Management Accounting and Reporting Methods

This document provides an introduction to management accounting and its essential requirements. It discusses different methods used for management accounting reporting, such as job cost reports, inventory management reports, and operating budget reports. It also covers the application of management accounting techniques, including variance analysis, marginal costing, and absorption costing. The content is relevant to the subject of management accounting and is suitable for students studying this topic in college or university.

Management
Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
P1. Explain management accounting and essential requirement of management accounting
systems.........................................................................................................................................1
M1. Benefit of management accounting systems........................................................................3
D1. Evaluate how accounting systems linked with accounting reports.......................................4
P2. Different method used for management accounting reporting..............................................4
TASK 2............................................................................................................................................5
P3. Calculate cost by using different costing method..................................................................5
M2. Apply range of management accounting techniques and generate financial reporting
statements....................................................................................................................................8
D2.Produce financial reports that accurately apply and interpret data for a range of business
activities.......................................................................................................................................8
TASK 3............................................................................................................................................8
P4. Explain advantage or disadvantage of different planning tools used for budgetary control. 8
M3. Evaluate the use of different planning tools and preparing budgets for forecasting..........11
TASK 4..........................................................................................................................................11
P5. Explain how organizations follow management accounting systems to response their
financial problems.....................................................................................................................11
M4. Evaluate that how organizations responding to their financial problems..........................13
D3. Evaluate planning tools appropriately and how it used to solving financial problems to
lead organizations towards sustainable success.........................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Managerial accounting is the methodology to classify, calculate, assess, evaluate, and
convey financial reports to management to achieve the goals of an entity. It distinguishes from
financial accounting because both have different purpose (Bottomley and Bosman, 2018).
Management accounting analyzes and outcomes are managed to keep in house for corporate
leaders that can be used to take part in decision-making process and better run the company.
Management accountants tackle countless important aspects of accounting. That includes
margin, restrictions, financial planning, trends and predictions, pricing and costing of the goods.
For the better understanding of management accounting, Creams Ltd selected which is UK based
food manufacturing company.
This assessment covers the several topics such as understanding of management accounting
systems, reporting methods, costing methods and planning tools which used to budgetary
control. In addition, it includes that how organizations resolve their financial issues by using
management accounting systems.
MAIN BODY
TASK 1
P1. Explain management accounting and essential requirement of management accounting
systems
Management accounting involves evaluating and reporting corporate operations that can
be used by internal users to maximize performance and profitability. It is the analysis of
accounting material to establish the company's policies to be accepted and to support its daily
basis activities (Fleischman and McLean, 2020). In other words, it enables administrators
to fulfil all of their tasks including arranging, scheduling, hiring, overseeing and governing.
Importance of management accounting:
Management accountants deliver crucial viewpoints which allow the executive team of a
company to make much of its decisions. By offering a variety of monetary and numerical
knowledge, frequently supported by powerful accounting tools, they even facilitate decision
making process within the organization. Management accountancy should send everyone all the
monetary and business-critical data that help managers to determine precisely what goods are
competitive, which weren't, and how to fix that. It can help to discover important metrics to
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know how choices make have impacted the productivity of an individual product or performance
of individual.
Management accounting systems include the several approaches which help the
organization to operate their business performance effectively or maximise the profit. It includes
several systems such as cost accounting, inventory management, price optimization etc. these are
discussed below:
Cost accounting system: It is the accounting system which is used by incorporates for a
range of operations and monetary considerations. It is important for companies to estimate costs
and try to control for the entire period of production (Feldman and Paul, 2019). In the sense of
Creams Ltd, this accounting system is used to hold the operating expenses below the expected
costs. This system's primary purpose is to focus as much as possible on keeping down the costs
of different activities. This system essentially desired by Creams Ltd to calculate the cost of their
good or service and ensure that the manufacturing costs will not surpass it. Otherwise it
minimizes the gross margin that is not beneficial for the companies to run its manufacturing for
far too long.
Inventory management system: A tool for increased supply protection across the firm's
delivery chain is called inventory management system. In Creams Ltd, the the whole sales
process is monitored by this method from placing orders to suppliers and made the entire path
from business to the customer. The inventory management software involves important
methodologies likes LIFO, FIFO and Average Cost. It is critical that companies take corrective
measures to manage stored inventories. Cream Ltd follows FIFO method to avoid
unnecessary wastage or physical damage of raw material. Because of that, the corporation
essentially required this system and keep monitor of its inventory position that helps in
making further purchasing decisions appropriately.
