Effective Management and Cost Control

The report emphasizes the need for management accounting and costing techniques to ensure effective management and cost control. It discusses the advantages of using full-costing methods over absorption costing and the benefits of adopting modern budgeting tools like activity-based budgeting and zero-based budgeting. The report also highlights the importance of benchmarking, financial governance, and key performance indicators in managing business operations effectively.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
P1 Explaining the requirements of MA system.....................................................................1
P2 Giving information to the manager about the significance and need of different
managerial reports..................................................................................................................4
P3 Determining cost and profit through undertaking absorption & marginal costing system
................................................................................................................................................5
P4 Presenting planning tools that can be used by Qbic hotel................................................8
P5 Comparing ways in which different MA tools assist in responding financial problems 12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14

INTRODUCTION
In the present era, along with the financial accounting, need of MA is also recognized
by the business unit. Moreover, now each business unit has some specific motives such as
cost control, enhancement of customer base & brand image and maximization of productivity
as well as profitability. Thus, company can meet all such objectives only when it employs the
tools and techniques of management accounting (MA). As such field of accounting contains
budgeting, variance analysis, costing techniques etc which in turn exerts control on cost to a
great extent. Thus, firm should focus on undertaking the same for gaining competitive edge
over others. The present report is based on Qbic which offer stay or accommodation facility
to the customers. In this, report will provide deeper insight about the reasons due to which
need of MA systems are identified. Further, it also entails the manner through which firm can
get information about cost and profit through the means of different costing system. It also
presents the way in which MA tools helps in financial planning and responding monetary
problems.
P1 Explaining the requirements of MA system
To
Management Team
Qbic hotel
Date: 1st December 2017
Subject: System of management accounting
Management accounting:
Significance and need of management accounting: MA tools and techniques are highly significant
which in turn assists business in meeting goals to a great extent. Benefits which are offered by MA
tools enumerated below:
 MA too help company in forecasting future and aid in decision making aspect
 By using management accounting tools firm can analyze the rate of return
 In addition to this, hotel unit helps in understanding performance variances and taking
corrective actions for improvements
 Firm can control cost by doing make or buy analysis through the means of MA

Thus, by considering all the above aspects it can be said that management accounting techniques hep
in monitoring the performance of each department. Hence, by taking effective decisions on time firm
can control cost and maximize profit margin.
Cost accounting: It implies for the process which lays high level of emphasis on recording,
classifying, analyzing, summarizing, allocating and evaluating alternative course of action. The main
goal behind undertaking the system of cost accounting is to advise appropriate course of action to
management. Hence, by undertaking such accounting system hotel unit can improve cost efficiency
and capability (Saladrigues and Tena, 2017). Along with this, such accounting system helps in
determining the cost of products, processes, projects etc and aid in decision making, planning as well
as control.
Advantages:
 Helps in assessing the situation of profit or loss
 Eliminates waste and thereby helps in controlling cost
 Such accounting system assists firm in taking decision whether to produce in-house
or buy from outside.
Disadvantages:
 Such accounting system sometimes leads the problem of under and over absorption of
overhead
 It demands for heavy expenditure because for the installation of cost accounting
system maintenance of many costing records is highly required.
Job costing: Such management accounting system is highly used by the business organization or
industries where production is measured in terms of completed job. Through undertaking such costing
method concerned business units can track the expenditure associated with the creation of unique
product.
Advantages:
 It assists in setting prices of each job
 By undertaking this manager of the hotel unit can perform trend analysis and apply
budgetary control system
 In this, by using past records management can estimate the cost of job more
effectually
Disadvantages:
 Lack of standardization and highly expensive in nature
 In the inflationary period, comparison of job is not possible
Inventory or stock management: Tools and techniques of management accounting help in
maintaining enough inventory within the firm. As EOQ, JIT etc provides deeper insight to the firm

