Management Accounting Report

This report explores the significance of management accounting in a medium-sized manufacturing company, ABC Ltd. It examines various management accounting systems, reporting methods, and planning tools, including cost accounting, inventory management, job costing, and budgeting techniques. The report also analyzes the integration of management accounting systems with organizational processes and provides insights into how these systems can be used to solve financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1. Management accounting and essential requirement of different management accounting
systems........................................................................................................................................3
2. Different methods of management accounting reporting........................................................4
3. The advantages of management accounting system ..............................................................5
4. Evaluation of management accounting system's integration with the management
accounting reports with the organisational process....................................................................6
TASK 2 ...........................................................................................................................................6
1. different management accounting techniques.........................................................................6
TASK 3............................................................................................................................................9
1. Using of different planning tools and also their application for preparation of and
forecasting budgets......................................................................................................................9
2. Advantages and disadvantages of different planing tools Which are used in the budgetary
control.......................................................................................................................................11
TASK 4..........................................................................................................................................12
1. Management accounting use ion company to solve the financial problems.........................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15
Books and Journals...................................................................................................................15
Online........................................................................................................................................16

INTRODUCTION
Management accounting refers to the process of preparing e different accounting reports
which will hep to generate the information and which can be sued by the different users as it help
in their decision making.
ABC Ltd. Is te medium sized enterprise which is working and operating in the
manufacturing sector. The report will explain about the different techniques of incomes
statement to ascertain net profit. In addition to this different management accounting system and
accounting reports are also used to aid the decision making. Furthermore, the report will explain
about some planing tools which are used by the organisation to solve the financial problems of
the company.
TASK 1
1. Management accounting and essential requirement of different management accounting
systems.
Management accounting is basically the process of preparing the management reports
and accounts in the organisation so that reports can provide accurate and effective financial and
statistical information in order to make effective and most efficient decisions by the organisation.
This also help in analysing and evaluating the business cost and operations so that
organisation can prepare the financial reports and accounts to helps the managers in their
decision making which ultimately helps them in achieving their organisation goals and
objectives(Tappura and et.al., 2015).
There are different types of management accounting systems which are used for
generating the different information for different uses. Some management accounting system
and its requirements are :
Cost accounting system- it is the management accounting system which focuses on
estimating the cots of the products s that they can effectively analyse the profitability and it also
helps them in valuation of the inventory in order to control the cots efficiently.
Inventory management systems – this system helps the ABC Ltd. To track the inflow
and outflow of inventory, supply of raw material , stock availability etc( Shields, , 2015). In

simple words, this system leads in combination of the desktop, software, scanners, mobile
devices so that can track or streamlining the management of inventory or stock .
The requirement of this system is to accurately and appropriately knowing about the
current levels of the inventory so that it leads to reduction of the situation of overstock and under
stock and by effectively ad efficiently tracking of the inventory(Renz,2016), it helps the business
in making the right and appropriate inventory decisions.
Job costing system is the system which focusses on assigning the manufacturing costs to
an individual unit of output. This system is generally used when the goods produced are different
from each other and each other as different and significant cost. Manufacturing cost is the total
of direct labour, direct material, and overhead costs(Quattrone, 2016). This system is used to
address the issue of the customers as some customers are ready to pay only for the certain cots
which is to be charged on their jobs.
Price optimization system is program which used to measure that how demand changes
according to change at different price levels and after combining this data with the inventory
level and cost information so that it can easily hep the organisation in recommending and
deciding the prices which will further help to improve the profits. This system will help the
ABC Ltd . by using in promotional pricing method,s setting up their initial price and discounting
the process.
2. Different methods of management accounting reporting
Management accountant reports re the reports which are produced for providing the
information to the internal members stakeholders of the company. These reports facilitates in
providing the internal information which is received through the financial data of the ABC
Ltd(Qian, Hörisch. and Schaltegger, 2018). These reports are generally used for the planning,
regulation, decisions making and the performance measuring to make the effective impact in the
activities and flow of the business.
There are different types of management accounting reports which are as follows:
Budget reports- these reports are prepared for analysing the business performance and
also analysing the departmental performance on order to control the cost and expenses. Budget
reports helps the ABC Ltd(Otley, 2016). In measuring their actual performance with the planned