Job costing system: The job order costing system monitors the costs of every task inside
the organization. Management must track the expenses of each job carefully and determine if the
actual costs generated are fairly similar and the expected costs are higher. Significant cost
deficiencies will allow managers to identify and implement constructive steps to mitigate the
cause of increased costs (Hicks and et.al., 2019). This approach collects and consumes costs
relating to particular jobs, tasks or work commands. The cost of each task is calculated
accurately, and each work is decided independently. Using this method, Cream Ltd's managers
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will implement successful techniques that are effectively essential to assess each expense of the
order and take corrective action.
Price optimization system: This is a form of controlling system that provides a
comprehensive pricing structure and criteria for customer satisfaction. This accounting approach
helps businesses to get useful industry patterns and consumer demand knowledge. It is
essentially important for enterprises to modify the level of goods and services throughout the
market. In the case of chosen company, management team changes pricing methods according to
the customer's wishes. With the help of price optimization system, managers are able to fix
product or service price which satisfies both buyers as well as business goals. This
system essentially allowed setting appropriate prices that increase the ability of consumers to buy
products and services.
Essential requirement of management accounting systems:
Management accounting systems (MAS) are basically necessary by the company to make
sure the available records will be credible, correct, presentable, revised and in understandable
form. So people can understand and further managers of Cream Ltd may use this knowledge in
decision making process.
 Accurate: All details should be accurate in MAS as executives take business decisions
which are based on it.
 Reliable: Accounting records should be reliable and an important aspect of management
accounting. It assists in determining real financial status of the Cream Ltd in terms of
revenue.
 Presentable: All the accounting information should be represented in common format
layout and organizations widely use the common standard for reporting.
 Updated and on time: In the financial report, data reported on monthly or annual basis
as management of Cream Ltd take decisions based of it and it is an ultimately necessary
for decision taking mechanism to have additional updated information.
 Reasonable and relevant: Information should be reported in understandable way, so
users of Cream Ltd can comprehend or execute their role appropriately.
M1. Benefit of management accounting systems
Accounting systems Benefits
Price optimization system Price optimisation offers opportunities to concentrate on a
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multitude of goals such as sales margin and amount of
transformations. Also beneficial for the managers of
Creams Ltd to set product price to maximise their earning
and suitable for consumers as well which helps in meeting
their price expectations.
Job order costing system It helps the managers of Creams Ltd to make accurate
calculations of the numerical costs of resources, manpower
and overhead that would be expended when doing a work.
Managers of Cream Ltd follow this system to estimate each
product cost.
Inventory management system By using this accounting system, Creams ltd minimise the
risk of raw material wastages, reduce carrying or ordering
cost of material. It helps the managers to track stock level
and further decisions accordingly.
Cost accounting system It helps in highlighting valuable or non valuable activities
which generate cost. These help managers of Creams Ltd
to eliminate non profitable activities to minimise cost
(Maggard and Barlow, 2018).
Summary: From the above discussion, it is observed that management accounting systems
are very valuable for organisations to carry out their operations and to ensure that the
productivity and profitability are maximized. These systems help the Creams Ltd's managers
to develop efficient plans to optimize their manufacturing, productivity, and output and reduce
total manufacturing costs to achieve their company targets and objectives.
D1. Evaluate how accounting systems linked with accounting reports
The business optimisation system is incorporated into the marketing department as a
means to increase profits from purchases. Financial records, within the financial processes, are
also associated with the revenue process. Inventory analysis applies to production unit. For
example, in the above organisation, their managers use conflicting reports for corrective action in
the industry. In order to properly operate business operations, Creams Ltd managers need to
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introduce various programs such as stock control to keep track with their stock level and instead
compile inventory report for analysis level or policy taking appropriately.
P2. Different method used for management accounting reporting
Management accounting reporting includes several types of reporting which helps in
collecting information for further decision making process. It contains enough information which
required to measure business performance. Further discussions are as follow:
Job cost report: This is accounting tool used to measure the efficiency of a project or
development against a defined or expected level (Renz, 2016). Mapping online workflow
systems is essential to insure that accounts payable invoices, procurement orders, and general
contractor contracts are entered into as rapidly as practicable and allocated to the appropriate
distribution of employment. The purpose of job costing reports is to determine inconsistencies or
beneficial outcomes, usually in financial values. They can be used to record reports both
financially and numerically. Because of that, managers of Creams Ltd use this report to record
all the essential information.