about the stock which they need to manage for offering effective services to the customers. Economic
order quantity method entails unit which needs to be ordered and managed within the firm for
ensuring smooth functioning. Thus, by using such method firm can maintain enough inventories and
would become able to meet the expectation and demand of customers on time.
Advantages:
 Such technique provides high level of assistance in controlling cost pertaining to
holding and ordering etc.
 By using inventory management system hotel unit can ensure smooth functioning of
operations and become able to provide customers with suitable products or services
on time.
Disadvantages:
 In some business unit, demand is seasonal so it is not possible for the manager to
make appropriate estimation of inventory.
 Requires skilled and trend personnel for stock evaluation
Price optimization: Through undertaking price optimization system firm can evaluate the views and
responses of customers in the best possible way. Moreover, different customers react in a varied
manner on different prices. Some peoples assume and compare quality of products with the price
level. On the other side, some customers are looking for the products or services that offer best quality
at affordable price level. In this way, by using such system firm can get the views of customers and
enables to set optimal price that contributes in the survival of firm.
Advantages:
 Provides high level of assistance in predicting net claims and other costs for
customers.
 Helps in doing competitive management analysis and aid in profit planning
(Ramanathan, 2014)
 Such integrated model assists in predicting volume and price, identifying best prices
and the impact of same
Disadvantages:
Price optimization model requires deeper assessment so it is considered as time consuming process.
Along with this, for indulging and using such mode in the best possible way firm has to organize
training session which in turn imposes high cost.
Application of management accounting: In the context of Qbic, management accounting tools and
techniques are highly significant which in turn helps in firm in building as well as sustaining
competitive position over others. By using cost report, firm can determine per unit expenditure and
take pricing decision (Ward, 2012). In addition to this, stock management technique assists business

unit in providing customers with suitable services as per their requirements. In addition to this,
application of price optimization system ob
Sincerely
Management Accountant
P2 Giving information to the manager about the significance and need of different
managerial reports
To
Management Team
Qbic hotel
Date: 1st December 2017
Subject: Management accounting reports
Introduction: As per the requirements of management team, in this, need and types of managerial
reports have been discussed. Along with this, its use or application in the context of Qbic hotel has
also discussed which in turn contributes in the organizational goals.
Main body
Managerial reports and preparation needs
Managerial reports include information about the internal operations and give input to the firm for
decision making. By using managerial reports manager of hotel unit can assess the area of business
unit where high cost is incurred as compared to the budgeted aspects. Thus, considering all such
aspects it can be presented that by undertaking managerial reports performance evaluation can be
done by manager more effectively. Hence, by making assessment of all such aspects manager can take
appropriate measure or action for enhancing performance.
Types of managerial reports
Cost report: Such report includes information about the material, labour, overhead and additional cost
related to the products or services. Cost report provides information about unit cost by dividing total
from the amount of product produced. Thus, cost report furnishes summarized information and allows
manager to do comparison of cost prices of goods with selling price. Hence, by undertaking cost
report manager can develop suitable plan and control profit margin.
Budget and performance report: Budget report lists all the revenues and expenditure associated with
the project. For achieving goals and objectives manager places high level of emphasis on preparation
and staying with the budgeted figures. In this, by using budget firm can assess the level of variances
whether it is positive or negative (Suomala, Lyly-Yrjänäinen and Lukka, 2014). Along with this,
budget report also entails the reasons behind the occurrence of deficiencies and indicates the action
that needs to be taken for improvement. Thus, such managerial report is highly significant that enables

management team in developing suitable framework for the near future.
Inventory and manufacturing report: Business unit prepares inventory report with the motive to
assess cost, wastage and availability. Hence, considering such report firm can identify the level of
control prominently. Along with this, availability and holding or storage cost level also helps firm in
making estimation about the order needs to be placed for inventory (Simons, 2013). Thus, by
evaluating such report and taking appropriate measure firm can reduce high inventory cost.
Accounts receivable report: Cash flow management is the main motives of firm because without
maintaining enough liquidity firm cannot meet day to day monetary requirements. Hence, receivable
reports entail information about whether debtors are able to make payment on time or not. In the
receivable reports, separate columns are made to evaluate the effectiveness of collection process.
Thus, by doing assessment of all such aspect firm can find out the problem takes place in monetary
collection from debtors. By considering or taking receivable report as base firm can take decision
whether there is a need to modify credit policies or not.
Application: All the above depicted managerial reports are highly applicable in the context of Qbic
hotel. By preparing such kind of reports manager can focus on the performance of business unit more
effectually. As budget report clearly indicates deficiencies and encourage in relation to taking suitable
measure on time. In addition to this, by making and evaluating receivable report hotel unit can
develop strategies for improving working capital. Further, inventory reports help in assessing the level
of wastage. Hence, by evaluating such report management can take action in relation to both stock
and cost control. Along with this, using cost report manager can assess the expenditure incurred for
serving each customer. Referring such aspect business unit can do profit planning and thereby attain
success.
Conclusion: In conclusion to this report, it can be presented that managerial reports help in preparing
suitable framework for the upcoming time period. Along with this, managerial report also provides
assistance in setting bonuses and incentive plans for the employees.
Sincerely
Management Accountant
P3 Determining cost and profit through undertaking absorption & marginal costing system
There are mainly two types of system that can be undertaken by Qbic for assessing
cost and profit margin are enumerated below:
 Marginal costing: It is the decision making technique that assists in ascertaining the
total cost of production. Under marginal costing method, variable cost is recognized

