Management Accounting and Costing Techniques for Income Statement Preparation

This report covers the various forms of management accounting systems and their benefits, different costing methods, and different tools and techniques for controlling the budget. It also includes cost accounting techniques for income statement preparation. Suitable for business students and professionals.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its various management accounting systems....................1
P2: Justify various method of management accounting reporting.........................................3
TASK 2............................................................................................................................................6
P3: Cost accounting techniques to prepare an income statement...........................................6
TASK 3..........................................................................................................................................11
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.11
TASK 4..........................................................................................................................................13
P5 Adoption of management accounting systems to respond financial problems...............13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is the most suitable concept which is used in the association in
order to form the daily decision with the help of providing the managers of the business with
proper and appropriate financial information. This uses all the provisions of the accounting to
determine all the financial and statistical data which will further support in controlling the
business operations so that the goal of the firm can be attained within a stipulated duration. The
main objective behind the preparation of the management accounting is to provide the
management, stakeholders with the data which are related to the internal business so that they
can easily align their curiosity with the process of the organisation in order to increase their
working efficiency. The special objective behind the preparation of this writing is to provide data
to the internal stakeholders of the arrangement about the relation and functioning of the internal
departments for better decision making. The report is prepared on the consulting firm that is
Boston consulting which is engaged in resolution of the problems faced by their client is that
Speedboard. For the report, the chosen association is Speedboard Assemble Service which is
well known for it manufacturing at the medium scale.This report covers the various form of the
management accounting system along with their benefits to the business. Apart from this, the
study also focuses on the different costing methods and different tools and techniques for
controlling of the budget so that financial status of the business can be improved.
TASK 1
P1: Management accounting and its various management accounting systems.
Management accounting is coined as the procedure of presenting the accounting as well
as economic data which will assist the business in evaluating their performance of the
management, their strategies to compete with the competitors, budgeting and forecasting.
According to the American accounting association,'' management accounting is the concept
which plays a significant role in planning business activities, policies and strategies so that the
goal of the firms can be attained(Otley, 2016). There are number of accounting management
system that support the business in carrying their operations out in the best way. Below
mentioned are the types of the management accounting systems:
Cost Accounting System: This aspect of the management accounting system is mainly
concerned with the frame work which helps in estimating the cost of the product or services,
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valuation of the stock, profitability analysing for the business so that the vision of the association
can be earned in the best possible manner. Other than this, cost accounting also supports the
business by determining their profits margin as well as ascertaining all the cost either be it fixed
or variable so that the overall productivity of the business can be enhanced. In context of the
company like Speedboard, this system of accounting will provide the manager of the business in
the information regarding how much cost is going to be incurred or how much has incurred in
the process of manufacturing so that all the unnecessary costs can be controlled and maximum
profit can be obtained in trenchant manner. Furthermore this will enable the manager of the
business in comparing their actual performance level to the standard which have been
benchmarked so that the company can determine where they are lacking and how to match that
level of benchmark so that the business of Speedboard can sustain in the market for a longer
period of time(Soin and Collier, 2013).
Price optimisation system : This management accounting system is the core component
which supports the association in determining that how the taste and preferences of the
customers varies at the different level of the prices. This is utilized by the business in controlling
the costs of the items, assets and so on. The matter of the Speedboard Can concentrate on the
utilization of value improvement in their business for choosing the estimating structure of the
products which the clients are prepared to pay. This will likewise empower the business in
distinguishing the responses of the clients towards the various degrees of the costs. speed board
Can use this in their business through sorting out the reviews for collecting the data so as to
contrast it with the expense of activity, inventories and costs of the items which were set
beforehand. This strategy includes the count which are of complex nature for which the
methodology of the price optimisation has been found by the organizations concerning full fill
their needs of business to clients or some other organization manufacturing items in the mass. It
will likewise bolster the business in considering every one of the variables, for example, product
life cycle, competitors pricing strategies so the business can without much of a stretch recognize
what cost of the item should be kept inside the association.
Inventory management system : This system of accounting is considered to be the core
in the firm as it deals within the management of the stock level. This system helps the
organisation in determining how much inventory to manufacture and hold and how much to sale
in the market. The business of Speedboard will focus on this management system as this will
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lead their business to a situation of the growth and development(Contrafatto and Burns, 2013).
This will also enable the management of the Speedboard in allocating their stock at different
places and areas which have been formed for the activity of the production. The business of
Speedboard will also be benefited by the adoption of this system in their organisation as this will
allow them to identify the stock that is needed at they present of time , setting of the quarry and
will also helps them in controlling the task that is associated with the resource management in
regard to maintain the stock in the business. To calculate the cost of the inventory there are
different ways which can be implemented by the business such as LIFO, FIFO and AVCO. In
Current time the organisations have adopted the method of EOQ in order to identify the time
period of preparing a reorder in regard to carry their operations smoothly(Merchant, 2012).