Inventory management report: A report of inventory management is essential to
understand that how much product they have on order in the warehouse. Such reports help
Creams Ltd to manage inventory levels and make sure to monitor them properly. There have
been a variety of approaches for obtaining a study on inventory control. purpose of inventory
management is just to maintain a clear track of any new or returning product entering or exiting a
store or retail outlet. This report effectively controls inventory stock to ensure the Creams Ltd's
valuable capital is utilized in the best manner. Inventories are classified into three different
aspects such as raw material, work in progress goods and finished goods. Managers of Cream ltd
should maintain proper report for each level requirement and then formulate strategies
accordingly
Operating budget report: It demonstrates the approximate revenue and associated costs of
the firm for the current year. It is also shown in the format of an income statement
which provides better understanding of each item. An administrator normally goes through the
budget which prepare on the basis of last year performance (Schaltegger and Burritt, 2017). A
report on an operating budget can consists of a high-level outline schedule, supplemented by
budget details to corroborate each line item. Creams Ltd's executives monitor this analysis and
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plan all of it, including projected sales or output expense, which also assists in taking strategic
decisions or developing strategies.
Account receivable aging report: This report is indicating the outstanding amount of the
invoice along with the period in which it was unpaid. Organizations locate open invoices and
encourage them to stay on track of late paying consumers. Main purpose of this report is to
locate the defaulters or build strategies to collect from them. Managers of Creams Ltd prepare
this report to identify number of outstanding payment or build strict policy to recover for them. It
is essentially important for the organization to make list of defaulters to make further managerial
decisions.
In context of organization, managers have to prepare different reports which contain
variety of information and it helps in building strategies or makes decisions in context of
maximising operational efficiency as well as performance.
TASK 2
P3. Calculate cost by using different costing method
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Income statement by using marginal costing:
Income statement by using absorption costing:
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Working Notes:
Range of management accounting techniques:
8

Variance analysis: It is an important to assist with handling expenditures by tracking
budgeted vs real costs. Variances between expected and real costs may contribute to changing
business priorities, objectives or strategies. Managers of Creams Ltd use this analysis to
formulate business strategies.
Marginal costing: It is the strategy in which fixed cost are removed but only variable
cost are performed because of it, this approach is also recognized as variable cost method. This
approach is being used by Creams ltd to calculate overall profit of the company.
Absorption costing: In this costing approach both fixed and variable cost are used from
which this is useful tool for major company such as Creams Ltd. Likewise this process is used by
Creams ltd in order to evaluate overall profitability of the business.
M2. Apply range of management accounting techniques and generate financial reporting
statements
In corporate terms, there are so many accounting approaches that are used to measure net
profit or loss for the fiscal quarter by using various accounting methods, administrators produce
financial results with the assistance of available financial evidence, they provide the financial
position of the organizations (Singh and Verma, 2018). Using this expertise, managers will
devise potential investment choices and strategies needed for company activities to be carried
out. Additionally it is desirable to achieve recognition and significant growth in the industry. By
using marginal or absorption costing approach, Creams Ltd managers plan income statement that
indicates the benefit or loss for January or February time.
D2.Produce financial reports that accurately apply and interpret data for a range of business
activities
It has already been objectively determined that financial reporting is important to plan,
because management analyze the success of the company and possible plans appropriately with
the assistance of it. Creams Ltd's net profit for the period of January and February was 50,000
and (25,000), using marginal approaches. While on the other hand, net profit was 50000 for the
month of January using absorption method and 5000 for the month of February and it was loss.
The Company's net efficiency decreases and is calculated using income statement. They should
do something to boost their business efficiency else it would harm the credibility of the
organization or the decision making process of the stakeholders.
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TASK 3
P4. Explain advantage or disadvantage of different planning tools used for budgetary control
Budget: It is a document which includes the estimated revenue as well as expenses which
can be used by the organization at the time of completing any task. With the help of budget
organization is able to formulate strategies. Budget can be prepared for any one or any time for
money management.
Budgetary control is the method of identifying specific real outcomes from the company's
allocated statistics for the future time frame and then setting expectations to match the allocated
figures with the current output for estimating variances.
Different planning tools along with its advantages or disadvantages:
There are several types of planning tool which can be used by the managers of Creams ltd
and also evaluate its benefits as well as drawbacks. These are as follow:
Master budget: It is a centrally planned tool used by a management to guide a
company's activities and to assess the efficiency of its multiple responsibility facilities. It
aggregates of all the lower level budgets generated by the different functional sections of the
organization, and also contains budgetary statements, cash estimates and funding plans (Suomala
and et.al., 2017). Generally the master budget is addressed in a quarterly format and typically
covering the entire financial year of a company. There are some benefits as well as drawbacks of
following this budget into their organizations, so before implementing this budget into Creams
ltd managers should its benefits and drawbacks:
Benefits:
 The departmental budget takes enough time as well as efforts to prepare it.