as product, whereas fixed cost is considered as periodical. In this, by calculating PV
ratio, business entity can measure profit margin. Such method is based on the
assumption that differences take place between closing and opening stock does not
have high level of influence on unit cost (Ramanathan, 2014). By using this, Qbic can
assess per unit contribution and become able to take further decision.
 Absorption costing: In this, total costs are apportioned to the respective centre in
order to calculate production related expenses. Under absorption costing method, both
fixed and variable costs are considered while making evaluation. Further, in this,
overhead costs are classified under the category of production, administration and
selling & distribution (Saladrigues and Tena, 2017). Along with this, from
assessment, it has identified that cost per unit is highly influences from the variances
which take place between the opening and closing stock. Absorption costing method
presents cost data in a conventional format and highlights net profit associated with
per unit.
Difference: Both such methods vary from each other on the basis of cost consideration. In
absorption costing system, manager considers both fixed and variable cost. Along with this,
both such costing methods also differ on the basis or aspects of inventory valuation.
Moreover, in marginal costing, inventories are valued or calculated at the variable cost of
production. In contrast to this, under absorption costing system inventories are computed on
the basis of total production cost. Thus, it is one the main reason due to which value of stock
is higher in absorption costing rather than marginal (Difference between Marginal and
Absorption Costing, 2017). Considering all such aspects, it can be said that absorption costing
system provides suitable or clear view of cost as well as profit margin. It apportioned all the
expenses on the basis of relative cost driver so it is considered as highly effectual over others.
Absorption costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: COGS 9480
production (700 * 15.8) 11060
Closing inventory (CI)
(100 * 15.8)
1580

Gross profit (GP) 11520
Less: Indirect expenses 1900
Variable sales overhead 600
Adm. expenses 700
Selling cost 600
Net profit (NP) 9620
Budgeted
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: Cost of goods sold 8800
production (600 * 16) 11200
Closing stock (150 * 16) 2400
Gross profit 6950
Less: indirect expenses 1650
Variable sales overhead 450
Administration cost 800
Selling cost 400
Net profit 5300
Marginal costing (Actual)
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 600) 21000
Less: COGS 6500
production (700 * 13) 7800
CI (100 * 13) 1300
Less: Variable sales
overhead
600
Contribution 13900
Less: fixed expenditure 3300
Production overhead 2000

Administration cost 700
Selling cost 600
Net profit 10600
Budgeted
Particulars Amoun
t (in £)
Amount (in £)
Sales revenue (35 * 450) 15750
Less: COGS 5850
production (600 * 13) 7800
Closing stock (150 * 13) 1950
Less: Variable sales
overhead
450
Contribution 9450
Less: fixed expenses 3000
Production overhead 1800
Administration cost 800
Selling cost 400
Net profit 6450
Interpretation: On the basis of cited case situation evaluation of both budgeted and
actual performance has done. By applying the tool or system of absorption costing it has
assessed that actual and budgeted profit margin accounts for £9620 & £5300 respectively.
The above depicted table shows that lower production cost and high revenue is one of the
main reasons behind the generation of higher profit margin. On the other side, in the context
of marginal costing method, budgeted and actual margin implies for £6450 & 10600
significantly. Hence, under marginal costing method, due to the consideration of only
variable cost profit margin is higher. Thus, Qbic hotel should use absorption costing system
which in turn helps in making appropriate estimation of cost as well as margin.
P4 Presenting planning tools that can be used by Qbic hotel
Budgeting is recognized as most effective planning tool that assists in developing
highly competent monetary framework. Now, without having suitable financial plan firm

