Management Accounting: A Comprehensive Guide for Tech (UK) Limited

This report delves into the intricacies of management accounting, providing a comprehensive guide for Tech (UK) Limited to achieve sustainable success. It explores the differences between management and financial accounting, highlighting the importance of management accounting information for decision-making. The report examines various cost accounting systems, inventory management systems, and job costing systems, emphasizing their application within the organization. It also analyzes different types of management accounting reports and the significance of presenting information in an understandable manner. Furthermore, the report delves into the preparation of income statements using marginal and absorption costing, providing a practical analysis of cost control and revenue maximization. The report explores various types of budgets, their advantages and disadvantages, and the process for preparing them. It also examines the importance of budgets as planning and controlling tools, analyzing the use of different planning tools for preparing and forecasting budgets. Finally, the report evaluates how planning tools for accounting respond appropriately to solving financial problems, leading to sustainable success. The report concludes by analyzing how management accounting can lead to sustainable success by responding to financial problems.

Management Accounting
1

Contents
Introduction.................................................................................................................................................3
TASK 1.......................................................................................................................................................4
Introduction.............................................................................................................................................4
(A) Explain management accounting and also the requirements for the management accounting
systems....................................................................................................................................................5
I. Difference between Management accounting and financial accounting..........................................5
II. Importance of management accounting information as decision making tool..................................6
III. Cost Accounting Systems............................................................................................................6
IV. Inventory Management Systems..................................................................................................7
V. Job Costing Systems........................................................................................................................7
B) I. Different types of management accounting reports.........................................................................8
II. Why information should be presented in an understandable manner..................................................8
M1) Explain benefits of management accounting systems and their application...................................10
D1) How management accounting system and management accounting reporting are integrated within
organization...........................................................................................................................................11
Conclusion.............................................................................................................................................12
TASK 2.....................................................................................................................................................13
P3) Prepare Income statement using marginal and absorption costing. (M2, D2)..................................13
TASK 3.....................................................................................................................................................15
2

Introduction...........................................................................................................................................15
(A) Different kinds of budgets and their advantages and disadvantages..........................................16
(B) Process for preparing Budget.....................................................................................................18
(C) Importance of budget as a tool for planning and controlling process.........................................19
(M3) Analyze use of different planning tools for preparing and forecasting budget..............................20
(D3) Evaluate how planning tools for accounting respond appropriately to solving financial problems
to lead to sustainable success.................................................................................................................21
Conclusion.............................................................................................................................................22
TASK 4.....................................................................................................................................................23
(M4) Analyze how respond to financial problems management accounting can lead to sustainable
success...................................................................................................................................................24
Conclusion.................................................................................................................................................25
References.................................................................................................................................................26
3

Introduction
This report deals with the explanation of the management accounting and the requirements of the
management accounting through which the Tech (UK) Limited can attain the success. For the
application the difference between the management accounting and financial accounting is
depicted with that the importance of the management accounting principles are also highlighted.
Various types of report which are prepared by the organization are also highlighted so that the
performance of the individuals can be depicted. The practical analysis of cost through the
marginal and absorption costing so that the cost can be controlled and the revenues are increased.
The various kinds of the budgets are prepared and how they help in planning is also depicted.
Beside this the report also explains that how management accounting and planning tools can help
in solving the financial problem of Tech (UK) Limited so that the sustainability can be attained.
4

TASK 1
Introduction
This part of the report explains about the various accounting systems such as the cost accounting
systems, inventory management systems and job costing systems that are used in Tech (UK)
Limited. With this it also explains why the information in the management accounting reports
should be understandable. The various management accounting reports are also examined.
5

(A) Explain management accounting and also the requirements for the management
accounting systems.
Management accounting is the process through which the Tech (UK) will be able to analyze,
evaluate and identify the financial performance and arrangement in the market of competition.
I. Difference between Management accounting and financial accounting
The financial accounting is the accounting which will help the Tech (UK) Limited in keeping the
track on financial transactions so that the profitability can be attained and the organizational
goals can be achieved.
Point of Basis Financial Accounting Management Accounting
Aim The financial accounting
focuses to make the
communication in
organization regarding the
financial position (Modell,
2012).
The main aim of the
management accounting is for
taking strategic decisions in
the organization.
Rules and Regulations It follows the specific rules as
well as the regulations such as
GAAP, IFRS, etc.
It does not require any
specified rules and regulations
(Modell, 2012).
Review The accounts are reviewed by
the external auditors and the
regulators of the business.
As there is no rules followed
so there is no need for any
specific review to be done
externally or internally
(Accounting tools, 2015).
Frequency for evaluation The evaluations are done by
preparing the annual reports
annually, quarterly or as per
the requirements.
The evaluation is done
according to the need, there
does not requires any specific
frequency.
Focus The financial accounting
focuses on whole organization
as whole (Accounting tools,
2015).
It focuses on particular
segment of the organization so
that the decision can be taken
accordingly.
6

