Introduction to Management Accounting

Management Accounting 1 .2 INTRODUCTION.3 TASK 13 P1 Explain management accounting and give the essential requirements of different types of management accounting.3 P2 Explain different methods used for management accounting reporting.5 TASK 26 P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs of the organisation .6 TASK 39 P4 Explain the advantages and disadvantages of different types of planning tools used for budgetary control .9 TASK 4

Management Accounting
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Table of Contents
Table of Contents.................................................................................................................................2
INTRODUCTION...............................................................................................................................3
TASK 1................................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting...................................................................................................................3
P2 Explain different methods used for management accounting reporting.....................................5
TASK 2................................................................................................................................................6
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs of the organisation.................................................................6
TASK 3................................................................................................................................................9
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.............................................................................................................................9
TASK 4..............................................................................................................................................12
P5 Different MAS to solve the financial problems........................................................................12
Conclusion.........................................................................................................................................14
References..........................................................................................................................................15
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INTRODUCTION
Management accounting is the process in which the organisation takes the financial
decisions. It includes the fundamentals of accounting, cost accounting and financial accounting.
The most important factor that helps in management accounting is collecting and analysing
information to help the finance department making the decisions of the organisation and they will
help them in increasing the performance. It is one of the best accounting system which is focusing
on improving the performance of the organisation. They are focusing on panning, organising,
staffing and controlling of the process of the organisation. The management accounting will help in
making the steps easier for planning and controlling of the business. There is the difference
between management accounting and financial accounting (Agrawal and Cooper, 2017).
Management accounting is the process of collecting, analysing and taking the management
activities of the organization whereas the financial accounting is the process of increasing the
financial abilities of the organisation. The chosen organisation for the report is Connect catering
services which is small family business that provide catering services to local in UK. The report
includes management accounting and different types of management accounting, different methods
used for management accounting, cost analysis to prepare an income statement, the advantages and
disadvantages of different types of planning tools and organisations adapting management
accounting.
TASK 1
P1 Explain management accounting and give the essential requirements of different types of
management accounting
Management accounting and management accounting systems
The branch of accounting which is related with determining, measuring, evaluating as well
as interpreting the most important useful accounting information to the internal manager which help
in making daily operational decision is known as Management accounting
(https://corporatefinanceinstitute.com/resources/knowledge/accounting/managerial-accounting/).
This is the process in which the financial information about the organisation is analysed to improve
the performance. It is a different process than cost accounting because it is the management of
accounts in the organisation and it is not related to the financial and cost accounting (Alexander and
et.al., 2017). It is a thought which was developed where the industrialisation was not evolved and
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they are solving the accounting needs of the customers. It is important for the organisation to take
the internal decisions and it helps in improving the process of the financial management.
History of management accounting
In 19th century the sizes of the organisation were small and they were having management
accounting as the best methods to achieve success. The industrialisation has made the large
organisation working with many employees and it has made the management accounting a small
process of the organisations. The management accounting will help in managing the inventory, cost
and increasing the performance.
The importance of accounting for Connect catering services
It will help the organisation in planning and monitoring the performance. The organisation
will have the importance of according to the size. They will help in analysing the performance of
the organisation (Bertheussen, 2017)
 Focus- The focus of the organisation in accounting is to make the decisions that will help
them in improving the performance. The organisation should have the work that is relevant
to analyse the performance and they will help them in increasing the needs of the customers.
 Provision- The management accounting is not made for the whole organisation. It is made
for the departments of the organisation to help them in making decisions. It is important for
the organisations to have the management accounting.
 Rules and regulations- The organisation should work according to the regulatory policies of
the UK and US and they will have to show all the factors that are impacting the decisions
of the people who are related to the business and it will help them in increasing the
performance (Bisbe and Sivabalan, 2017).
 Size- The management accounting is important for the large organisations which are having
many employees and it will help them in improving the quality of the products.
The essential requirements of different types of management accounting
There are requirements of different types of management accounting which is available for
Connect catering services and they are
 Cost accounting system- It will help the organisation in managing the cost and it will help
them in reducing to improve the performance. Connect catering services can help inn
analysing the cost, inventory management, evaluation and controlling the methods used by
the organisation. The benefit of cost accounting system is that they will help in analysing
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the fixed and variable cost in the organisation. It will help them in budgetary control,
marginal control, cost accounting and standard cost of the organisation.
 Inventory management system- The management accounting will help in the inventory
reduction and reducing the cost of the organisation. Connect catering services has an
inventory which is increasing the cost (Dumay and Baard, 2017). The benefit of the
inventory management system is that it will help them in increasing performance. It will
increase or decrease the cost of the inventory according to the organisation. They need have
analyse EOQ, minimum inventory level and re order level in the organisation.