cannot attain success and unable to make optimum use of resources. Budget implies for the
financial plan that contains estimated revenue and expenditure (Malmi, 2016). Thus, by
employing appropriate technique, out of several such as traditional and modern, Qbic can
manage performance in the best possible way. Along with this, suitable budgeting framework
enables manager of hotel unit in assessing deficiencies through making comparison of actual
performance in against to budgeted figures. Through making assessment of causes related
with deviations manager of Qbic can develop appropriate plan for upcoming time period.
Incremental budgeting: This is considered as traditional form of budgeting because
in this, by undertaking the previous year’s budget manager drafts the new one. As the name
implies, manager makes some increments in the past budget on the basis of estimation or
requirements. Such budget is based on the assumption that firm will perform similar activities
in the upcoming time period (Kaplan and Atkinson, 2015). Considering this, manager takes
previous year financial plan as a base for arriving at a new budget.
Advantages:
 Ease of preparation and execution is considered as main advantages of incremental
budgeting
 It saves times and does not demand for training session
Disadvantages:
 Incremental budgets subconsciously encourages higher spending
 Sometimes, it may cause of high deviations which in turn negatively affects employee
motivation.
Activity based budgeting: Such kind of budgets is prepared by the manager through
considering overhead expenses. In this, to develop or formulate current year budget manager
considers cost driver. Thus, by deeply analyzing and doing research resources are allocated
by the firm to an activity. In this manner, by using such modern tool Qbic can prepare and
become able to respond monetary problems.
Advantages:
 Competitive advantage: ABB technique enables firm to control cost and offer
products or services at low cost in comparison to the competitors (Activity based

budgeting, 2017). In this way, by providing customer with the products at suitable
price firm can gain competitive edge over others.
 Evaluation: As per ABB, overheads are allocated on the basis of relative cost driver.
Thus, it helps in eliminating irrelevant and unnecessary activities from the business
and thereby maximizes return.
Disadvantages:
 Requires deeper understanding: For developing budget according to ABB concerned
authority requires deeper understanding pertaining to various functional areas. Thus,
if manager was not capable enough to understand and evaluate the areas then it may
result into inaccurate budgeting framework.
 High resource consumption: Under ABB, management team has to devote more time
in conducting numerous analysis. Thus, such time consuming process closely
influences the operational performance and returns.
Zero based budgeting: On the basis of such technique, to arrive at new year’s budget firm
considers zero base. In this, manager makes assessment of each activity that needs to the
performed within the year. Along with this, considering such modern technique, manager
makes best possible efforts in retail to assessing optimal ways of performing activities that
save cost. Thus, ZBB is highly suitable technique in the modern era that manager needs to
consider for budget preparation.
Advantages:
 Efficiency: ZBB improves the efficiency of operations through facilitating accurate
and effectual allocation of resources.
 Coordination and communication: It helps in building and maintaining effective
coordination sand communication within the department. As, in this, employees are
involved by the firm while taking decision and setting budget (Understanding Zero
based budgeting, 2017). Thus, ZBB helps in raising the motivational aspect of
personnel as well as productivity & profitability.
 Reduction in undesirable activities: In this, emphasis is laid by the manager on
identifying cost effective ways of performing activities. This in turn helps Qbic in
removing unproductive activities and thereby improves margin.
Disadvantages:

 Requirement of high manpower: In this, for setting budgeting framework
requirement of the large number of employees are required. Thus, sometimes all the
departments may not have adequate time and human resources for such purpose.
 Lack of expertise: In this, manager has to justify each expense and revenue which is
highly difficult. For this, manager has to conduct training session for personnel which
in turn impose cost.
Responsibility budgeting: In accordance with such technique, by developing several
responsibility centre’s such as sales and profit etc firm can exert control on cost. As per
responsibility budgeting technique, manager delegates role and responsibility among the
individuals. All the higher authorities of such centres are involved in the decision making
process and motives to achieve the target or goals (Fullerton, Kennedy and Widener, 2014).
Further, under responsibility budgeting, management ask questions from the concerned
managers and takes action for the improvements.
Advantages:
 Facilitates sound mechanism for control
 Such budgeting tool enhances the interest as well as awareness of officers and
encourages them to achieve actual standards. Moreover, on the identification of
deviations managers are called upon for the work they are responsible.
Disadvantages:
 Responsibility budgeting consists for the traditional way of classification of expenses.
Thus, it is the subject of further analysis which is highly difficult.
 Time intensive process
Standard costing or variance analysis: It may be presented as a practice of showing
differences which take place between the expected and actual performance. On the basis of
such technique high level of emphasis is placed on recording variances. By undertaking such
costing technique, firm can measure performance and meanwhile become able to modify
existing strategic framework.
Advantages:
 It minimizes waste through detecting deviations and suggesting corrective measures