performance so to take corrective measures in order to eliminate the deviations .the estimated
and panned budget s based on the previous year performance and data.
Accounts receivable ageing reports- These reports are considered to be essential tool
which helps in measuring and managing the cash flow which is extended as credit to the
customers by the company(Malmi, 2016). Ageing reports considerer the separate columns for
the invoice say 30 days late, 90 days late et which helps the mangers of the company to find the
problems and issues with the company's collection process so that they can take corrective
measures in order to make the collection period more effective and efficient,.
Job costing reports- These are the reports which shows the manufacturing expenses
associated to individual unit of output or individual project and these are generally matched with
estimated revenue in order to evaluate the profitability of the particular job(Maas, Schaltegger
and Crutzen, 2016).. this helps the business in identifying the higher earning areas or projects of
the business so that they make more efforts towards them only and should prevent themselves
from wasting their resources on unnecessary projects or products having low profit margins.
3. The advantages of management accounting system
Management accounting system helps ABC Ltd. In using this information for providing
the information to different users which includes stakeholders that is government, investors,
managers etc. in order to helps teem in their decision making .the accounting system lads the
company in many advantageous path which includes :
Effective planning- management accounting stem prepare managerial reports which can be use a
basis by ABC Ltd. in order to generate more detailed information and on the basis of the
reports , information generated such as the budgets, surveys, analysing competitor strategies and
this will lead the managers to set and objective which can be implemented in future by
undertaking efficient strategies and activities(Kaplan and Atkinson, 2015).
Problem-Solving- management accounting helps ABC Ltd. In comparing the actual
performance with estimated one inn order to take corrective measures to eliminate the deviations
or any problem occur which is the reason for the unmatch between the actual and estimated
performance, teh information generated from this accounting can be used in the identification of
the problems, issues which may arise in the budget are leads in developing the alternatives,.

Goal setting- management accounting helps ABC Ltd. In setting the effective goals by
measuring the performance and also checking that performance and activities are going in the
direction of goal or not and in addition to this making adjustments which leads to motivation of
the employees in order to achieve goals of earning higher revenue.(Chenhall and Moers,2015)
Decision making-management accounting helps in making the long term and short term
decisions by the mangers by analysing the impact of their decisions to the company. This
accounting leads to level the plans and also helps in conveying the information with the aim of
achieving ad improving management decisions.
4. Evaluation of management accounting system's integration with the management accounting
reports with the organisational process.
Management accounting system includes the preparation of the management accounting
reports which are used by different users for their own individual purposes(Bromwich and
Scapens,2016). The organisation can effectively mange the functions and activities of different
departments by efficiently managing the reports which helps to ascertain the financial and
statistical data which can be used by the departmental heads in order to eliminate issue or many
problems which occur in the field.
These report also Lead the ABC Ltd. to compare their actual performance with the
estimate ones that they can able to address the issues after effectively identifying it. This will
help organisation in making useful and effective decisions which result in continuous flow of
benefits to the organisation and helps ion achieving the overall organisation goals and
objectives(Ax, and Greve, 2017 ).
TASK 2
1. different management accounting techniques
Statement of Profit or Loss for Jan 2019
Absorption Costing Techniques
Per Unit Budget Actual
£ £ £ £ £ £
Sales Revenue 50 800,000 800,000
COST OF SALES:

Cost of Production:
Direct Material 10 180,000 190,000
Direct Labour 20 360,000 380,000
Variable Overhead 5 90,000 95,000
Fixed Overhead* 5 90,000 95,000
40 720,000 760,000
+ Opening Inventory 0 0
- Closing Inventory 80,000 120,000
Standard Cost of Sales 40 640,000 640,000
Standard Profit 10 160,000 160,000
Adjustment for under
absorption -10,000 -5,000
Profit
Budgeted
Profit 150,000
Actual
Profit 155,000
Interpretation-
From the above table it can be interpreted that there is difference of £5000 in the
budgeted profit and actual profits as in the budgeted income statement the net profit earned by
the company is £150000 whereas in actual income statement the net profit earned by the
company is £155000. and this difference arise due to different changes which includes the
change in the production units.
As in the budgeted data the production units are 18000 where in actual ABC Ltd. Have
produced 19000 units which brings the major change. In addition, to this closing stock as
budgeted is left of 2000 units and its amount is equals to 2000*40 that is 80000 and according to
the actual data they left with 3000 units and the amount is 3000*4 which is equal to 120000 and