 Job costing system- The organisation is having different types of jobs and they will have to
work according to the skills of the employees. It is process where the total cost of all the
activities are managed according to the fixed and variable cost of the organisation. The
benefit of job costing system is that it will help them in analysing the manufacturing cost
and giving them to the jobs in the organisation. Connect catering services will have the Job
costing system where they will help them in analysing the performance.
 Price optimizing system- The organisation is having different methods for analysing the
performance and optimizing the prices of the products. The benefit of Price optimizing
system is that it is helping in analysing the needs of customers at different prices which they
are willing to pay and it will help the organisation in improving the performance. It will
help the organisation in attracting the customers.
P2 Explain different methods used for management accounting reporting
The management accounting helps the organisation in internal decision making and it will
help the employees in working together to improve the performance (Feger and Mermet, 2017).
The organisation need different types of accounting methods that will help them in increasing the
quality of the products. Connect catering services will have different methods of management
accounting that will help in reporting the needs of the organisation.
 Budget report- The most important factors to increase the performance is analysing the
quantitative factors that are impacting the decisions of the organisation. There are different
types of budget reports in the organisation like sales budget, marketing budge, human
resource, finance budget and they will help the organisation in increasing the performance.
Connect catering services will make the budget according to the needs for a specific period.
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The essential requirement of this report is to help in analysing the cost performance by giving the
factors which can increase the budgeted cost for a period. It also help the company in monitoring
the performance of the non-productive activities so that cost can be saved and used in order
operations which are more beneficial for long run. This report impact over the capital structure of
the company and increase working flow of cash.
Challenges- The organisation will have face the difficulty because it is increasing the cost. The
employees should have the skills that will help them in making the budget report of the
organisation. Connect catering services will have inflexible performance when the employees will
not focus on the needs of the organisation (Poutos and Eriotis, 2018).
 Investment appraisal report- The organisation should analyse the performance of the
investment because they will have to make the appraisal report to the employees. Connect
catering services will have to analyse the risk that are involved in the organisation when
they have to make the investment because it is increasing the cost.
The essential requirement of this report is to determine the NPV as well as payback period of actual
investment made within a timeframe. This also support Connect catering to the most suitable
decisions that will improve the performance and productivity in upcoming time.
Challenges- It is increasing the cost of the organisation and they should have the skilled employees
that will help in investment appraisal report and they will have to analyse the needs of the
customers.
 Execution report- It is the type of the report in which the organisation execution are made
and they will help in improving the performance.
The core essential benefit of this report for Connect catering is related with providing the reliable
solutions to any problems within operation and working conditions. The report support in making
every possible change within operation to deliver best results for the better catering services to
every customer.
Challenges- The organisation will have to select the employees who will help them in increasing
performance.
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TASK 2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs of the organisation
Marginal costing is the process in which the organisation has to analyse the cost involved in
increasing the unit produced. It is the cost of the extra units that is manufactured in the organisation.
The marginal costing is focusing on the variable cost of the organisation and it will be helping the
organisation in analysing the performance. The absorption cost is including the fixed and variable
factors that will help in improving the performance. It is the cost accounting which is focusing on
the factors that are important for the organisation (Heryanto and Sudibyo, 2017).
Preparation of income statements:
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
10 9
Income statement under absorption costing
Particulars April may
Sales 16000 16000
Less: Cost of sales (2000*10) (2000*9) 20000 18000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*10) (1500*9) 5000 13500
Opening stock (500*9) 0 5000
Gross loss -4000 -2000
Less: Fixed Non-Manufacturing Cost -4000 -4000
Net loss -8000 -6000
Cost per unit under absorption costing-
Activity April May
Variable Manufacturing cost per unit 4 4
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Particulars April May
Sales 16000 16000
Less: Marginal cost of sales 8000 8000
Variable Manufacturing cost (2500*4) (3000*4) 10000 12000
Closing stock (500*4) (1500*4) 2000 6000
Opening stock 0 2000
Contribution 8000 8000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non-Manufacturing Cost 4000 4000
Net loss -11000 -13500
Reconciliation statement:
Particulars April May
Net loss under absorption costing -8000 -6000
Less: Closing stock -3000 -7500
Net loss under marginal costing -11000 -13500
Working Notes
Marginal Cost of sales
Particulars April may
Opening Inventory 0 500
Add: Cost of production 10000 12000
Less: Closing inventory 2000 6000
8000 8000
2 a)
1. Fixed and variable costs
Fixed costs:
Activity Amount
Manager’s Salary 5000
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Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£12000
Variable cost:
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£5.50
2. Break-even point in units and in sales value
BEP (In units): Fixed cost/contribution per unit
Contribution per unit: Selling Price-Variable cost per unit
= 9.50-5.50
= 4.00
BEP: 12000/4
= 3000 Units
BEP (In revenues): Fixed cost/PV ratio
PV ratio: Contribution/selling price*100
= 4/9.50*100
= 42.10%
BEP (In revenues) = 12000/42.10%
= £ 28503
4. Margin of Safety at sales of 3500 Pizzas
Margin of safety= Sales units - BEP in Units
= 3500-3000
= 500 Units
5. Effect on BEP in units and in sales value, in case of increase in manager's salary to £6,000
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If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000/4
3250 Units
New BEP (In revenues): 13000/42.10%
= £30878
2 b Preparation of graph:
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed CostCompanies prepare cost
budget which is used to find variance in
actual cost incurred and budgeted target. Cost
budgets shall be flexible enough to
incorporate changes in targets as and when
they arise.
