Comprehensive Management Accounting Report: Zylla Company Case Study

This report provides a comprehensive analysis of management accounting principles, focusing on the case of Zylla Company, a multinational organization in the construction industry. The report covers key aspects such as management accounting systems, including inventory management, cost accounting, job costing, and price optimization systems. It also explores different methods of management accounting reporting, including performance reporting, inventory management reporting, job costing reporting, and accounts receivable reporting. Furthermore, the report delves into various costing techniques like absorption costing, marginal costing, and standard costing, alongside the preparation of income statements. Additionally, it examines planning tools used in budgetary control, their advantages and disadvantages, and their application in forecasting and solving financial problems. The report also evaluates the integration of management accounting systems and reporting and explores how organizations adapt these systems to address financial challenges, ultimately aiming at achieving organizational success. The report draws on the management accounting reports produced by E&Y, a UK-based audit consulting firm, for Zylla Company.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and requirement of different management accounting systems1
P2 Different methods of management accounting reporting..................................................3
M1 Benefits of management accounting systems in organizational context.........................4
D1 Evaluation of integration of management accounting systems and management accounting
reporting.................................................................................................................................4
TASK 2............................................................................................................................................5
P3 Different costing techniques and preparation of income statement .................................5
M2 Management accounting techniques to produce financial reporting documents.............6
D2 Interpretation of data produced from financial reports.....................................................7
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of different types of planning tools used in budgetary
control ....................................................................................................................................7
M3 Use of planning tools in preparation and forecasting budgets.........................................8
D3 Evaluation of planning tools in solving financial problems.............................................8
TASK 4............................................................................................................................................8
P5 Comparison of organizations adapting management accounting systems to solve financial
problems.................................................................................................................................9
M4 Management accounting deals with financial issues to achieve success ........................9
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting refers to the process of collecting accounting information,
analysing it, preparation of financial reports and then taking day-to-day decisions. This helps in
better control over performance and functions of management. In simpler form, management
accounting assists to manager in effectively and efficiently providing financial information
which ultimately aids in success and growth of organization. As in modern era, every
organization needs a proper accounting system for management. To explain concepts of
management accounting, Zylla Company has been taken which is a large multinational
organization. It is involved in providing services of supplying contractors in construction
industry. Management accounting reports of it are produced by E&Y which is a UK based audit
consulting firm.
Main aspects covered in this report are various management accounting systems,
techniques, reports, and planning tools (Klychova, Faskhutdinova and Sadrieva, 2014). Apart
form this, different cost techniques and financial problems are also discussed. Along with this,
application of all these in organizational context.
TASK 1
P1 Management accounting and requirement of different management accounting systems
Management accounting is a method through which an organization can identify its
valuable resources and accumulate important data about them. In addition to this, it helps
organization in accurate presentation of information. So that efforts of manager in controlling
business operations will be automatically move towards right direction. After providing
information to senior management, they formulate strategies and policies for Zylla Company.
Although, these will ultimately leads to organizational in effectively achieving its goal and
objectives. In some companies where management accounting has not been adopted yet, faces
many problems regarding coordination among different departments. Scope of management
accounting is not limited to certain specific areas. Its scope is extended in three areas namely
strategic management, performance management and risk management (Mistry, Sharma and
Low, 2014). It only concentrates on analysing as well as recording information for internal
stakeholders such as employees, board, investors.
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Management accounting system is defined as measuring and evaluating various processes
of internal management of organization. Requirements of different types of management
accounting systems arises due to complexity in structure as there are various departments in
Zylla.
Different types of management accounting systems are as follows: Inventory management system: One can say that is a collection of processes, procedures
and technologies to monitor as well as maintain stock. This management system includes
maintenance of different types of products such as company assets, work in progress, raw
materials, supplies, and finished goods (Moser, 2012). Benefits of inventory management
to Zylla is that it will be ease in identifying each inventory item through barcode labels,
tags etc. These are done with help of software and hardware. It is an important
constituent of supply chain management which overlooks flow of goods from
manufacturing location to the ultimate consumer. There are several advantages of
keeping inventory management system such as improvement in cash flow, reduction in
labour expenses, storage costs, as well as it also brings transparency. Cost accounting system: It is a form of management accounting system which develops
methods for cost effectiveness. This can only be achieved in Zylla when strategies are
made keeping in mind long as well as short term perspectives. There should be planning
and controlling of functions related to budget. This system provides information to cope
up with challenges arise out in future. Also profitability can be maintained along with
competitive advantage. Measurement of performance, deciding reasonable costs,
assessing life cycle of goods are some of goals of this system. Job costing system: It is defined as process of collecting information allocated to a
particular job or project. Information can be related to cost, revenue, reimbursement or
progress and it is utilized in determination of accuracy in cost estimating system of Zylla.