the difference of 40000 between the closing stock of budgeted and actual is also the reason for
the difference in net profit.
Moreover, in actual data the units produce is more comparatively top the budgeted. But
the main reason for change in net profit is adjustments of under absorption that is in budgeted
income statement company has deducted 10000 as under absorption amount while in actual
income statement company has deducted only 5000 as under absorption amount which is the
main reason of difference between the profits of actual and budged data.
Absorption Costing Reconciliation of Budgeted
Profit and Actual Profit
Budget Actual
Number of Units 16000 units 16000 units
Standard Profit/Unit £10 £10
Standard profit 160,000 160,000
Fixed Overhead Charged
in Cost of Production 90,000 95,000
Additional Fixed Overhead
in under absorption adjustment 10,000 5,000
100,000 100,000
Fixed Overhead Transferred
to next month (Feb) via
closing inventory 10,000 15,000
Net Fixed
Overhead Charged 90,000 85,000
Per Unit £
Selling Price 50

Variable Cost 35
Contribution 15
Statement of Profit or Loss for Jan 2019
Variable Costing/ Marginal costing techniques
Per Unit Budget Actual
£ £ £ £ £ £
Sales Revenue 50 800,000 800,000
COST OF SALES:
Cost of Production:
Direct Material 10 180,000 190,000
Direct Labour 20 360,000 380,000
Variable Overhead 5 90,000 95,000
35 630,000 665,000
+ Opening Inventory 0 0
- Closing Inventory 70,000 105,000
560,000 560,000
Standard Cost of Sales
Variable 35 240,000 240,000
Contribution 15 100,000 100,000
Fixed Overhead Profit
Budgeted
Profit 140,000
Actual
Profit 140,000

TASK 3
1. Using of different planning tools and also their application for preparation of and forecasting
budgets.
The planning tools of management accounting system, are the tools which are used on
the organisation to improve the performance, facilitating the decision making, supporting the
strategic goals and also add value to the organisation.
These tools leads to increase the motivation of the employees and direct their activities
and functions in direction of achievement of the organisational goal(Tappura and et.al., 2015).
Financial planing too is considered to be the best tool for achieving the organisation goals and
objectives. There are various tools which can be used as planning tools for the management
accounting which are as follows:
cash budget- It is the budget which estimates the inflow and outflow of the cash into the
business over a specific period. This budget is generally used to measure that there is sufficient
availability of cash into the business for smooth and effective flow of operations or not.
Advantages
 Cash budget helps the business in determining the sufficiency of cash into the business.
 To fulfil regular obligations
 it helps in continuing the day to day activities
 it helps in optimum utilities of all the resources
 it helps in avoiding the shortage of cash Established the amount of credit which can be extended to customers without having the
liquidity problem(Shields, , 2015).
Disadvantages
 it is expensive to operate the cash budgeting-
 It take more time that is wastage p resources.
 These are not equated to profit can also cause the distortions.
 This budget uses the previous year cash flow to allocate the current year cash and there
is no guarantee of the cash flow levels that will remain the same or not.
Operational budgeting-it is the budget or plan for the expenditures required in order to maintain
the functions of the business . It consist of the expenses and revenue over period it may be

quarterly and monthly etc. Which is used y the ABC Ltd(Otley, 2016). To plan their operation
and run their organisation in smooth flow towards the direction of the achievement of the
organisation goal. This budget shows the estimated revenue and associated expenses for coming
period to the organisation. Operating budget helps the company in planning their day to day
operations so thy prevent themselves from any financial ditch.
Advantages
 It helps in managing the current expenses
 It leads the organisation in estimating the future expense so that availability of sufficient
fund can be made in advance.
 It helps to build the financial reserves operating budget helps the business in keeping the track record of the business that is it
indicated both the money which is to be spent and money which is to be come in the
organisation that is revenue and expenses(Qian, Hörisch. and Schaltegger, 2018)
Disadvantages
 Its success is dependent on the cooperation and operations by the members.
 It is expensive to operate the budget.
 Estimating expenses is difficult task
2. Advantages and disadvantages of different planing tools Which are used in the budgetary
control
Activity based budgeting-is the method of budgeting in which activities which incurred
the costs are only recorded and analyses that is it does not consider the past year budget to
prepare the current year budget. It is the planning system in which costs are associated with the
activities. this method of budgeting is completely based on the activity framework(Maas,
Schaltegger and Crutzen, 2016).
Advantages
 It leads the ABC LTD. To reduce the activity level which will helps in improving the
profits.
 It brings more reliable and effective costing of the gods and services.
 It helps the company in better understanding of the overheads costs.
 It leas to facilitation of the benchmarking(Malmi, 2016).

