TASK 11 P1 Benefits of Management Accounting System: 1 Management Accounting Reporting: 3 Different types of reports

Management Accounting INTRODUCTION 1 TASK 11 P1 Management Accounting System: 1 Management Accounting: 1 Management accounting system: 2 M1 Benefits of management accounting system 3 P2 Management Accounting Reporting: 3 Management accounting system: 3 Different types of reports4 TASK 25 P3 Appropriate costing techniques:5 Appropriate application of Marginal Costing 6 Appropriate application of Marginal Costing 8 M2 Application and interpretation of data:9 TASK 39 P4 Planning tools used by accountants to assess budgetary control

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management Accounting System:....................................................................................1
Management Accounting:..................................................................................................1
Management accounting system:.......................................................................................2
M1 Benefits of management accounting system....................................................................3
P2 Management Accounting Reporting:................................................................................3
Management accounting reporting:...................................................................................3
Different types of reports...................................................................................................4
TASK 2............................................................................................................................................5
P3 Appropriate costing techniques:........................................................................................5
Appropriate application of Marginal Costing.........................................................................6
Appropriate application of Marginal Costing.........................................................................8
M2 Application and interpretation of data:............................................................................9
TASK 3............................................................................................................................................9
P4 Planning tools used by budgetary control:........................................................................9
Budget:...............................................................................................................................9
Behavioural implications of budget:................................................................................10
Common Costing Systems:.............................................................................................10
External and Internal Analysis of Aston Martin:.............................................................11
M3 Analysis of different planning tools for preparing and forecasting budgets:.................12
TASK 4..........................................................................................................................................13
P5 Adaptation of management accounting in response to financial problems.....................13
Financial Problems:.........................................................................................................13
Comparison of different organizations in context with financial problems:...................14
Characteristics of management accountant:....................................................................14
M4 Analysis of management accounting techniques in leading sustainable success:........15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting which is also known as managerial accounting is a framework
that is basically used by the managers to maintain and control the internal affairs of an
organization. This is utilized for filtering the internal informations of the establishment and make
it valuable for the administration so that they can make effective decisions and control over the
functions of the firm.
This report covers a detailed description about management accounting in context with
the Aston Martin Lagonda Global Holding Plc which is an independent manufacturer company
of Britain established by Lionel Martin and Robert Bamford in 1913 and manufactures luxury
sport cars. It includes management accounting system and reporting, their benefits, cost
accounting system and techniques, planning tools for accounting and financial governance.
TASK 1
P1 Management Accounting System:
Management Accounting:
Management accounting is a set of so many activities such as collection, classification,
recording and presentation of financial and non-financial data in such a manner that internal
stakeholder such as managers can utilize this information in planning, operating, managing and
controlling the internal process of functioning in an efficient and effective manner.
Origin, role and principle of management accounting:
Managerial accounting was developed at the beginning of nineteenth century by the
business persons of large organizations who find it necessary to manage and control internal
operations in order to survive in the market. Management accounting plays a significant role in
cost reduction and control, profit maximization, price fixing, stock management, planning and
decision making for future operations (Jamil and others, 2015). It basically follows two major
principles that are principle if causality and principle of analogy.
Difference between management and financial accounting:
Management Accounting Financial Accounting
Management accounting provides sufficient
reports and informations to the internal
Financial accounting renders reports and
informations related to the funds which can be
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stakeholders such as managers and owners. utilized by external stakeholders.
This methods has no specific format or
standards to be followed (Theriou and
Aggelidis, 2014).
Financial accountant has to follow some
standards and reporting formats to prepare the
reports and documents.
Management accounting system:
Managerial accounting system is a framework used by the internal managers to provide
sufficient data and information that is required for management reporting system. Management
accounting system is created to identify, analyse and communicated the data within the
establishment. The management accountants of Aston Martin developed various management
accounting systems to assess the actual performance of the company that are described below:
Cost Accounting System: Costing system or cost accounting system is a framework that
is developed by the establishments to evaluate the cost of production, cost reduction, profitability
analysis and cost control. This system is followed by the selected organization in order to
evaluate detailed information of cost of production of their cars and other services. It also help in
measuring the financial performance of the company.
Inventory management system: Inventory management system is evolved within the
organizations to monitor and control the purchase, usage and storage of the items or components
which are required for the production. The administration of Aston Martin follow this system to
oversee the production from purchase of raw material to availability of finished goods. The
management is also ensures the quality of the cars and effective shipping to the customers.
Job order costing system: Job order costing refers to the structure for assigning
manufacturing cost to specific batch of the products or item. This system involves the practise of
data accumulation on the costs that are related to a particular job or product. The respective firm
uses this system to evaluate the cost of direct labour, direct material and overheads. It also
provide help in calculating the cost of customised cars (Tappura and others, 2015).