Job costing system- These are the management accounting system which are mainly
preferred by the companies which are into the business of manufacturing a products. This is the
accounting system which is mainly concerned with the allotment of the job to each individual.
This is generally used by the manager of the business to trash the cost and the income which
have been earned through the particular job. Additionally this will also support in identifying the
amount of profit which can be obtained through the effective performance of the job. The same
will be utilised by the business of the Speedboard in determining the cost and revenues that is
incurred through the manufacturing. This will also support the business in tracking the expenses
and cost so that the necessary steps can be taken to enhance the profit margin.
P2: Justify various method of management accounting reporting.
Management accounting reports are those which provides the business with more reliable
and accurate data so that the business can come up with the best decision for the organisations.
These reports are prepared to know in depth about the financial and statistical data of the
association. Preparation of these reports in the business will also allow the association in
forecasting about the future financial position of the business. These reports are as follows:
Budgeting report : These reports are those which prepared by the organisation in order
to see their overall business performance during the financial year. This report helps the business
in contrasting their actual performance with the targeted standards so that all the errors which are
causing deviation can be corrected within the time frame. The business of Speedboard will also
be benefited with the preparation of this report as this will support the business to know the
reason of deviation which arises in the level of the performance and will also assist the business
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in overcoming those deviation so that the exact financial position of the business can be
determined(Tappura and et. al., 2015).
Inventory managerial report : These reports are formed by the business in order to
determine the level of stock that the business is holding. Preparation of the report within the
business is done in order to determine the demands and supply of the stock as per the
requirement which is made by the potential customers. This will also empower the business to
expand their profitability and productivity level. Formulation of this report will also support the
business of SpeedBoard in determining the stock level that is required to for manufacturing the
product so that all the unnecessary costs can be reduced and a control can be established on the
expenditure level of the business.
Account receivables report : This report is prepared on the periodic basis in order to
identify the all those debts and account receivables of the business which has been outstanding
from a long duration of time. This report is prepared by the business of Speedboard in regard to
determine that from how long the payment from the customers and debtor is overdue to the
business and also supports the association in establishing the proper credit policies so that the
organisation can easily overcome the problem of the due amount(Bromwich and Scapens, 2016).
Assessment of benefits of various management accounting systems:
The benefits which the management accounting system provides to the business are as follows:
Types of management
accounting system
Benefits Evaluation of these benefits
in context of the
organisation.
Inventory management
system
 The benefits which the
inventory management
system provides to the
business is that it
allows the business in
determining the level
of the stock to be
produced as per the
customers requirement
so that all the
 The business through
this advantage will lead
to the positive way of
doing operations as
through the business
can determine that how
much stock to be
produced and deliver
rather can producing in
bulk so that the cost can
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unnecessary cost which
are associated with the
production can be
reduced in a systematic
manner.
be controlled and profit
of the association can
be maximised.
Cost accounting system  This allows the
association of the
Speedboard in
estimating the cost
which is going to be
incurred and will also
support in estimating
the cost so that the
business operation can
be carried in the best
possible
manner(Boučková,
2015).
 This benefit of the cost
accounting system will
affect the busines in
positive manner as
through this the
association of the
Speedboard can easily
assess the amount of
the expenditure that the
firm is going to
incurred while
operating the
operations in the
business. This will also
enable the business in
comparing the
performance that is in
actual to the standard
set.
Price optimisation system The business of the
Speedborad will be benefited
from this accounting
management system as this
will assist the business in
reducing the cost which is not
 This will have great
impact on the business
as this will support the
business in setting
plans and strategies
related to the price of
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essential for the business so
that the profit margin of the
firm can be increased.
the items and will also
increase the customer
base of the business by
providing the clients
with better and
affordable pricing
strategy.
Integration of the management accounting system to the management accounting reports.
Type of reporting & Systems Integration with organisational process
Inventory management report: Both the
concept of inventory management system as
well as reports are interlinked to each other
as all the details data regarding the inventory
to prepare the inventory reports are rendered
with the help of inventory management
system.
This reports will enables the business in
identifying the purchase reorder level so that the
required stock of the raw material can be
maintained in order to produced and
manufacturing the products as per the demand of
the customers.
TASK 2
P3: Cost accounting techniques to prepare an income statement.
Cost : Cost is the amount that is being given up In order to get or buy something. It is
the monetary value that a company pays in order to receive something. It includes the monetary
assessment of the resources, material, time and utility consumed and all those opportunities
which have been given up in regard to produce the desired level of the products or services.