Job costing system accumulates three kinds of information that are about cost involved in
direct material, direct labour and overheads (Schaltegger and Csutora, 2012). This system
is used in every type of organization whether manufacturing, retail or construction.
 Price optimization system: According to this system, price is set to that level which is
reasonable and consumer has willingness to pay for product or service. Price should not
be too much high and too much low. Competitors' prices are also kept in mind before
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deciding prices. There are four principles of management accounting are influence,
relevance, value and trust. Role of management accounting is in every field whether
related to budgeting, sales forecasting, trend analysis, product costing etc. This
accounting was developed from cost accounting techniques during Industrial revolution.
P2 Different methods of management accounting reporting
It is essential for an organization to know overall performance of business operations.
Thus, reporting should be done after each quarter to gain data about financial and non-financial
information. There is no standard format to prepare them as these can be made according to
flexibility and requirement. Internal stakeholders needs data on basis of which decision making
is done. Thus, from this system Zylla can be aware about profitable and non-profitable areas or
departments (Adler, 2013). Manager is responsible as well as accountable to represent
information in systematic manner. Management accounting reports smooths way of operating
organization in a way that performance of all activities will be tracked and interpreted. Various
methods of management accounting reports used in companies are: Performance reporting: These are prepared mainly for evaluation of performance of
organization as a whole and separately for different areas. As in large organizations,
structure is complex so this method simplify that complexity. Performance reports are
prepared to take key strategic decisions regarding with future of Zylla. This reporting
method acts as foundation for performance analysis in a way that best performers are
awarded and underperformance are suggested to improve. In short, best solutions of
problems can be derived. Deep insights about working of an enterprise is also assessed. Inventory management reporting: This method on management accounting reporting is
often used in manufacturing units because they produce physical goods. Thus it proves
valuable for these organizations. In Zylla company, there is need to centralize data for
services provided by it to different companies. Inventory management reports includes
various stock valuation techniques such as ABC, EOQ, Just in time. Majorly, focus is on
reducing inventory holding costs for organization. Because sometimes costs overlaps
revenue and not even management is aware about it. Tracking of expenses at each stage
is done to estimate total cost and profitability. Job costing reporting: It is a crucial reporting system which ascertains total revenue and
cost derived by a job. Apart from this, it helps in comparing associated cost and expected
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revenue from a single project (Hoque, 2011). Through this analysis, jobs would be
identified according to profitability as Zylla can concentrates on high profitable jobs or
projects. Only those costs which are directly attributed to a particular job are reported.
This method is useful for company to maintain credibility, progress evaluation, claiming
contractual claims, and for future work.
 Account receivable reporting: This is used when an organization is providing credit on a
large basis (Busco and Scapens, 2011). Account receivable reporting is also called
accounts receivable aging reports. Customers who have taken credit from Zylla and has
outstanding credit balance in accounts are tracked. They are categorized in accordance
with days in which payment has to be made. This method assists in aligning customers
according to their repayment abilities. After maintaining these reports, amount of bad
debts is also reduced.
M1 Benefits of management accounting systems in organizational context
Management accounting systems includes inventory management systems, cost
accounting systems, job costing system, and price optimization system. Contribution of every
system cannot be ignored as these are all significant part of management.
Price optimization systems: Brings cost transparency and flexibility in organization.
Inventory management systems: Long term as well as short term objectives can be achieved and
Zylla will be prepared for future outcomes. Although a company derive as many benefits as it
can depends upon capacity.
Cost accounting systems: Determines current financial position, offer better price options to
customers.
Job costing system: organizes stock orders and apply cost controlling systems.
All these are advantages of management accounting systems and in overall sense, these
helps in taking informed decisions that ultimately leads to success.
D1 Evaluation of integration of management accounting systems and management accounting
reportinge
Management accounting systems integrated with management accounting reporting in
Zylla will bring revolutionary changes in overall financial position. Manager has to maintain all
the records for this integration. As if information provided by managers in reports will be clear
then it will not only denotes ability to convert capital in yielding growth. Management
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accounting reports represent clear and definite financial picture of company in front of internal
stakeholders as well as potential investors. Organizational functions consists of marketing,
finance, human resources which can not operate efficiently without management reports. As
loopholes and defects in processes are identified with the help of various reports. Activities or
functions of business would be better managed by applying budgeting tools, job costing reports,
and inventory management reports in Zylla. If reporting and accounting system will be strong
then goal setting will become easy. Managers can motivate employees by adjusting goals
according to their performance (Scapens, 2006).