12000
BEP point 28503
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TASK 3
P4 Explain the advantages and disadvantages of different types of planning tools used for budgetary
control
The management accounting is the process in which there are different tools for improving
the decisions of the organisation. They will help the organisation in improving the performance and
helps in the strategic planning for the needs of the customers. The employees of the organisation
has to do the management of the factors by planning, organising and controlling them to improve
the performance. The organisation is having different methods that will help them in increasing the
quality of the products. The first step is planning that will involve the factors that will increase the
cost and the plans are made to improve the performance (Kariuki and Kamau, 2016).
The organisation will have to reduce the cost by having methods that are helping the employees to
improve the skills. They will have to control the cost that is impacting the organisation. The
budgetary control is the process in which the organisation has to control the cost and it will help
them in improving the performance.
Zero Base budgeting: The organisations have to analyse the performance by the income and the
expenses they have and they will help them in giving good products. It will help the organisation in
giving the future performance of the organisation. The Zero Base budgeting are made for every
year with the initial level basically it start with ZERO for every activity ignoring the facts and
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figures of the previous year. The organisation will have to analyse the factors that are important for
increasing the quality of the products.
Advantages:
They will make the budget that will include the future conditions of the organisation. It will
be divided into two parts operational budget and expense budget. The ZBB will include the
operational activities that will include the operational revenue and expenses that are for the
accounting year.
Disadvantages:
The expense budget is prepared for the investment and they are increase the cost of the
organisation. In Connect catering services chartered accountant, can used this budget for some
newly added operations but this can be expensive for company as manager have to closely
determine the clauses of operation.
Incremental budgeting: This is the budget which is used to calculate the inflow and outflow of
cash which are equivalent to the cash equivalent in a specified business transection. It will help the
management system to work smoothly in operations of business activities (Li and Zheng, 2018).
Incremental budgeting help the managers of Connect catering services chartered accountant in
order to find the availability of cash operations which actually help the business to make the records
to determine the growth of business. It will help the manager to find out the need of additional
financing in the recent budgeted year.
Advantages: There are various advantages of cash budget, to avoid the situation of
liquidation and over liquidation. Incremental budgeting help the company to plan according to their
resources and implement on the basis of budget. This also help the company’s manager to work
effectively and manage resources for the growth of organisation.
Disadvantages: This is the very rigid budget resources, as it will never change throughout
the year. Rigidity in dealing with most of the uncertain things which re-changes due to external
environment of company will make the issue within the organisation. Incremental budgeting make
some limits for the company in order to use their resources.
Rolling budget: This is the budget which is used to make future forecasting which is related to
sales of products in a financial resources of a year. It help the companies to work in an organised
manner which are fixed due to pre-described schedule within an organisation (Nespeca and
Chiucchi, 2018). The managers of Connect catering services also use this rolling budget which
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provide an estimation of sales which are happening during the financial year. This will further
change the management style of the company if, it seems in the budget that sales volume are
decreasing during the year. They can use further different strategies which are helpful and managed
by the company for the growth. The main purpose to analysis the Rolling budget is to plan the
tools, making a definite instruments which are helpful for the growth of company and third reason
is to use the effective control tools for having a good sales budgets. This budget have some
advantage and disadvantages which are described below:
Advantages: An accurate rolling budget is the preliminary solution for the preparations of
master budget. It will further give an accurate estimation for earning potentials activities which are
increasing efficiency of an organisation. This budget helpful for the use of efficient strategic plan
which are implement by the companies for increasing the revenue of firm.
Disadvantages: The market condition is so uncertain which are possible due to some
inaccuracy occur while calculating budget. This is very difficult to calculate the Rolling budget
with right accuracy as if any wrong prediction in budget will completely change the position and
reuse of resources in Connect catering services.
Activity Base budget: This budget is one of the important budget in all of above discussed. As this
budget will help the company to evaluate the different activities which are available for the
development of financing the new instrument for performing innovative activities in organisation.