Price optimization system: Price optimization system is a mathematical analysis that is
used to determine the reaction or behaviour of the customers in relation to the different prices for
the business offerings. The management of Aston Martin applies this techniques to calculate the
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optimum price for its cars and other products and generate the desired profit with maximum
customer satisfaction.
M1 Benefits of management accounting system
Accounting Systems Benefits
Cost Accounting
System
 This accounting system helps in cost control, inventory analysis
and profitability analysis.
 The selected firm can utilise this system for appropriate
allocation of cost centres.
Inventory
Management System
 This system helps in reducing the order and carrying cost, saves
time and space (Adams and others, 2016).
 Aston Martin Plc can create a satisfied customer base with
utilization of inventory management system.
Job Order Costing
System
 Cost of the specific or customised products can be calculated
easily with the help of this system.
 The company can evaluate the performance of the workers
involved within an specific job.
Price Optimisation
System
 Desired profit can be generated for the company with the help of
this system.
 The establishment can provide better customer satisfaction to its
customers as it provides prices according to the customers'
reactions.
P2 Management Accounting Reporting:
Management accounting reporting:
Managerial accounting reporting is a process of collecting data and information and
analysing it for assessing the productivity and efficiency of the entire organization. Performance
of the various departments and employees of the company can be evaluated with the help of
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these reports. An effective accounting reporting and information system should contain some
characteristics that are mentioned below:
Relevance: The information renders by the reporting system should be relevant to its
users. It means it should include all the materialistic data and content within it.
Trustworthy: The data in the reports must be updated and reliable so that managers can
make plans and decisions according to the current situations confidently (Klychova and others,
2014).
Accuracy: The data included in the reporting system must be accurate without any
mistakes and errors so that estimations can be calculated in the most effective manner.
Different types of reports
Performance Report: Performance reports are the evaluation of productivity and
efficiency of any individual or activity. These reports helps the mangers in planning for future
requirements in production (Melloni, 2015). The managerial accountant of selected organization
prepares this report on a quarterly basis to evaluate and comparing actual performance of the
employees to the budgeted figures.
Budget Report: All the organizations prepared budgets for different departments at the
beginning of the financial period. These budgets are compared with the actual outcomes at the
end of the accounting period. The variances and the reasons behind them are mentioned within
the budget reports. Aston Martin creates budget reports to find out the deviations and rectify
them accordingly.
Cost report: Managerial accounting system calculates the cost of manufacturing. The cost
of raw material, labour cost and other overheads are summarised in the cost reports. This report
allows the managers the ability to calculate the cost value of products and selling prices. The
management of Aston Martin prepares this cost report for each production to control and plan for
profit margins.
Accounts Ageing report: Accounts ageing report is a summary of receipts that are due
from the customers' side. This reports include all the information about trade debtors and all the
receivables, due dates and interest over the dues (Armitage, Webb and Glynn, 2016). The
management team of Aston Martin create this report on a regular basis so that it can review its
credit policies and increase the debtor turnover ratio. It helps in collecting the credits on time.
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TASK 2
P3 Appropriate costing techniques:
Cost: Cost can be defined as the amount that is incurred by the manufacturer in the entire
process of the sale of the products or services. The amount paid for raw material, labour cost,
other overheads such as administrative expenses, selling expenses, etc. are the costs for Aston
Martin that can be divided into such categories:
Direct cost: Direct cost is the type of cost that can be linked to the products directly.
These cost shows direct impact over the cost of the products such as labour cost, material cost,
machine hours, etc.
Indirect cost: The costs that are not directly accountable or assigned to a cost centre or
object are called indirect costs such as administration cost, security cost, personnel salary, etc.
Fixed cost: Fixed costs are those costs which do not increase or decrease with the change
in production level. These are the charges that company have to pay whether production is zero.
Variable cost: Variables costs as the name defines are the costs that fluctuate with the
change in the production level. Cost of raw material, packaging charges are the example of
variable costs (Laviana and others, 2016).
Cost Analysis: Cost analysis can be referred as to the evaluation of cost- output
relationship. This analysis method is used by the Aston Martin to assess the benefits of several
activities which are performed by the company to generate profit. Cost analysis is crucial for the
company to evaluate the cost of its products in context with other substitute products available in
the market.
Cost Volume profit: The analysis of cost volume profit is a method that evaluate the
impact of various level of costs and volumes over the operating profit of the firm. Aston Martin
use this break even analysis to find out the maximum level of production along with maximum
profitability.
Flexible Budgeting: Flexible budget is a type of budget that flex or adjust with the
changes in level or activity of the production. The management of the selected firm prepared
flexible budget to calculate the deviation among various level of production.