Reporting The reporting is delayed in the
financial accounting as it is
based on the historic data
(Modell, 2012).
The reporting is done timely
as it is future oriented the
decisions are taken for the
future perspective.
II. Importance of management accounting information as decision making tool.
The management accounting information plays the significant role in the Tech (UK) Limited
which will help them to take the decisions for the organization (Modell, 2012). The consequence
is as follows:
 Helps in taking make or buy decisions: Through the management accounting the
managers of the Tech (UK) Limited will be able to take the decisions related to the areas
where the investment can be done so that the returns can be maximized and the
profitability can be attained at strategic and operational levels (Ahid and Augustine,
2012).
 Helps in understand performance Variances: The variances are the difference between
the predicted and the actual one. The management accounting helps to build the variances
which are positive and at the same time manages the negative one.
 Forecasts Future: The management accounting helps in forecasting the future trends
that may impact the business operations by investing in the qualified areas (Ahid and
Augustine, 2012).
III. Cost Accounting Systems
The cost accounting system is the framework which will be used by Tech (UK) Limited so that
the estimation of the cost can be done for the purpose of profitability analysis. With the analysis
of the profits it will also help in controlling the cost and valuating the inventories of the
organization (Ahid and Augustine, 2012). The standard costing is the amount which is set by the
organization so that the actual cost can be compared and the variances can be evaluated while the
actual costing is the cost which is attained by the organization during a particular period. The
normal costing is the method through which the production cost is tracked based on the rough
calculation of prices (Ahid and Augustine, 2012).
7

IV. Inventory Management Systems
These are the systems which are used in the Tech (UK) Limited so that the inventory can be
tracked and the cost of ordering the product can be determined. There are three ways for
managing the inventories these are LIFO, FIFO and AVCO (Kolios and Read, 2013). LIFO is
used to find the first cost of item. FIFO believes that the product purchased first should first
(White, 2015). AVCO shows the average cost of product.
V. Job Costing Systems
It is the costing method which will be used by the Tech (UK) Limited for assigning the cost to
the particular product or job. This is done so that the allocation of the resources can easily be
done and the profits can be maximized (White, 2015). A similar products industry uses this type
of costing systems (Richard Lavron, 2016).
8

B) I. Different types of management accounting reports.
The various types of management accounting reports are as follows:
Image: Types of Reports
Source: By Author, 2018
Demand Reports: These are those reports which keep the records of items which are much
demanded by the individuals. Through this the managers of the Tech (UK) Limited will ensure
that there is no shortage of any item which is demanded by the customers (Modell, 2012).
Scheduled Reports: These reports helps in keeping all the data of the organization in the
systematic format so that the available information can easily be tracked when required. It helps
in implementing and executing the plans as all the reports are kept systematically.
Exception Reports: The Tech (UK) Limited will prepare these reports so as to ensure that what
items is missing in the list and what has been expired till date (Ahid and Augustine, 2012). These
reports are basically prepared by the production department so that the items in the stores can be
matched with that of all the available balances.
II. Why information should be presented in an understandable manner.
The information in the reports of the Tech (UK) Limited should be presented in the
understandable manner due to the following reasons:
 It shows the reliability of the information to the managers so that the evaluation can
easily be done and the performance can be evaluated (MONONEN, 2013).
9

 The accurate reporting ensures that the data is up to date with that it also shows that the
available information is accurate.
 The reports should be presentable as it will be easily for the user to understand and
calculate the profitability of the organization (White, 2015).

10

M1) Explain benefits of management accounting systems and their application.
The application of the management accounting systems will provide various benefits to the Tech
(UK) Limited such as:
Decision Making: Through the management accounting systems the managers of the
organization cam take the strategic decisions for the organization which will help them in
attaining the short as well as the long term goals and objectives (MONONEN, 2013).
Improved Cash Flow: The management accounting will help in improving the cash flow as it
evaluates the inflow and outflow of cash in the organization by keeping the proper track on cash
items so that the profitability can be increased (White, 2015).
Helps in investment decision: Through management accounting the financial position of the
company can be evaluated which in turn helps the shareholders to take the investment decisions
accordingly so that the better returns can be gained and the efficiency in the organization can be
increased (White, 2015).
11