Various methods of costing related to this are marginal costing and absorption costing:
Marginal costing: marginal costing is the change in the total cost which has arise when
the quantity produced is increased by the additional one unit. This is also known as the cost of
producing one additional unit of goods and services. This is calculated within the business in
order to determine at what point of time the business can earn the economies of the
scale(Pavlatos and Kostakis, 2015).
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Absorption costing : This method of costing is concerned with the holding of all the
costs which are related to the manufacturing of goods and services. This costing method is the
only one which involves both the type of the cost is that fixed or variable. This is the most
suitable method of the costing that will be used by the business firms as it provides more reliable
and accurate data for the stock which is going to end.
Income statement
Cost Cards
November
Sales = 70* 10000 = £ 700000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
December
Sales = 70* 8000 = £ 560000
Direct Materials = £100000
Direct Labour = £ 150000
Fixed Overheads = £ 250000
Inventory = £ 2000 units
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Prepare a flexed budget
Analysis: Their are lot of variances in the results driven and the actual plan. The sales of firm
has increased with 22%. The cost of goods produced has also increased which might be
due to production of more number of units. In respect to the increased number of
production units, all the other costs like material, labour and overheads also increased.
The gross profits of the business is also showing negative variance even when the sales
has increased. This means the cost has raised with more ratio in comparison to the rate
of sales. The fixed overhead has increased in respect to the planned one by £ 1000.
Management accounting techniques and financial reporting documents:
The techniques of the management accounting will help the business in increasing their
overall margin of the profits and productivity so that the financial report statement of the
business can be prepared. Both of these accounting techniques as well as the reporting will
empower the business to estimate the budget so that the business can carry forward their
operation in the most effective manner(Kanellou and Spathis, 2013).
Financial reports which applies to interpret many business activities:
These reports are those which provide the business with the data related to the whole year
which includes Balance sheet, Profit and Loss, cash flow statement. This will also assist the
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business in determining their financial in this current report the costing has been calculated
through the methods of costing is that absorption and marginal where the amount of Net profit
varies. The net profit/ loss through marginal is £-550 which increases to this £5750 and
absorption is £1050 which further in the month of June increased to £9792.
TASK 3
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.
Budgetary control: It is the process which involves preparation of the financial plans in
advance and the objectives related to the performance which is to be earned and also compare
the actual to the standard and take necessary steps which is needed to resolve the deviations.
Below mentioned are some planning tools related to the budgetary control:
Cash budget: Cash budget is refers to as the statement which has been prepared by the
business in order to identify the amount of their cash inflows and outflows during a particular
budget period. The purpose behind the preparation of these cash budget is that it enables the
business in evaluating the cash that has to be spend in order to carry their day to day activities.
This will also render advantage to the business of Speedboard:
Advantages Disadvantages
This will enables the business of Speedboard
in quickly identifying the deficit to meet the
requirement of cash so that the reliable data
can be gathered.
The disadvantage that the business is going to
face from the preparation of the cash budget is
that the limit of spending the cash will be
restricted.
Master Budget : This is also coined as the budget which is sum total of all the budget
which is prepared by each individual department within the business so that the estimation about
the future sales, productions, profitability can be done(Collis and Hussey, 2017).
Advantages Disadvantages
Preparation of the master budget will helps
the business of Speedboard in identifying in
It is not easy for the business of Speed board
to make changes in the master budget after its
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advance about the plans and problems which
the business is going to face in the near future.
preparation as these are rigid in nature.
Flexible budget : As the name suggest these are the budget which can be modified as per the
requirement of the specific situation. These budget are those which are formulated with less
amount and time.
Advantages Disadvantage
These budget are beneficial for the business as
this will allow the business of Speedboard in
comparing the actual performance to the target
one.
The business will suffer as due to its flexible
nature the the data within the business will
keeps on changing in a frequent manner due to
which the performance of the business will be
hinder.
Analyse the use of different planning tools and their application for preparing and
forecasting budgets
Different tools have been utilised by the business of Speed board which provide them
with certain amount of benefits and disadvantage(Bagautdinova, Kundakchyan and Malakhov,
2013). These tools are flexible budget, cash budget and master budget. The application of the
cash budget in Speedboard has been mentioned as follows:
Receipts £
Cash sales 250
Credit sale receipts from debtors 320
Other income received 415
Total receipts (a) 985
Payments
Purchases 215
Wages- Labor and overheads 115
Fixed costs 200
Capital expenditure - Plant 650
Advertising 20
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Total Payments (b) 1200
Surplus/Deficit (a) – (b) -215
TASK 4
P5 Adoption of management accounting systems to respond financial problems.