TASK 2
P3 Different costing techniques and preparation of income statement
Cost in simplified term refers to money or amount of resources required to purchase or
produce a product. There are different methods adopted to ascertain cost of goods in various
industries according to nature of output. Costs can be fixed, variable, direct, indirect,
incremental, opportunity cost etc. Costing techniques refers to methods of cost controlling, and
decision making (Kihn, 2010). These methods can be applied in Zylla company in various ways
like whether to make or buy products, price appraisal, evaluating performance of purchasing,
negotiation with suppliers. Different costing techniques used in management accounting systems
are mentioned underneath: Absorption costing- This technique practised in a way that fixed and variable both costs
are charged to business operations. All costs are absorbed in production and processes.
This is also known as full costing method. It is more useful than marginal costing because
in that only flexible costs are included. Advantage of this technique is that it does not
taken into consideration all fixed costs which are incurred even if goods are not sold. Marginal costing: Marginal costing only considers variable costs that are direct material,
direct labour, direct expenses, overheads. These costs are allocated to production units.
Fixed costs are not included in this costing technique and it is written off against
contribution. Marginal cost is extra cost involves in producing an additional unit of
output.
 Standard costing: Pre determined standard or estimated cost is compared to actual cost
incurred. If there is any difference among them, it is called variances and corrective
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actions are taken to reduce these variances. Also reasons are identified by comparing both
of them so that solution can be provided in accordance to problem.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue 40000
Marginal Cost of goods sold: 16000
Production 14000
closing stock 2000
Contribution 24000
Fixed cost 1000
Net profit 23000
Computation of net income by using absorption costing method:
Particulars Amount
Sales 35000
Cost of goods sold 20000
Gross profit 15000
Selling & Administrative expenses 4000
Net profit/ operating income 11000
Interpretation: Income statements are prepared on the basis of absorption costing
technique and marginal coating technique. Firstly, sales revenue is taken which is calculated with
the help of selling price and number of units sold. Then in above marginal costing method,
marginal cost of goods sold is determined by deducting closing stock from production cost. After
that, contribution is ascertained by reducing marginal cost of goods sold from sales revenue.
Ultimately, net profit is derived subtracting fixed costs from contribution.
In income statement prepared through absorption costing method, sales revenue is
calculated as above. Thereafter, cost of goods sold is determined by per unit expenses and
number of units sold. Selling and administrative expenses are then reduced from gross profit to
arrive at net profit.
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M2 Management accounting techniques to produce financial reporting documents
There are various types of accounting technique which can be used in order to analyses
financial data that further support in taking effective decision (Kurunmäki, 2009). Following are
the common accounting technique that can be used: Marginal costing tools:- It is a kind of variable cost which consists of labour and
material cost along with an estimated amount of fixed cost. Marginal costing help in
determining the profitability of company. Hence it provide with required information that
can be use to take effective decisions related to future investment done by a company.
 Absorption costing:- This tool help in identifying the cost of product by taking into
consider all types of fixed and variable cost to evaluate where they are accounted for
using absorption rate. Absorption costing method helps in ensuring that incurred cost
must recover from selling prices of product. This provide company with required
information that can be used to take further action related to minimizing the cost of
company during production process.
D2 Interpretation of data produced from financial reports
There are various issues that a company faces while performing their operations that may
affect its performance. These issues can be rectified using several accounting tools and
technique. As it help in determining the cost that may be incurred by company during execution
of its operations (Hansen and Mouritsen, 2006). Net profit by marginal costing as shown by
income statement is amounting to 24700. This makes a reliable aspect to company that support
in decision making by using marginal costing, company will be able to make sufficient amount
of profit. In case company uses absorption costing that company will be profited by amount
14200. These variation are being evaluated using total fixed cost consideration.
TASK 3
P4 Advantages and disadvantages of different types of planning tools used in budgetary control
Budget is the list of all expense and revenues incurred by Zylla company during a
specific period of time. It is being prepared according to need such as quarterly or annually. For
this purpose, a budget statement is being prepared. Budgetary control can be said as a
management control system that determines various actual results through planning and cost
controlling. In this process, budgeted figures are set for a certain period and then these are
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compared with actual performance to identify discrepancies. So that remedial actions or
measures can be taken on proper time. Budgetary control is a process which never ends because
planning, coordination, controlling are never ending processes. Process of budgetary control
includes several steps as it starts with establishing standards, then evaluation of actual
performance is done (Ratnatunga and Alam, 2011). After that actual outcomes are compared to
budgeted performance. If any variances or differences are found then remedial measures are
taken on immediate basis. Main objective of this is to eliminate waste and increasing
profitability. Planning tools that are used in budgetary control are:
Contingency: These plans are generally made for organisation to cop up with future
uncertainties. Strategies are developed to deal with impact of quick market changes or
disruptions. It is a process of risk mitigation for Zylla company.