 It also helps in supporting and managing the performance and the scorecards.
Disadvantages
 This tool requires to track the activities on daily basis which ,leads to increasing
workload.
 Time consuming
 it is the complex process
 wastage of organisational resources as it involves analytical function focus more on the
short term needs and avoid the long term needs and requirements.
Incremental budget- In this method of budget which focuses on ,making the changes in the
existing budget s to make alteration according to the situation in order to arrive at new budget
which will ultimately help in achieving the organisational goal(Quattrone, 2016). it uses the
previous year budget or the actual result in order to prepare the new budget . Allocating of the
resources is based ion the allocation of the previous years,
Advantages
 It is considered to be the simple method as it contains the recent financial result which is
easy to verify.
 It helps the organisational department to operate in consistent and a stable way for longer
period(Ax, and Greve, 2017 ). It helps the company in ensuring them the enough availability of fund at the time of
requirements of fund for long term use.
Disadvantages
 It leads to consideration of the minor changes from the previous year .
 Organisation is bale to build and create very less growth into this budgets
 it leads in fostering the overspending.
TASK 4
1. Management accounting use ion company to solve the financial problems.
Key performance indicators Variance analysis Balance score card
 It is the type of the  It refers to the  It is used in the

performance
measurement.
 It is considered to be
the measurable value
which depicts that how
effectively and
efficiently company is
achieving key business
goals and
objectives(Maas,
Schaltegger and
Crutzen, 2016).
 ABC Ltd. Is using the
KPI's at different levels
for evaluating the
success at reaching the
targets.
 For example: ABC Ltd
has decided to increase
the profit by 25000 and
they can increase their
profit only up to 10000
than through KPI's the
can find out the reason
for non achievements
of the objective so that
corrective measures
can be taken to resolve
the issues.
accounting which leads
in investigation of the
deviations in the
financial performance
of the company from
their set standard
results and the actual
results.
 It is basically used in
measuring the
difference between the
expected amount and
planned
amount(Quattrone,
2016). This is used to
analyse the reason of
the difference so that
corrective measures
can be taken to
eliminate the difference
and the
deviations(Renz,2016).
 For example: If the
budgeted sales is
expected to be 30000
and the actual sale sis
28000 than the
difference of 2000 is
yield with the help of
the variance analysis in
order to take corrective
organisation as it
provides the framework
which enables the ABC
Ltd to describe their
strategy consistence
and reliable
manner( Shields, ,
2015).
 It is the set of
performance target and
the results which
generally relates to the
four basic element
which includes
financials, internal
processes, innovation
and customers(Otley,
2016).
 For example: ABC ltd.
Had planned to
increase their sales up
to 10% and to ache iv
this target the
company required to
produce more which
further require enough
availabilities of funds
than the company can
get help of balance
score card that is by
forming effective

actions and measures to
promote the sales to
reach up the target.
metric they can set up
the target of raiding
fund, processes and
promotional activities
to increase the sales.
 This all can be done by
preparing score card to
achieve their target and
goal in long run.
CONCLUSION
From the above report it can be concluded that there is significance role of management
accounting system in the organisation which is used different tools to effectively manage the
company's operations.
The report also conclude that there are some Planning tools which are also used to solve
the financial problems of the company which includes balance score card, key performance
indicators, variance analysis etc.

REFERENCES
Books and Journals
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research. 34.
pp.59-74.
Bromwich, M. and Scapens, R. W., 2016. Management accounting research: 25 years
on. Management Accounting Research. 31. pp.1-9.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations and
societ. 47. pp.1-13.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production.136.
pp.237-248.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research. 31. pp.31-44.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Qian, W., Hörisch, J. and Schaltegger, S., 2018. Environmental management accounting and its
effects on carbon management and disclosure quality. Journal of cleaner production. 174.
pp.1608-1619.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research. 31. pp.118-122.
Renz, D. O., 2016. The Jossey- Bass handbook of non profit leadership and management. John
Wiley & Sons.
Shields, M. D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research. 27(1).pp.123-132.

Tappura, S and et.al., 2015. A management accounting perspective on safety. Safety science.71.
pp.151-159.
Online
What is Management Accounting?. 2019[Online]. Available through
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