Manager of Connect catering services can use this budget technique to evaluate the performance of
company and determine the most profitable activity and also defines new ways to reduce the
expensive operations (Parker and Northcott, 2016). Manager are able to use different tools of
Activity Base budget process which are related to the options which are available to them in the
financial year. There are some advantage and disadvantages which are explained below:
Advantages: To invest in different activities, Activity Base budget is helpful to determine
the cost structure which process the growth of company. They can further use different type of tools
which are helpful in making the company operation more profitable and as per the requirement of
customers.
Disadvantages: Activity Base budget is based on the some major prediction about the
ongoing activities which can hamper the working conditions. In case if productive activities are
wrongly modified in order to increase the results the company can faces some measure issues that
reduces the overall profit margin and other catering companies can make the advantage of same.
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TASK 4
P5 Different MAS to solve the financial problems
There are different type of financial problems which are identifying by business, all these problems
are capable to disrupt the financial management of a firm (Samuelsson and et.al., 2016). These
problems are different from some minor disruptions to some major issues that are also capable to
make an organisation failure reason. Some of the problems which are described by Connect
catering services chartered accountant:
 Increase in cost: Mainly there are two type of primary factors which are able to make the
misbalance in the financial stability of the firm and one of them is increase in cost there are
various factors which are responsible for increasing Connect catering services chartered
accountant can be faulty budgeting, undervalued employee’s performance etc.
 Decrease in revenue: other factor which will be able to disrupt the financial position of
company is decrease in revenue. This may be happens due to instability of business, and
lead to one of recent issue which is pandemic, it is not able to maintain the profit margin and
this become the reason to declining financial health of company.
Tools and techniques which are used to solve different financial problems:
 Benchmark: It is a technique which is used to work in the organisation for increasing the
performance ability. It will be helpful for the companies to work under some specified
benchmark which are helpful for evaluate the performance and operational practices of
different companies to analysis the best practices for their own growth and success.
 KPI: This will an indicator of key performance indicators that is used to monitor the non-
financial and financial performance sectors that may make the strong impact over the
financial management of company. Managers are mostly focus on the resources of firm
which are able to prove as valuable asset of the company.
 Budgetary targets: There are the techniques which are prepared various budgets such as
sales budget, cash budget, expense budget etc. and all these small budgets are finally merge
with master budget of the company which are helpful for the planning purpose of company.
The managers have to make proper control over the financial year of company. Any change
in the planned budget and actual budget show the variance of the company.
Financial governance: This is the process which is used where different type of monetary
transections of the firm that are analysed from the source which are regulated, controlled and
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managed within company to ensure the outcome of financial management (Trigo, Belfo and
Estébanez, 2016).
 . All these tools are ensure the growth of the company and reduce the issues of
management accounting which are faced by the company.
Basis Connect catering services Airdri catering
Financial problems Revenue of the firm has
declined in last year. This
happens due to more expenses
on useless activities.
Increase in the cost structure
due to mismanagement in cash
flow.
Tools and techniques used The company is using KPI and
benchmarking as it was
revealed that primary cause for
the reason declining due to
some uncertain issues in the
market due to some uncertain
brexit, followed by pandemic,
different sales of the company.
On the other side company is
using finance governance tool
which is used to make all its
monetary transection that help
to regulate the cash ongoing
and upcoming. They are use
cost of raw materials, pandemic
effect and many other expenses
which are increased.
Furthermore, the sales of the
company are decreased which
effect the whole financial
system of company.
MAS used to resolve issues The company uses prime
optimisation system which help
to define the most suitable
price for customers (Ward and
Calabrese, 2018). This will
help to increase the revenue by
a good margin by covering the
entire cost and making more
satisfied customers.
In comparison the company
uses cost accounting methods
which help in making details
notes of total cash used in
different operations. The proper
record help to eliminate the
operations which needs more
cash flow and not delivering
the best results.
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Characteristics of an effective management accountant
Management accounting is the technique which are used by the internal users of company.
Managerial accountants are required to assess the both type of data which are financial and non-
financial data. To access that data it is very important for the company to run the business in an
effective manner (Li and Zheng, 2018). Their main jobs require and prepare financial accounts
report and manage the inventories management accounting report. They are further prepare various
type of information and management accounting tool to work in an effective manner.
Conclusion
From the above report, it is concluded that management accounting is an essential tools
which help the company in decision making process. This functions are used for the internal part of
company which increase the benefit and growth. The company can use different type of information
which are related to budgeting report, investment appraisal, job costing, and many more. Further to
control the management tool they can use prize optimization tool, variance analysis and different
standard costing. All these things are beneficial for the growth of an accountant manager who
perform all these activities which increase organisational growth.
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