 All the budgets are presented in one document.
 The practical budgets can be reviewed with the details provided in the master budget
being reviewed crosswise.
 It gave the Creams Ltd an overall approximately profit.
 It includes information related to the balance sheet outlook.
 Master Budget is of significant value to senior management. The possible explanation
with this is that, there is meaningful information in available for managers to build
strategies.
Drawbacks:
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 Employees generally prefer to calculate poor sales and high costs when developing the
budget, so they can probably meet the spending plan and attain their remuneration
schemes.
 Forcing the entity to keep track of the expenditure involves an organization of financial
analysts to hunt down and publish on schedule variances (Welsh, 2018). That causes the
company excessive overhead expenses.
 Managers prefer to disregard potential market prospects as all budgets are committed to
the plan and their financial benefits are related to the budget.
Flexible budget:
Flexible budgets are financial plans which differ as per the requirements of the
organization. It may apply to a whole organization or a department. Project planners found it
intentionally adjustable. They produced it flexible, even though the demands of the particular
company or dept are not static. For example, flexible budgets measure the different spending
levels for variable costs. Those rates vary probably depends on income adjustments. The budget
consequently differs, depending on the amount of activity the organization is facing. Managers
of Creams Ltd can follow this budget in order to make their future strategies on the basis of it. Its
benefits and drawbacks are discussed below:
Benefits:
 It is to allow managers to reference expenditure to sales, allowing them to increase
spending to start taking advantage-than-expected revenue possibilities.
 In these budget managers re-calculates the cost of the growth and overheads depending
on sales results or sold units.
 Every month, they can audit these figures to assess which of the goods offers the best
profitability, assisting them to determine if it is price-effective to continue producing
these.
 When new details are available, a balanced budget shifts allowing you to adjust the
amount of expenses.
Drawbacks:
 These budgets often depend on sustainability expectations as expenses will potentially
function in a stepped-up or withdrawn manner.
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 Flexed budgets tend to keep operating expenses at the very same level, irrespective of the
stage of output very often fixed costs are in fact fixed only over an appropriate output
range.
 This approach used to assess the gross and net cost components is always subjective, and
thus the flexed cost has no resemblance to the actual budgeted expense for the flexed
operation point.
Alternate budgeting tools:
 Cash budget: It aim at consistently meeting financial needs. Such budgets can determine
the expenditures of Creams Ltd that need to be spent immediately and define channels
that can potentially mitigate this demand. Also, short term budgets help to assess short-
term savings that will gain money by not using the fund. For instance, if surplus money is
needed for a few weeks, it could be deposited in stocks and shares, which will receive
temporary money for future needs. This planning tool can be followed by the Creams Ltd
to measure actual cash flow of the company.
 Capital budget: This budgeting includes selecting projects which create value to an
organization (Nørreklit, 2017). The cycle of capital budgeting can include almost
everything like purchasing property or buying fixed assets such as a brand new car or
equipment. Corporations are usually expected or at least encouraged to conduct certain
ventures that will improve productivity and thereby enhance the wealth of shareholders.
In order to evaluate their investments, managers of Creams Ltd can follow it or take
appropriate decisions.
M3. Evaluate the use of different planning tools and preparing budgets for forecasting
There will be various kinds of plans that companies use to make rational budgetary choices.
Each of these forecasts allows companies to monitor their income sources and to forecast future
projects and events reliably. Their accountants plan critical statistics such as the master, flexible
budget etc. In the sense of Creams limited, each of these budgets becomes important for accurate
projections of sales and expenditures. This is undoubtedly that the management of the previous
organization is analyzing countless-year data to forecast potential operations. This can be
claimed that expenditure prediction approaches are too important if there are to be clear forecast
for various types of financial operations.
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TASK 4
P5. Explain how organizations follow management accounting systems to response their
financial problems
Financial crisis referred to a situation under which a company faces pressure due
to unavailability of financial position, thereby causing challenges and difficulties for it. In
context of organizations, Creams Ltd faces the following monetary issues:
High overheads expenses: the overheads of Creams Ltd. have been steadily increasing
across the years, causing difficulties and issues for it (Singh and Verma, 2018). That increases
the financial difficulties for the business which unable managers to perform their operational
task.
Income drops: earnings are slowly declining over the period of Creams Ltd. This is
occurring as the business pays high premiums than its rivals present on the economy due to the
implementation of inappropriate pricing policy.