Every business have to undergo some problems which may leads to decreased
productivity level of the business. So in order to overcome these problem and issues the
associations will focus on the implementation of the various tools. Problems and the tools to
reduced those problem have been mentioned beneath:
Unforeseen expenses : These expenses are those which were not available or were
estimated at the time of formation of the budget due to which the association have to face the
problem of loss in their business. These are those expenses which has arisen unfortunately due to
some activities related to insurance etc.
Weak fund measurement system : This is the major problem which hinder the level of
performance in the organization as the funds within the business is not allotted in a proper
manner due to which the operation can not be executed in the best manner and the desired profit
can not be earned(Malinić and Todorović, 2012).
Tools that the business will adopt to resolve these problems are :
Key performance indicator : The tools of Key performance indicator is used within the
business in order to evaluate the performance level of the employees within the association. This
helps the business in contrasting the performance is that current to the past so that the area of
where they are lacking can be defined and corrected. The business of SpeedBoard will use this
tools in there business as this will empower the business to determine that who are the employees
working as a key assets to the business and measuring their performance. Through the Adoption
of this the business can also overcome their problem of weak fund management as this tool of
KPI will enable the business in identifying and analyzing the employees who are highly skilled
and knows how much funds to be allocated so that the profitability of the business can be
maintained.
Bench marking: The concept of the bench marking is mainly concerned with the setting
of best practices which can be used by the firms in order to gain the competitive advantage over
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the rivals. This tools will be applied by the Speedboard in their association as this will guide their
employees to work for the benchmark which have been set to accomplish the target of present as
well as the future period of time. This tool of Bench marking will also enable the firm to
overcome their problem of unseen expenses by planning a proper budget and implementing a
proper funds towards the attainment of the target so that the cost of the unessential items can be
controlled and the issue of the Unexpected expenses can be resolved(Mitchel and et. al., 2015).
Comparison in between organization about the use of management accounting systems to
respond financial issues
Speedboard assemble Airdri Ltd.
 As the business is operating their
operation on a large scale the
business has to deal with the
issue of lack of funds and
improper employees
participation.
 The business of Airdri Ltd is also
operating their business on large scale
where the problem with the business is
that the business has not defined their
goals and objectives which they seeks to
achieve in a appropriate manner.
 To overcome these issues the
business will adopt Benchmarking
and KPI as these tools are
associated with the evaluation of
the performance and targeted
goals . Implementation of these
tools will increase the performance
of the employees within the
business and will also allocate the
funds in the best proper way.
 The business here will adopt the tool of
financial governance as this will support the
business in formulating the strategies such
will empower the business to have definite
goals and objectives which they will seeks
to achieve within the given time frame.
 The business of Speedboard will
also adopt the concept of cost
accounting management to
resolve their issues of lack of
funds as this will enable the
 Here the business will also try to adopt the
accounting system that is price
optimisation and where they will plan in
advance about their pricing which is going
to be incurred on the different different
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business in estimating the cost in
advance that how much cost will
be incurred on what activity by
which the management of funds
will be done
systematically(Krishnan, 2015).
products . Through this problem plan and
strategies will be formed and the goals
and objectives will be defines
significantly.
Evaluation of financial issues
Resolution of the issues with the use of these tools will increase the business financial
position in the market and will also leads to increased revenue as this will provide the business
with all relevant financial data. This will also enable the manager to form the decision in the
most effective manner so that the operation within the business can be carried in the most
suitable manner and all the financial issues can be resolve by maintaining the stability of the
business in the competitive market for the longer duration of the time.
Planning Tools to solve the Financial Issues
Planning tools are very important for the business in order to resolve their issues related
to finance. Planning tools helps the business in solving these issues as these are interlinked to the
estimation of the future situation regarding expenses and revenues. As the business of Speed
board has used various budget which will support them in resolving their financial issues.
CONCLUSION
It has been finished up from the above report that there is enormous commitment of the
board bookkeeping in the accomplishment of the association as this improve the interrelation in
the middle of the inward divisions of the association. This is conceivable on the grounds that
arrangement of various frameworks help to get the broadened data which improves the
comprehension and results in genuine improvement in their working. Planning of various sort of
reports help to course the data to inside partners and directors which improves basic leadership
and help to get wanted outcomes. Every business have their very own commitment in budgetary
control and permits the association to react to the monetary issues and improves quality. There
is use of various sort of the executives devices and frameworks like KPI and Benchmarking.
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REFERENCES
Books and Journals
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Online:
Online Budget. 2019. [Online]. Available through:
<https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting>
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