Management Accounting in Response to Financial Problems

The assignment discusses the importance of management accounting in resolving financial problems, using examples from Capricorn Wealth Management Limited and Brightstar Financial Limited. It highlights various planning tools such as contingency planning, forecasting, and flexible budgets, and emphasizes the use of Key Performance Indicators (KPIs) and benchmarking to achieve organizational goals.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
P1 Management accounting and it's different types of system .............................................3
P2 Explain different methods of management accounting reporting.....................................4
M1 Evaluation of benefits of various management accounting systems...............................6
D1 Management accounting system and management accounting reporting are integrated with
organisation processes............................................................................................................6
TASK 2............................................................................................................................................7
P3 .Appropriate techniques of cost analysis to prepare an income statement........................7
M2 Management accounting techniques and financial reporting documents......................10
D2 Financial reports which are applied to interpret many business activities.....................10
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control ..................................................................................................................................10
M3 Usage of different planning tools for preparing and forecasting budgets......................12
TASK 4..........................................................................................................................................13
P5. Organisations are adapting management accounting systems to respond to financial
problems...............................................................................................................................13
M4. Management accounting in response to financial problems can lead organisation to
sustainable success...............................................................................................................15
D3.Various planning tools to resolve financial problems....................................................16
CONCLUSION .............................................................................................................................16
REFERENCES..............................................................................................................................17
INTRODUCTION
Cost accounting or managerial accounting is another name of management accounting. is
It is defined as the process of evaluation of business activities and maintaining a cost of financial

records, reports or accounts to enhance the decision making of the managers (Adler, 2013). It is
the transformation of costing and financial data into useful management information within the
organisation. The accounting system is used for making decisions for the organisation. Financial
reports and accounts are prepared and used by managers at any time they need it. Management
accounting is helpful for the internal aspect of business. In following report, the chosen business
entity is Capricorn wealth management limited company and it is analysed the practices and
whole concept of management accounting. This is a UK based small scale company established
in 2008 and situated in Hammersmith, London. It provides wealth and financial consultancy and
advices to clients. Moreover. They are involved in providing financial services and products,
such as loans and products for mortgage. In this present report, includes each and every
information which are related to management accounting. The different types of it and benefits
for the company are evaluated. The later part of report includes the different managerial reports
and accounting techniques. The various advantages and disadvantages of these are discussed. In
the end, it explains the different ways by which an organisation can handle the financial issues
and implement an effective accounting technique within the organisation.
TASK 1
P1 Management accounting and it's different types of system
It is based on accounting system which analysing a internal management of business and
making effective decision regarding managing managerial activities in an organisation (Arroyo,
2012). Along with this, it focuses on analysing the financial condition of the business which aid
leaders and mangers to run their business more effectively and efficiently. The different facets of
accounting that are managed are constraints, margins, trends, capital budgeting, valuation,
product costing and forecasting. This is an accounting system which helps in preparing business
reports and accounts. And it is prepared an organisation on weekly or monthly basis for internal
audiences like department managers and officers. These help in evaluating the available cash,
revenue generated, raw material and inventory, debts,etc. It also includes variance analysis,
charts and other graphical representations. The different kinds of accounting system are
discussed below-
Cost accounting system- This is a kind of accounting system which helps in evaluating
all costs including variable cost, fixed cost, etc. It is essential for organisation to determine the

cost of products or services. Along with this, estimating cost helps an organisation to analyse
their profit and loss on their product and services (Bennett and James, 2017). In order to,
Capricorn Wealth Limited company, use cost accounting system to analyse the cost
differentiation on its products and services.
Price optimisation system- This system gives a framework for determination of price of
services and products. This is useful for customers as well as company as they can estimate the
product cost. This system helps in evaluating the behaviour of customer on various pricing level.
This system provides factors on which the company sets the price. The company Capricorn
wealth management use price optimisation system for setting a price at different level.
Job costing system- It is an accounting system which helps in calculating a total cost
incurred in providing product and services. Along with this, it assign cost to each and every
single unit of product or service. This is beneficial for the organisations as it giving multiple
services and products (Chenhall and Moers, 2015). In order to chosen company i.e., Capricorn
wealth management Limited is associated with providing different financial services and
products to employees. Along with this, job costing system is essential for to know the cost
incurred in different goods and services.
Inventory management system- It is a very important aspect of accounting system in
which it concerned with tracking status of products and services. Inventory management system
is helpful in checking the availability of services and goods. Along with this, it is applied in
Capricorn Wealth Management Limited organisation to track it's various goods and services. The
financial status of products and services is checked by using this accounting system.
P2 Explain different methods of management accounting reporting
Accounting reports are compilation of financial data received from the accounting
records of business. These may include custom made report, briefs that are made for particular
purpose like analysis of sales or profitability of product. The accounting reports are important for
internal management of business. The mangers of organisation use these reports for making
effective decisions, plans and strategies. The various accounting reports of Capricorn Wealth
management Limited for making effective decisions are discussed below-
Performance reports- It is defined as detailed analysis that evaluates the success of any
activity over a particular time frame. This report is generated for employees and business and
this helps management to analyse the probability of success of product or project. It measures the