D1) How management accounting system and management accounting reporting are
integrated within organization.
Both management accounting reporting and management accounting systems are integrated
within the organization as the management accounting keeps the proper track on the
organizational items so that the revenue of the Tech (UK) Limited can be increased and the
management accounting reporting helps in evaluating the financial position of the organization
by analyzing the financial accounts (Dandago and Adah, 2013). They both aim to achieve the
same objective that is the organizational goals. They also help in evaluating the risky factors that
may impact the organization in near future (MONONEN, 2013).
12

Conclusion
It can be stated that the management accounting systems and the management accounting
reporting both plays the key role for making the organization achieve the profits. The
management accounting systems helps in maintaing the integrity in the organization by
maintaing coordination between various activities of Tech (UK) Limited.
13

TASK 2
P3) Prepare Income statement using marginal and absorption costing. (M2, D2)
Direct Labor 5
Direct Material 8
Variable Production 2
Fixed production 5
Total 20
Cost: The monetary value of any item in item in the organization is termed as the cost. The cost
can be variable, fixed as well as semi variable (Nawaz, 2013). The variable is those which gets
affected with the change in the sales volume while the fixed are those which does not get
affected by the volume of sales in the organization. The semi variable cost possesses the nature
of both variable as well as the fixed costs (Nawaz, 2013).
Absorption Costing
Income Statement under Absorption Costing
Particulars Amount
Sales (35*1500) 52500
Less: Cost of Sales
Opening Stock 0
Cost of Production (20*2000) 40000
Add: Closing Stock (20*500) 10000
Gross Profit 22500
Less: Fixed and variable selling expenses 17875
Net Profit/ Loss 4625
Absorption costing is the costing which includes both variable as well as the fixed cost for the
estimation of cost in the organization (Nawaz, 2013). The profit of the absorption is totally
depended upon the value of inventory in the organization. With the increase in level of inventory
the profits are increased. It can be seen that in the month of September Tech (UK) Limited
earned the profits amounted to be £4625 (Nawaz, 2013).
Marginal Costing
14

Income Statement under Marginal costing
Particulars Amoun
t
Sales (35*1500) 52500
Less: Variable production Overheads (15*2000) 30000
Variable Selling Cost 7875
Add: Closing Stock 7500
Contribution 22125
Less: Fixed Selling Cost 10000
Less: Fixed Production Cost 15000
Net Loss/ Profit -2875
It is the costing method which includes only the fixed cost during its evaluation and ignores the
variable cost (Nawaz, 2013). The contribution is calculated by applying all the possible
adjustments in the statement of the marginal costing. The Tech (UK) Limited incurred the loses
in September amounted of £2875 (Nawaz, 2013).
Reconciliation Statement
Reconciliation Statement
Particulars Amount
Marginal Costing Loss -2875
Add: Closing Stock 7500
Profit of Absorption Costing 4625
The reconciliation statement is prepared to reconcile the amount of both the statements (Nawaz,
2013). The balances in the amount of the marginal and the absorption costing occur due to the
presence of closing stock in both the statements of the Tech (UK) Limited.
15

TASK 3
Introduction
The budgets are prepared so that the future can be predicted by controlling the factors that lead to
the increase in cost and the revenues of the organization can be increased. The process which can
be used by the organizations for preparing budget are explained and the use of various planning
tools for forecasting budget are also highlighted.
16

(A) Different kinds of budgets and their advantages and disadvantages.
The budgets are prepared so that all the employees as well the managers of the organization can
work towards the attainment of the common objectives (Dandago and Adah, 2013). The various
kinds of budgets with their advantages and disadvantages are:
Image: Kinds of Budget
Source: By Author, 2018
Cash Flow Budget: These are the budgets which are prepared by the organizations so that the
cost can be tracked so as to increase the revenue (Motley Fool, 2018). It evaluates the factors of
cash which may impact the business in the coming accounting period.
Pros: Through this budget the organizations can bring the effectiveness and efficiency in their
business operations. It also provides the position of cash in the financial period (White, 2015).
Cons: The cash levels may change in the coming year so the estimation of cost for future can be
proved to be wrong (Motley Fool, 2018).
Capital Budget: These budgets are prepares so as to evaluate that the funds of the company in
the long term are worth for the funding through cash according to the capitalization structure. It
helps in allocation the resources which are of major expenditure and investment.
Pros: It helps in increasing the wealth of shareholders by giving company the edge in the capital
market (Motley Fool, 2018).
17
CashFlowBudgetCapitalBudgetOperatingBudget

