but low comparatively with absorption technique as in this they
are not even able to recover their variable costs which indicates that company producing more
number of units at higher process that is they incurring high costs and not able to recover the
cost of production which ultimately bring losses to the company.

ANNEX B
Interpretation:

From the above calculation it can be clearly interpreted that company's earning the
highest profit in Plan 3 in which they are selling more number of units at higher price that is £80
each unit which clearly depicts that selling more units at higher price will generate good amount
of profit for the company. This plan is considered to be the most suitable plan for the
organisation compared other plan 1 and plan 2. In this plan company is at break even point
which depicts the lowest among all the three .
Low break even point means company is at break even point that is the situation where
they are earning the amount of revenue where they are able to cover all their expenses and losses
including both the fixed costs and variable costs. The BEP of plan 3 depicts that by providing
237.75 units of production they are able to cover their all expenses and further production leads
them to earn higher amount of profit which is seems to be the moat beneficial for the
organisation compared to other two plans.
ACTIVITY 2
Different planning tools and its advantages and disadvantages
There are different tools used by the Babcock International Ltd for ensuring the -
financial stability and their performance. Planning tools includes some type of budget and also
some tools of budgetary control(Malmi, 2016).
Budgetary control is basically a process adapted by the mangers in order to set the
financial and performance goals by using budgets , comparing the actual performance with
budgeted performance and eliminating the deviations for adjusting the performance..some of the
budgetary control technique which are used as planing tools for the organisation are as follows:
Activity based budgeting
It is the method of budgeting which is prepared on the basis of activity based costing and
considering all the overheads costs. It is tool of management accounting which does not
consider and include the historical data or past year's budget to ascertain the budget for the
current year( Laudonand Laudon,2016).
This system helps in eliminating all the unnecessary activities which ultimately helps the
business organisation in saving and reducing the costs. this will result in more production of
goods and services at low cost and ultimately leads the company in earning higher amount of
profit.

Advantages
 This considered to make the most reliable and accurate cost of the products and services.
 This helps in better understanding of the overheads costs
 It is easy to understand.
 It helps to differentiate the useful and unnecessary activities
 It facilitates the benchmarking tool. It leads in integration of the six sigma and the other continuous programs of
improvement( Klychov and et.al.,2015).
Disadvantages:
 It has no use if the overhead costs are relatively small.
This is not used in preparation of the monthly profit statements.
 Implementation of this system involves substantial resources
 It is costly to maintain
Zero base budgeting:
It is the method of budgeting win which all the expenses are need to justified for each of
the new period. This process focusing on start by the organisation from the Zero base and every
function of the organisation is analyses and evaluate for their needs and costs(Jermias, Ganiand
Juliana, 2018). In management accounting this budgeting method lad to involve in preparation
of the budget from scratch with zero base or no base that is it involved re evaluation of the
items each period. The managers are required to justify all their budgeted expenditures.
Advantages
 It leads to efficient allocation of the resources
 It leads the mangers in adopting the cost effective ways in order to make improvement in
activities.
 It compensates the weakness of incremental budget
 it helps in providing better coordination's and communication within different
departments of the organisation
 it helps in motivating the employees(Jusoh,Zulkifliand Zainal, 2017) it leads to reduce the unnecessary activities of the organisation.
Disadvantages:

 Planning and preparation of the budget is done from the scratch that is required
involvement of large number of employees and different department of the organisation
may not have enough availability of the human resources.
 This is time construing method of budgeting
 It has lack of expertise
 It requires explanation by mangers of Babcock International Ltd about every item and
cost which is difficult task(Averina, Kolesnik and Makarova, 2016)
Operating budgets
It is the budget or plan of for the expenses and revenues of the company which are
required to maintain the functioning of the business over a period of time. Operational budget
generally includes sales costs, fixed costs, commissions, taxed and utilities, administrative costs,
etc. It is considerer to be the annual budget from an activity in terms of the budget code,
categories and the cost accounts.
It is basically involves the total estimation of the costs and resources which are required
for performing the entire operational performance of the business(Camilleri. and Camilleri,
2017) . Operational budget generally helps in portraying the company's estimated expenses,
costs, revenue considering the specific time period performance.
Advantages:
 It helps in optimum allocation and utilisation of all the resources
 it helps in specifying and classifying the individual costs, expense and revenue
 It helps the company in comparing the actual performance wit estimated performance
 It leads to elimination of the deviations between the actual and estimated performance
 it helps to make future availability of funds by efficiently preparing the budget. Leads the organisation in monitoring and controlling the costs(Curry, Hersingerand
Nilsson, 2019).
Disadvantages:
 Time consuming process