performance of employees and company. The managers decide to reward those employees who
work hard for accomplishing organisational targets. In order to, Capricorn Wealth Management
Limited use performance report for analysing a various number of effective and productive
employees in an organisation and mangers reward them accordingly. It also helps in analysing a
performance of every individual who are working in company.
Budget report- The management of organisation uses budget report to compare actual
performance and desired performance of the individual. The managers use this report to make
future strategies and policies for increasing productivity of the company. This report has
estimated income and expense of the company (DRURY, 2013). In context to, Capricorn
Wealth Management Limited makes budget report to evaluate the financial performance of
company. Managers of this firm make effective policies and strategies to be implemented for
meeting the budgeted goals and objectives of the organisation.
Accounts receivable ageing report- This report contains information about credit
transactions. It is mostly used by the organisations which make credit transactions. Organisation
get to know about money present with the customers in the market. This report consists of dates
of credit transactions. This reduces the complexity of transactions that occurred over a time. This
report is used in management of Capricorn Wealth Management for evaluating total collection
from their customers (Gibassier and Schaltegger, 2015). This helps in maintaining transparency
in collection of credit from the market.
Cost managerial accounting report- This report evaluates the cost of products or
services which is manufactured by the company. This report contains all costs including
overhead costs, material costs, labour costs, and so on. In order to, this present report provides
summary of all types of costs incurred in the company. Also it helps managers to analyse or
evaluate the selling and actual price of products. The expenses of company must be less than
selling price in order to make profits. This report is used by Capricorn Wealth Management
Limited to make effective future strategies and plans to analyse loss and profits of the company.
M1 Evaluation of benefits of various management accounting systems
The advantages of all the accounting systems is described below-
Cost accounting system
 It is used for estimating costs of products and services offered by the organisation.

 It is helpful in determining factors that affects high cost in offering of products and
services.
Inventory management system
 It is helpful in tracking financial status of an organisation and to analyse the performance
of individuals in a company.
 It reduces time and cost.
Price optimisation system
 Price optimisation system helps an organisations to estimate the level of price which is
related for benefits of customers and company.
 This report provides a framework to evaluate customer's reaction on different price
levels.
Job costing system
 It helps managers for assigning and calculating cost of every unit.
 This system helps in regular monitoring of all business activities.
D1 Management accounting system and management accounting reporting are integrated with
organisation processes
The integration of management accounting system and reporting is an essential
requirement of any company (Hartmann, Perego and Young, 2013). Suppose in a company when
there is a need to make managerial reports, then it is important to gather appropriate data from
management accounting systems. The organisations and companies will not be able to make
effective business decisions if management accounting systems are not available. In order to,
Capricorn Wealth Management Limited, it prepares various management reports using different
accounting tools and techniques.
TASK 2
P3 .Appropriate techniques of cost analysis to prepare an income statement
Absorption costing- This is a costing system for inventory which is also known as full costing.
This involves variable cost, fixed cost, overhead costs and cost of labor and materials (Kokubu
and Kitada, 2015). This costing is needed in the preparation of financial reports and stock value
purpose.