Cons: The controls over the expenditure projects of the organization are inadequate as compared
to that of investment (Mind Tools, 2018).
Operating Budget: It is the annual budget which is prepared by the organization so as to
estimate the income the expenses of the organization during the accounting period. It also helps
in maintaing the interest payments and operations (Eisenberg, 2016).
Pros: It helps in keeping the track on entire business by tracking the amount that has came in and
went out during the accounting period.
Cons: The projections which are related to the revenue are failed as financial information can
change as the business exceeds (Dandago and Adah, 2013).
18

(B) Process for preparing Budget
The managers of the organization need to follow the proper procedure for preparing the budget
such as:
1. Update budget Assumptions: The assumptions which were used as the base in the last
year’s budget have to be reviewed and then updated to form the new budget (Eisenberg,
2016).
2. Available Funding: The determination has to be done about the funding that may be
available to the business during the accounting period so that the growth plans can be
limited (Kolios and Read, 2013).
3. Create Budget Package: The budget package has to be created which includes the
assumptions of the current year and the estimation of the current year’s income and the
expenses that may impact the business (Eisenberg, 2016).
4. Obtain revenue forecast: The forecasting about the revenue has to be done by
considering the sales manager and the CEO of the organization.
5. Obtain department budgets: The budget of the various departments has to be obtained
evaluated and the available modifications have to be done.
6. Review Budget: The budget which has been prepared has to be reviewed by the top level
managers so that if any corrections can be implemented at this stage.
7. Issue Budget: The budget has to be issued and circulated to the managers of all the
departments (Eisenberg, 2016).
8. Load Budget: The budget has to be loaded in the software so that the performance can
be evaluated.
19

(C) Importance of budget as a tool for planning and controlling process.
The budgets help in avoiding the failure but cannot guarantee the success. The budget is the tool
through which the actions can be generated to the action oriented goals as well as objectives
(Eisenberg, 2016). The implementation of the budget helps in controlling the cost so that the
planning related to the increase in revenue can be done (Accounting Tools, 2017). It also helps
the managers of the organization for proper allocation of the resources so that the shortage as
well as the excess of resources can be reduced. With that the budget also helps in evaluating the
risky factors in the organization so that the managers of the organization can take the strategic
decisions which can help in improving those factors which may impact the profitability of
business in long run. Another benefit is that they also help in evaluating the bottlenecks as well
as the constraints so that the operations may go effectively (Eisenberg, 2016).
20

(M3) Analyze use of different planning tools for preparing and forecasting budget.
The different planning tools which help in preparing and forecasting budget are:
PEST Analysis: The PEST analysis helps in analyzing the external ability of the organization.
They help in evaluating the factors which are of the macro environment and can impact the
business in long run. These are those factors which are not under the control of firm so as are
sometimes treated as threats for the organization (Mind Tools, 2018).
Porter’s Five Forces: Through this the organization can evaluate the competitiveness in the
external market. It shows the five forces through which the company derives its intensity of the
competitiveness and the attractiveness of the organization in terms of profitability.
SWOT: Here the S denotes Strength, W as weakness, O as opportunity and T as threats. Unlike
the PEST which determines external ability the SWOT analysis helps in determining the internal
ability of the organization to compete externally (Mind Tools, 2018).
Balance Score Card: It is the matrix which is used by the organizations so as to improve the
functions of business which are internal so that the external outcomes can be positive. It helps in
maintaing the accountability within the organization (Accounting Tools, 2017).
21

(D3) Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead to sustainable success.
The planning tools such as the financial statements, variance analysis and costing methods can
solve the financial problems of the organization. The financial statements helps in analyzing the
cost and the revenue of the organization which will help in solving the problems of the risky
factors which in turn will help in attaining the sustainability by increasing the profitability
(Accounting Tools, 2017). The variance analysis will evaluate the difference between the actual
and the budgeted so those areas where the improvements are required are evaluated and thus the
transparency will be maintained and the sustainability can be achieved in the organization. These
all planning tools will solve the financial problem and will help in maintaing the accountability
in the operations of business (Accounting Tools, 2017).
22

Conclusion
The budgets are important to the business so that the planning for future can be done by
controlling the cost and increasing the revenues. The planning tools solve the financial problems
and helps in attaining the sustainability by evaluating the actual performance of organization.
23