 Organisation needs to efficiently review the historical data for preparation of current year
budget
 Not appropriate and reliable
 Unnecessary use of the resources
Incremental budget
Incremental budget is the budget which us prepared using previous years budget or using
the actual performance and as a basis with incremental amounts which are added for the new
budget period(Jusoh,Zulkifliand Zainal, 2017). The allocation of the resources in the Babcock
International Ltd is completely based on the allocation of resources in the previous years. It is
just making changes in the existing budget in order to arrive at new budget.
Advantages:
 This is simple to prepare as it is based on the recent financial data.
 It is easy to verify the data used in the incremental budget.
 This method of budget eliminates and minimizes the large deviations in the budgets of
different years.
 It help the copay in creating the stable budget over time. This issued by the company to establish equality in different departments or where
requirement of funding remains fixed or with very fewer deviations(Klychov and
et.al.,2015).
Disadvantages:
 This budgeting method leads to the extra spending by the business.
 This involves no review of the budget as similar budget is carried to the next year.
 Using of the past year's budget for the new budget , the difference between the actual and
estimated budget leads to increases.
 It is based on the unreal assumption that is not analysing the objectives etc.
ANNEX C
Budget for activity level of 6200 units.
Particulars Amount (£)

Wages 17440(7440+10000)
Materials 31000
Salaries 23100(3100+20000)
Depreciation 18000
Other Overheads 21500(15500+6000)
Total budget 111040
Interpretation:
From the above budget table it can be clearly identified that by producing 6200 units the
company has to prepare the budget of £111040 which is the highest among all the three set
budgets. The Babcock International Ltd is producing more units than they are required to spent
more on wages , materials , salaries, etc. the above wages, salaries and the overheads are
combination of variable and fixed costs that is semi variable costs. company needs to consider
both the costs efficiently while preparing the new budget.
Working note:
Semi variable costs
(A)=B+C
Fixed costs (B) Variable costs(C)
Wages:(5000 units) 16000 10000 6000
(6000 units) 17200 10000 7200
6200 units 17440 10000 7440
Semi variable costs
(A)=B+C
Fixed costs (B) Variable costs(C)
salaries(5000 units) 22500 20000 2500
(6000 units) 23000 20000 3000
6200 units 23100 20000 3100

Semi variable costs
(A)=B+C
Fixed costs (B) Variable costs(C)
overheads(5000 units) 18500 6000 12500
(6000 units) 21000 6000 15000
6200 units 21500 6000 15500
Different tools of management accounting system used to solve the financial problems
Key performance indicators
The key performance indicator is a tool of management accounting system that helps in
analysing, monitoring and controlling numerous performances of the company. With the help of
using this system, the managers can help the business in efficiently achieving its goals and
objectives. The Babcock International Ltd( Laudonand Laudon,2016). Uses this tool for
managing its own performance. There are various tools that can be used as key performance
indicator such as profits, cost, sales, variance analysis, etc. by analysing these tools and
comparing these tools with the past performances, the firm easily evaluates change in the
efficiency of the business(Jermias, Ganiand Juliana, 2018). Although, this techniques enhances
the working of managers as they needs to monitor and control each activity of the business.
variance analysis
Variance analysis is another system of management accounting that can be used for
analysing the performance of overall organisation. In this system, the company prepares a budget
with the help of which they develop there plans and set strategies and plans so as to achieve the
goals and objectives of the company(Maskell, Baggaley. and Grasso, 2016). Angle ring company
has adopted this technique for managing various business activities. While using variance
analysis system of the management accounting, the company compares its budgeted statements
with actual financial ststements. It enables the managers in detecting the arrears in the
performance. With the help of this detection, managers easily forecasts the future problems and
develops their plans for resolving them in advance( Schaltegger and Burritt, 2017).

On the other hand, it may provide negative result to the managers as the extra cost
incurred by the business need not to be due to ineffectiveness of the business performance.
Rather, it can be due to effect of inflation rate.
Balance score card
Balance score card is also an effective management accounting system. It develops a
different view of managers towards several business activities. It enables them in developing
interrelation between various departments and activities of company(Temelli,2018) .Birlec uses
this technique for the management purpose. It enables the managers of business organisation in
analysing the interrelation between various departments. With the help of it they can effectively
understand the efect of inefficiency in single activity over other activities of the business(van
Helden and Uddin, 2016). In order to this, whenever managers of Birlec finds any inefficiency
in the business, they can easily determine the future business problems that may arise in due to
the specific inefficiency. In this regard, they improve the efficiency of business in responding to
various future problems.
By analysing the above management accounting system techniques, it can be evaluated
that there are various management accounting system that helps managers in improving
efficiency and effectiveness of the managerial functions(Yigitbasioglu, 2016). The key
performance indicator can be evaluated as the best technique of management, as it helps in
monitoring each of the business activities and develop effective control over various activities.
CONCLUSION
From the above report it can be conclude that there are different management accounting
systems which are used in the business and different methods of management accounting reports
which include performance report, budget reports which helps the business in ascertaining the
useful information and aiding them n their decision making.
The report also includes different techniques of costing for preparation of income
statements of the two years . In addition to this, planning tools which helps the Babcock
International Ltd in ensuring their financing stability is also explained in the above report.
this report further conclude about different tools which ultimately helps the business s in
solving their financial problems.