Marginal costing- It is a part of costing in which variable cost is charged according to the units
of cost, where as fixed cost is completely written off against contribution. In context to, marginal
costing reflects additional costs involved in production of extra units of output. This costing is
calculated as:
Marginal Cost = Direct material + Direct labor + Direct Expenses + Variable Overheads
Income statement by absorption costing method:
Particular Amount
Sales (25*10000)
Less- Cost of good sold
Gross profit
Less- Selling and manufacturing overhead
Net profit
250000
140000
110000
60000
50000
Working Notes*
Calculation of sales(25*10000) - 250000
Calculation of cost of good sold - 140000
(Direct material+ Direct labour+ Variable manufacturing overhead+ Fixed manufacturing
overhead: 50000+30000+20000+40000)
Calculation of selling and manufacturing expenses - 60000
(Variable selling and manufacturing overhead+ Fixed selling and manufacturing overhead :
30000+30000)
Income statement by marginal costing method:
Particular Amount
Sales
Less: Marginal cost of sales
250000
130000

Contribution
Less: Fixed cost
Net income
120000
70000
50000
Working Notes*-
Calculation of marginal cost of sales - 130000
(Direct material+ Direct labour+ Variable manufacturing overhead+ Variable selling and
administration expenses: 50000+30000+20000+30000)
Calculation of fixed cost - 70000
(Fixed manufacturing overhead+ Fixed selling and administration expenses: 40000+30000)
Interpretation- As per the above mentioned calculation it has been evaluated that,
company gets equal net incomes in both types of costings. The net income in both absorption
method and marginal costing is same i.e. 50000.
Income statement by absorption costing method (When 5000 units sold)
Income statement under Absorption costing
for the month ended
Particulars Details Amount(£)
Sales revenue 5000*25 125000
Less: Cost of goods sold 100000
Contribution 25000
Fixed costs 40000
profit for the year -15000
Income statement by marginal costing method( When 5000 units sold)
Income statement under Marginal costing
for the month ended
Particulars Details Amount(£)

Sales revenue 5000*25 125000
Less: Marginal cost of sales 140000
Contribution -15000
Fixed overhead costs 60000
profit for the year -75000
Interpretation- It has been analysed from the above numerical that company is
suffering from loss in both costing methods. The net loss in absorption method is 15000 and net
loss in marginal costing method is also 75000.
Financial reporting document with labour and material variances:
Material Cost Variance = Total Standard Cost -Total Actual Cost =20000-22000=2000(A)
Material Price Variance = (SP – AP) * AQ= 10-11*2200= 2200(A)
Labour Cost Variance = TSC-TAC =15000-17680= 2680(A)
Labour Rate Variance = (SR-AR) * AH = 15-16.07*3400= 3638(A)
Here from above calculation it has been analysed that all the variances are adverse which
indicates towards requirement of improvement.
M2 Management accounting techniques and financial reporting documents
It is used in preparing financial statements and reports (Kotas, 2014). The different
financial analysis are represented by balance sheets, profit and loss, etc. Along with this,
accounting techniques and tools are required for preparing financial documents and reports. The
financial statements are made in Capricorn Wealth management by using various accounting
tools and techniques.
D2 Financial reports which are applied to interpret many business activities
It represent various business activities. The company can analyse financial position of it
by using financial statements like balance sheets, profit and loss, etc. With reference to this,
financial reports are interlinked with all the managerial activities as reports contain information
of activities that takes place in business (Lambert and Sponem, 2012). The major objective of
generating financial reports is to evaluate the financial status of the company. In context to,
Capricorn Wealth management Limited makes various financial reports such as income

statements, balance sheets, profit and loss, etc. and evaluate the smooth functioning of all
business activities.
TASK 3
P4 Advantages and disadvantages of different types of planning tools used for budgetary control
A budgetary control is defined as the process of formulation of financial goals to be
achieved by analysing the past budget. Managers and leaders control and monitor different
operations of finance and costs by using this technique. Such control over business activities
plays a key role in the organisation because it helps higher level leaders to monitor operations
and business activities to maximise profits (Lukka and Vinnari, 2014) . This technique helps in
estimating expenses and income. Along with this, It is used for analysing a financial position in
the company to gain competitive advantage at market place. The leaders of Capricorn Wealth
management analyse different elements for controlling and monitoring financial operations. The
various advantage and disadvantage of planning tool for budgetary control are discussed below-
Contingency Planning- This is used to control risks occurred due to unexpected
business situations while implementation of various operations in an organisation. This tool
helps in developing of different tools, strategies, plans which help to overcome such situations at
workplace. In context to, Capricorn wealth Management Limited, should use this tools to
formulate different plans, strategies, policies to handle risk situations and reduce unfavourable
conditions at organisation.
Advantages
 The chances of risk are minimised in the organisation and making effective strategies,
plans and policies for future.
 It helps in making corrective steps and actions against business problems.
Disadvantages
 While making backup plans, company faces occurrence of conflicts between actions of
different leaders.
 This planning process takes time and it requires a lot of money.
Flexible Budget- This is a tool used in organisation to make effective changes in budget.
Mangers use this in the organisation for budget control (Modell 2014). This helps in determining
the expenses and revenue. This budget helps to analyse the successful and unsuccessful areas in