TASK 4
The balance score card is one of the strategy management tools which is used by the managers of
Tech (UK) Limited so as to keep the track on the cost so that the revenues of the organization
can be increased (Dreamtime, 2018). These are the performance management reports which are
used by the management team of the organization to manage and implement the operational
activities. It selects the small data so that the monitoring of the activities can be done
accordingly.
Image: Balance Score Card Graph
Source: Dreamtime, 2018
The balance score card can be compared to that of budgets as the budgets also helps in
evaluating the financial performance by setting the particular standards through which all other
or the actual results have to be evaluated (Dreamtime, 2018). The balance score card involves
less of the assumptions but the budgets involve more assumptions through which the evaluation
is done. The balance score card will help in solving the financial problem as the areas where the
company is lacking behind as compared to other companies will be evaluated by the managers of
the organization and the planning will be done to improve those areas (Eisenberg, 2016).
Through the balance score card the Tech (UK) Limited will be able to minimize the cost and
maximize the revues which in turn will solve the problem which has been aroused so as to attain
the profits within organization (Dreamtime, 2018). The activities will also be determined that the
work is done according to the planed structure or not.
24

(M4) Analyze how respond to financial problems management accounting can lead to
sustainable success.
The management accounting can solve the financial problem same as that of the planning tools
as through the management accounting the managers of the Tech (UK) Limited can take the
strategic decisions which will enable them for the achievement of long as well as the short term
objectives (Mind Tools, 2018). The management accounting provides the overall direction to the
employees so that the profitability can be increased and the sustainability can be attained within
the organization. The reports should include the policies related to the sustainability so that the
maximum benefits can be entertained with the organization (Dreamtime, 2018).
25

Conclusion
It can be concluded that the budgets helps the organization in setting the standards so that the
actual performance can be evaluated. The procedure for preparing the budget is depicted which
will help the managers for preparing the budget. The management accounting information is
important in the organization as it helps in maintaining the inflow and the outflow of cash.
Various types of reports are prepared by the managers of the Tech (UK) Limited so that the true
and actual position of the organization can be determined. The absorption and marginal income
statements are prepared which will show the position of the organization in month of September.
The balance Score card also helps in financial problem with that of planning tools and
management accounting so that the sustainability can be achieved and the profits can be earned
by Tech (UK) Limited.
26

References
 Accounting tools, 2015. Traditional Costing. [Online]. Accounting tools. Available at:
https://www.accountingtools.com/articles/what-is-traditional-costing.html. [Accessed On
21 May 2018]
 Accounting Tools, 2017. Operating Budget. [Online]. Accounting Tools. Available at:
https://www.accountingtools.com/articles/2017/5/9/operating-budget. [Accessed On 21
May 2018]
 Ahid, M. and Augustine, A., 2012. The roles and responsibilities of management
accountants in the era of globalization. Global Journal of Management and Business
Research, 12(15).
 Dandago, K.I. and Adah, A., 2013. The Relevance of Variance Analysis in Managerial
Cost Control. Journal of Finance and Investment Analysis, 2(1), pp.1-5.
 Dreamtime, 2018. Balance Score Card. [Online]. Dreamtime. Available at:
https://www.dreamstime.com/stock-illustration-balanced-scorecard-business-diagram-
illustration-strategy-concept-infographic-perspectives-image53148239. [Accessed On 21
May 2018]
 Eisenberg, P., 2016. Implications of Standard Costing System in Manufacturing: A Case
Study.
 Kolios, A. and Read, G., 2013. A political, economic, social, technology, legal and
environmental (PESTLE) approach for risk identification of the tidal industry in the
United Kingdom. Energies, 6(10), pp.5023-5045.
 Mind Tools, 2018. SWOT Analysis. [Online]. Mind tools. Available at:
https://www.mindtools.com/pages/article/newTMC_05.htm. [Accessed On 21 May 2018]
 Modell, S., 2012. The politics of the balanced scorecard. Journal of Accounting &
Organizational Change, 8(4), pp.475-489.
 MONONEN, J., 2013. Implementation of an industrial variance analysis process-A
constructive study at Alstom.
 Motley Fool, 2018. 5 Types of Budgets for Businesses. [Online]. Motley Fool. Available
at: https://www.fool.com/knowledge-center/5-types-of-budgets-for-businesses.aspx.
[Accessed On 21 May 2018]
27

 Nawaz, M., 2013. An Insight Into the Two Costing Technique: Absorption Costing and
Marginal Costing. BRAND. Broad Research in Accounting, Negotiation, and
Distribution, 4(1), pp.48-61.
 Richard Lavron, 2016. 8 tools and techniques to apply to strategic analysis and planning.
[Online]. Richard Lavron. Available at: http://braveworld.ca/8-tools-techniques-to-apply-
to-strategic-analysis-planning/. [Accessed On 21 May 2018]
 White, S., 2015. How management accountants can lead their organizations towards
sustainable success. [Online]. Financial Management. Available at: https://www.fm-
magazine.com/news/2015/jan/201511533.html. [Accessed On 21 May 2018]
28