Advantages: Back-up plans are made through future anticipation which removes
hindrances in continuous planning process (Sykianakis and Bellas, 2005). In this way, it becomes
smooth.
Disadvantages: This planning tool often avoids risk of being simplistic and one dimensional.
Scenario: According to this scenario planning, management explores various set of
alternatives or situations. Then they examines expected results under established set of
alternatives. It concentrates on three types of questions that arise while planning such as what
can occur, what will be affect on budgets, how would deal with them.
Advantages: High level of organizational learning can be achieved through this planning
tool. Also everyone have clear picture or view about future.
Disadvantages: Sometimes aspect of linear thinking is being avoided and management is
pressurized to execute test-plans.
Forecasting: In this, organizations often relies upon information collected from future as
well as past. Process of this planning tools begins with developing plans on the basis of
knowledge, experience and assumptions.
Advantages: Internal and external factors that can affect functioning, Zylla can forecast
them to increase profitability.
Disadvantages: Forecasting does not have high level of accuracy and it may lead
company to face financial or non-financial issues.
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M3 Use of planning tools in preparation and forecasting budgets
It has been determined that planning tools such as contingency, forecasting, and scenario
are often act as foundation for budgetary control. Contingency tool defines all situations that can
occur to Zylla while preparing budget. Forecasting assists in calculation of revenue, expenses
that would be incurred by organization (Abrahamsson, Englund and Gerdin, 2011). Scenarios are
identified and tested for examining desired situations. Apart from this, there are many other
planning tools which are used for effective budgeting.
D3 Evaluation of planning tools in solving financial problems
It is clear that planning tools plays a major role in budgetary control but along with this,
they also resolve critical financial issues arise within organizations. Forecasting, contingency and
scenario tools are used for budgetary control and all financial problems related to budgeting are
solved. These can be related to cost allocation or appropriation, cost controlling, arrangement of
funds, revenue generation etc.
TASK 4
P5 Comparison of organizations adapting management accounting systems to solve financial
problems
Financial problems if increases then it may also lead to difficulties in business operations.
These are uncertain cash flow, increases in debts, issues in credit policies, and complexity in tax
structure etc. Management accounting systems that can be used in solving financial problems are
as follows:
KPI (Key Performance Indicators): These are majorly used by managers and senior
management in analysing factors which are crucial for business success of Zylla. KPI are
quantifiable in nature and concentrates on significant functions and processes which are directed
towards achieving strategic goals or objectives (Key Performance Indicators, 2018.). These are
categorised as financial and non-financial KPI. Financial indicators are based on components
included in financial statements such as alteration in growth of sales, earnings, return on assets,
profit margin etc. While non-financial indicators are based on qualitative aspects such as
customer relationship, employee satisfaction, quality of operations, market share, growth,
innovation, technology, skills and knowledge of workforce, degree of competition, criteria for
performance evaluation etc.
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Benchmarking: It is defined as a way to compare metrics of Zylla with other
competitors or peers in same industry. Businesses achieves best practices in operations while
adopting this system (Purpose and use of Benchmarking, 2018). This assists in gaining
competitive advantage. It focuses on continuous improvement, fulfilment of customer needs.
Different types of benchmarking are internal benchmarking, competitive benchmarking, strategic
benchmarking etc. A very long process is followed to undertake benchmarking.
Comparison has been given below:
Zylla company Skanska UK
This company is involved in providing
contractors and sub-contractors for
construction so job costing will be more useful
for it. As there are different projects and jobs
are undergone so it will be easier to identify
cost associated with particular job or project.
Also profitable and non-profitable areas are
determined easily. All relevant costs are
accumulated to calculate total costs. So, it
helps in solving problems of cost classification.
It is among top ten companies of UK in
construction industry. Main focus is on eco
friendly and green construction. Ratings of
buildings made by this are very good, so
revenue will be high. Thus, financial indicators
will be more efficiently applied. Financial
indicators are cash flow, balance sheet, income
statements, financial ratios. These shows
correct financial position and solves financial
problems of meeting financial obligations and
maintaining level of credit.
M4 Management accounting deals with financial issues to achieve success
It is understood that for smooth running of an organisation, there are many factors
which contributes. But, it is impossible to forecast financial problems which occurs suddenly.
Thus, management accounting helps to cop up with unfortunate business events that can cause
harm (Hussain and Gunasekaran, 2002). Management reporting and accounting systems
develops a proper structure for measuring financial performance so that reward system can be
established accordingly. Organisational structure of Zylla, sometimes can cause problem due to
complexity of different departments. It eases handling issues related with each of them which
ultimately leads to sustainable success. Sustainable success is overall development of
organisation which can only be achieved if management accounting is applied properly.
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