financial operations. This budget is used in Capricorn Wealth Management Limited for
operations that are variable in nature. Thus, The managers and leaders can easily make changes
in business activities.
Advantages
 Flexible budgets helps in coordinating various business activities of Capricorn Wealth
Management Limited.
 This budget provides accurate and effective results because it evaluates all activities
separately.
Disadvantages
 It is not easy to implement flexible budget as it involves different variables.
Forecasting Tools- These tools are used in the prediction of future by evaluating the
present and past budgets of a company. These help in make future plans for the company for
increasing financial performance (Nitzl, 2016). Along with this, it forecast technique which helps
the leaders and managers of Capricorn Wealth Management Limited for guiding and estimating
future requirements and needs by evaluating financial statements and calculating financial ratios
of company.
Advantages
 The clients of Capricorn Wealth Management Limited are satisfied by giving them
estimated assumptions on the basis of budgetary report.
 This tool enhances the decision making of managers of the company and implementing
strategies, plans and policies.
Disadvantages
 The prediction and strategies or plans formulated by managers of Capricorn Wealth
management Limited are sometimes not beneficial for the company.
 The information gathered through different departments of the company may not be
enough to make effective strategies and plans for future.
M3 Usage of different planning tools for preparing and forecasting budgets
A budgetary control explains the performance of any organisation through various tools
and techniques that helps in formulation of strategies to improve financial performance (Otley
and Emmanuel, 2013). The managers and leaders of Capricorn Wealth Management Limited are

benefited for implementing plans and improving financial position of company in market. With
addition to this, the tools of planning is used for preparing and forecasting budgets of
contingency planning, forecasting tools and so on. Contingency planning is used to make backup
plans, strategies and tactics to minimise risks in performing business activities and avoiding
unfavourable business situation. On the other hand, flexible budgets are helpful in preparing
different kind of budgets for variable operations of the company. Forecasting tools help in
guiding leaders of the organisation for estimation of future needs and demands. This is done by
evaluating the financial statements and calculating cost ratios. These planning tools are helpful
for increasing profitability of the business and developing financial position of the organisation
in competitive era.
TASK 4
P5. Organisations are adapting management accounting systems to respond to financial problems
Identifying financial problems: It refers to the financial pressure situation, where
money problems are faced by individual as well as an organization. According to this there are
various number of financial issues or difficulties in companies which immediately affect the
profitability and operational activities of their business.(Quinn and Jackson, 2014). There are
several strategies which can be developed to reduce that situation to immediately achieve profit
with efficiency. In relation to The Capricorn Wealth Management Limited, prepares various
provisions to overcome the financial issues. Therefore, Some of the financial problems are
defined below:
Problem of cash flow: In case, when business faces issues regarding in sufficient cash to
pay its liabilities. The major reason of these problems is earning less profit and suffering from
high loss. In regard of, Capricorn Wealth Management Limited faces lot of problems because of
capital as they required huge capital to enhance their brand and payback their dues to creditors.
Risk management: In the competitive environment it is very essential for the
organization to manage all their risk for which they can develop various strategies to gain the
profitability and eliminate the chances of risk. Higher the amount of risk leads to unstable
situation for the organisation to perform its operation smoothly. In context to The Capricorn pvt.