 Standard costing system encourages manager to do reappraisal of methods, material
and other techniques for performance management or reducing unfavourable
variances.
 Such technique enhances manager’s attention towards the areas or departments that
failed to perform activities as per predetermined plan (Advantages of Standard
Costing, 2017).
 Along with this, standard costing system provides basis for the incentive system and
helps in offering bonus to workers & supervisors.
Disadvantages:
 In this, manager or concerned authority needs to set some standards which in turn
prove to be costly for small business unit’s or organization.
 Under standard costing method, it is highly difficult for the firm to set benchmark in
relation to material, labour and overhead. Hence, inappropriate budget leads high
deviations and thereby affect performance.
P5 Comparing ways in which different MA tools assist in responding financial problems
From beginning to end, financial problems are the part of business and have
significant influence on operational aspects. In this, desired level of objectives can be attained
by Qbic only when manager has ability to deal with the same. Thus, by using or undertaking
MA tools and techniques manager of hotel can assess issues and through taking suitable
action on time can avoid the negative impact of financial problems.
 Financial governance: In accordance with such tool, for monitoring performance
strict rules, regulations and standards are setting down by the higher authorities
(Bhimani and et.al., 2013). Considering the same, Qbic can evaluate the performance
of each department and take action for improvement. As compare to other techniques,
financial governance is highly effectual which in turn helps in evaluating performance
in accordance with the organizational goals.
 Benchmarking: It may be served as a process which in turn helps in measuring
performance and taking strategic action. Now, for improving organizational sales and
profit margin company lays high level of emphasis on setting benchmarks. It
encourages manager or personnel to make their best efforts for achieving the same
(Benchmarking types, process, advantages and disadvantages, 2017). On the basis of
this technique, by doing evaluation of actual performance in against to the standards

Qbic can assess the department where strategic actions need to be undertaken for
improvement. However, as compared to KPI, such technique is not highly suitable
because if business unit fails to set appropriate benchmarks then it may result into
high deficiencies. Besides this, continuous evaluation also affects other productive
activities of manager negatively. Moreover, manager has to devote more time in such
process for assessing deviations, associated causes and taking corrective action.
 Key performance indicators (KPI’s): Both financial and non-financial KPI’s assist
business unit in measuring performance. Financial KPI’s include sales, profit,
expenses control etc (Coyne and et.al., 2010). In this context, by making evaluation
of firm’s performance in against to KPI’s Qbic can determine the extent to which
performance is improved over the time frame. Thus, it offers opportunity in relation to
identifying the need of developing strategic policy framework and thereby improves
performance.
CONCLUSION
By summing up this report, it can be concluded that for the purpose of effective
management and cost controlling MA needs to be employed. Besides this, it can be inferred
that by preparing managerial reports Qbic can monitor business performance. Along with
this, it has been articulated that hotel unit should consider full costing method rather than
absorption technique. It can be summarized from the report that Qbic should focus on
adopting modern budgeting tools and technique. Both ABB and ZBB are the most effectual
techniques that avoid the level of wastage and improve efficiency of operations. Further, it
can be stated that by using prominent tools such as benchmarking, financial governance and
KPI’s manager of hotel unit can cope with the financial issues more effectively.

REFERENCES
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performance: The incremental contribution of lean management accounting practices.
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Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
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Accounting Research. 31. pp.31-44.
Ramanathan, S., 2014. Accounting for Management: A Basic Text in Financial and
Management Accounting. Oxford University Press.
Saladrigues, R. and Tena, A., 2017. Cost accounting in Spanish and Catalan universities: Its
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Simons, R., 2013. Performance Measurement and Control Systems for Implementing Strategy
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Management Accounting Research. 25(4). pp.304-314.
Ward, K., 2012. Strategic management accounting. Routledge.
Online