Techniques used to resolve financial problems:
Key performance indicator: It is a series of quantitative measurements that had to
evaluate the overall deep-term performance of a organization. Specifically, KPIs help assess the
political, financial, and organizational successes of a business, particularly in contrast with those
of the organizations within the same industry (Renz, 2016). Managers of the Creams Ltd can
measure the performance in two aspects such as financial or non financial. Financial aspect
includes the different types of ratios which indicate the overall performance. Non financial KPIs
are the employee’s retention rate which is based on organizational culture, environment and their
motivation level.
Balance scorecard: It's a strategic tool that helps managers to look at the enterprise that's
based on overall strategic objectives. It also allows them to pick the best things to calculate, so
organization can meet those goals (Quilty, Cosentino and Bagby, 2018). It is emphasis on both
strong-level strategy and low-level indicators which distinguishes the balanced scorecard from
other techniques for performance evaluation. It takes the big, abstract strategic dream and drills it
back into clear, day-to-day implementable actions to do.
Benchmarking: It is a method of comparing the efficiency of a company's goods,
facilities or operations to another business that is perceived to be the strongest in the market,
known as the 'best in class.' They will incorporate reforms that can produce substantial benefits
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by observing organizations with higher performance, collapsing what allows such relative
performance feasible and then applying such systems to the way the company works.
Financial governance: It is a way an organization collects handles and tracks financial
evidence, documents and knowledge (Suomala and et.al., 2017). Creams Ltd should use financial
regulation to address both its high cost and profit-reduction issues. This strategy must be used
consistently and reliably in order for the company to produce successful performance in the
future, it can produce sustained profitability and leaving its rivals on the marketplace behind.
This would help it reach its long-term aim of optimizing earnings.
Comparison of two organizations and evaluate how they resolve financial issues:
Basis Creams Ltd Letts Glow Ltd
Financial problem Company faces the issue of
high overheads, which increase
the firm's expense and thereby
reduce the earnings.
Organization is facing the
issues of lack of adequate stock-
level monitoring which creates
inventory issues within the
organization.
Management accounting
systems
It will use cost management
system to control their
overheads expenses. Creams
Ltd will implement this
program to figure out
and minimize the reasons for
high costs (Welsh, 2018).
Company follow inventory
management system to track
their stock level or make sure to
minimise its wastage. To better
control the inventory volume it
must implement this program.
Techniques Company follow the key
performance indicator in order
to resolve the issues which they
currently face.
Company use benchmarking
technique to resolve the issues
through comparing their
performance with competitors
and adopt their strategy for the
improvement.
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M4. Evaluate that how organizations responding to their financial problems
In order to resolve monetary problems, organizations need to implement management
accounting systems as quick as they can. Creams Ltd, were effectively tackled with their
problems by using the benchmarking process. They calculated their true outcomes with this
information system and effectively addressed the actual problems. Every organization should
follow these accounting systems to prevent the issues which affect overall production,
performance and profitability.
D3. Evaluate planning tools appropriately and how it used to solving financial problems to lead
organizations towards sustainable success
Budgets can be described as strategic approaches which are important to the operational
evaluation process. They are using a variety of budgets including master budget, flexible budget
and much more alternate budgets in the Creams Ltd. Such budgets are all required to monitor
the deviations and allowing them to take proactive steps to fix problems. Benchmarking and
main success metrics are one of the successful tools that companies use to address their
challenges to guarantee that they do not produce them in the potential and that they continue to
develop plans appropriately.
CONCLUSION
On the basis of above discussion, it is observed that managers of the company should adopt
various accounting programs and analyses to maximize both business performance and
efficiency. It will also support managers in improving proactive decision-making to meet
corporate objectives & priorities. This helps build strategy and perform appropriately with the
aid of preparation tools like capital budget, master budget and operating budget. A company has
many financial problems that need to be addressed as quickly as possible, or it will have a very
negative impact which will become extremely hard to recover. Supervisors are able to devise
plans and address the issue by way of strategic accounting programs.
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REFERENCES
Books & Journals
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Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Feldman, J. and Paul, A., 2019. Relating the approximability of the fixed cost and space
constrained assortment problems. Production and Operations Management, 28(5),
pp.1238-1255.
Hicks, M.S. and et.al., 2019. BUDGET ADJUSTMENTS.
Maggard, A. and Barlow, R., 2018. Costs and trends of southern forestry practices. FOR-2051,
Alabama Cooperative Extension Service.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management.John
Wiley & Sons.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
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Welsh, B., 2018. Costs and benefits of preventing crime.Routledge.
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Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management.John
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Proceedings, 5(2), pp.3867-3872.
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Welsh, B., 2018. Costs and benefits of preventing crime.Routledge.
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