Ltd. Strategies their action properly to manage the risk even in unfavourable situation of
organisation (Renz, 2016).
Management of money: This is a procedure of various activities like budgeting, saving,
investing of available resources within the company. It is very helpful in succeed the accessible
origin in several ways to attain more profit in a effective manner (Richardson, 2012). Company
develop different procedure for effective money management in the perfect way.
Capital assets: It is also known as net working capital, this is because it shows a
differences between the current money value in an organisation, such as cash, accounts
receivable and inventories of finished goods and raw material. In relation to this, it is also
determine the its current liabilities such as account payable system. In the term of Capricorn
Wealth management Limited faces few debts issues of low working assets that influences its
regular process and functions.
Financial governance: It identifies different procedures of a company in order to
collects financial information in a positive way. Financial administration is very helpful in order
to lead competitions for future development. Here, is the duty of higher level of management is
to control the quality and structure of financial statements in a effective manner.
Management accounting approach: It refers to the different accounting techniques
which is helpful for solving the issues within the company. This offers proper knowledge to their
team members for instant usage of acquirable resources in company. In order to, Capricorn
Wealth management Limited resolve financial problems through exploitation this approach.
There are different approaches, that are as following under:
KPI: This term stand for Key Performance Indicator is used to evaluate the action of the
company through the comparison with another business enterprises for the purpose of
accomplish organisational goal objectives either it is short term or long term. Efficient Key
Performance Indicator concentrates towards the business activities as it focuses to develop
overall organisation in effective manner. In this, management focuses on these approach which
are necessary tool for evaluating progression in order to meet strategic objectives and purpose
(Schaltegger and Burritt, 2017). KPI tool is useful for business organisation in order to fix and
comparison of their performance on the basis of calculate the overall objectives, goals of the
company.

Benchmarking: It refers to the different techniques which is used by company to
evaluate the overall activity with their lot of competition. In this, company prepares
differentiation related to various activity, programmes with several organisation to define needs
in order to changes some activity. This term analyse the goals for improvement and wants to
remove the space with its challenger on daily basis. This chosen approach wants to maximise
their performance and achieve goals in a effective manner.
Comparison between Capricorn Wealth management Limited and Brightstar Financial
Limited.
Basis of difference Capricorn wealth
management
Brightstar financial
statements
Problem Poor and ineffective money
management is faced by this
company which is a huge
problem. As compare to the
expenses company's revenue
are getting short. These
business issues impacting
negatively on the work
procedure of the company.
Therefore, chosen company
faces different problems
because of insufficient
working capital which is not
easy for company to face it.
Also it is difficult to pay
expenses of their company.
In this statement problem is
faced by Brightstar Financial
Limited like cash flows and so
on. In context to this
organization, it is not able to
identifies or develop
techniques to reduce uncertain
risk.
Approach In this, company requires to
minimise its financial issues.
For this, an organisation want
to apply Key Performance
approach for acquiring the
comparison and setting
effective techniques against its
competitors and to manage its
working capital in a effective
manner.
In this, Brightstar Financial
Limited applies benchmarking
approach for developing the
good reports related to risk
management. It is also makes
unique strategy for manage its
working capital in the process
of minimising the competitors
with several competitors.

M4. Management accounting in response to financial problems can lead organisation to
sustainable success.
It refers to the benchmarking and key performance indicators, this is because it plays a
vital role in Capricorn Wealth Management Limited and Bright star Financial Limited. With
refers to this, their main motive is to accomplish property attainment by developing many
scheme which helps in minimising all the financial difficulties. Along with this, it is helpful in
order to achieve success. In order to, Capricorn Wealth Management Limited company apply
these approaches because of the comparison in between key performance and various activities
of company in order to reduce the risk and competition towards success. (Suomala and Lyly-
Yrjänäinen, 2012). wherein, Brightstar Financial Limited applies this approach for benchmarking
in order to analyse the various changes and improvements in an organisation to minimize the
space with the competitors as well as measuring the company's activities regularly.
D3.Various planning tools to resolve financial problems.
Different tools of planning helps in developing unique plan rapidly for the growth in
order to operating smooth function of any company. In context to, Capricorn Wealth
Management Limited and Bright star Financial Limited both company faces lot of issues because
of unique conditions. In the management system of Capricorn Wealth Management Limited
usage different tools of planning like contingency in planning, flexibility in budgets and forecast
several problems that increase effectiveness and changing in capital issues in a effective manner
(Otley and Emmanuel, 2013).
CONCLUSION
As per the above mentioned report, it has been analysed that management accounting is
very important for every organisation as it helps them to achieve an organisational goals and
objectives at given period of time. There are different kinds of system in the company for
effective processing of operations and functions like price optimisation system, cost accounting
system, job costing system and inventory management system. Organisation evaluate their
financial performance by making various reports like performance report, budget report,
accounts receivable ageing report, cost managerial accounting reports. Absorption and marginal
techniques are used for cost analysis by some companies to generate income statement. Various

planning techniques like contingency planning, forecasting tools and flexible budgets are
involved in budget planning of companies. The different approaches is use for solving financial
issues such Key Performance Indicator and benchmarking.
REFERENCES