Cost Variance: Cost variance is the difference between estimated or standard costs and
actual costs. Aston Martin use this method to find out the reasons behind the variance and rectify
them accordingly (Kaunang and Walandouw, 2015).
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Marginal costing: Marginal costing is the method of calculating the cost in which all the
variable costs are set off from the cost units and all fixed costs are fully written off against the
contribution for accounting period.
Appropriate application of Marginal Costing
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Absorption Costing: This method of costing includes all the manufacturing costs and set
them off against cost units which means it includes variable as well as fixed manufacturing cost
in the calculation of cost of production.
Appropriate application of Marginal Costing
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Working note
Fixed costs 16000
Budgeted cost of production 80000 per units
Budgeted fixed cost 0.2
Variable cost per units 0.65
M2 Application and interpretation of data:
With the help of above prepared accounts according to marginal costing technique, only
variable cost are deducted from the overall sales gross profit or contribution is 23100 in the first
quarter and 25900 in the second quarter respectively. On the other hand, when accounts are
prepared according to the absorption costing technique, all the fixed and semi-variable
production or manufacturing overheads are also deducted from the overall sales value which
provide gross profit of 9900 in the first quarter and 11100 in the second quarter respectively. It is
clear that second method which is absorption costing presents a more clear presentation of cost
classification and provide appropriate cost tu their actual cost centres.
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TASK 3
P4 Planning tools used by budgetary control:
Budget:
Budget is an estimation of all the estimated revenues and expenditures that may take
place within a particular time period. It is prepared for various departments as well as for the
entire firm with the help of previous budgets and reports. Some of them are described below:
Capital Budget: Capital budget is created by the Aston Martin Plc in order to consist the
record and estimations for capital receipts and expenditures such as purchase or sale of fixed
assets, payments of loans and debentures,etc. This budget helps in making effective decisions
regarding huge capital investments.
Operating Budget: Operating budget is an estimated list of expected incomes and
expenses which are related to the regular transactions and operations for a specific time period.
An operating budget is created for providing plans and objectives that the business wants to
achieve (Yangyang and others, 2016).
Alternative methods of budget:
Zero-based Budget: This is a newly emerging method of preparing a budget that draws a
picture of upcoming incomes and expenses with taking any help from previous budgets and
estimations. It defines all the expenses from the beginning and justify all the increments in costs.
It helps in eliminating unrealistic and unnecessary costs.
Priority-based budget: This method of budgeting is basically a strategic plan that is
used to prioritise the activities that are crucial and should be performed before other activities.
This kind of budget can be used by the Aston Martin in order to reduce the costs and utilizing
company resources into high priority operations (Faraji, Maghari and Mirsepasi, 2015).
Behavioural implications of budget:
Budgetary Slack: Budgetary slack can be defined as a deliberate over estimation of
expenses or under estimation of revenues that provides a much better chance of cushioning or
padding to the managers. This kind of practise can take place into the establishment when a
numerous number of employees are involved in the process of budgeting and accounting.
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Positive Behaviour: Budget can bring positivity among the organizational people the
objectives of the individuals and the organization are found a perfect or near perfect match. Such
a budget that includes managers in the budget making process can motivate them to bring
excellence in the performance and productivity (Sabatini, Setyohadi and Purnomo, 2017).
Common Costing Systems:
Normal Costing: Normal costing method is the framework that uses real cost of
material, actual cost of labour and standard overhead costs in order to find out the cost of the
production. This costing method is followed by the Aston Martin because standard rates of the
material and other overheads are rarely fluctuate in the industry.
Standard Costing: This method of costing is used to find out the variances between
standard and actual costs. In this method, difference between actual and standard rates per unit is
calculated and then it is multiplied with actual number of production units to calculate the
variance (LI and LI, 2014).
Process Costing: Process costing method is used where there is a bulk production of
same type of units take place and it is difficult to identify the cost of a particular unit. A luxury
products manufacturing company like Aston Martin does not need to use this costing method.
Batch Costing: This costing method can be explained as the bunch of costs incurred
when a group or batch of services or products is produced or rendered that can not be determined
to particular product or service.
External and Internal Analysis of Aston Martin:
PEST Analysis:PEST analysis is a method of evaluating the impact of external
environmental factors on the performance and operations of an organization. These impacts may
be adverse or favourable. A short PEST analysis of Aston Martin is given below:
Political Factors: These are the elements which are related to the governmental policies,
regulations and relationship with political influences. Subsidies and grants provided by the
government support the Aston Martin to increase its business but civil society groups influence
the business adversely in some sense.
Economical Factors: Factors related to the economy of the particular nation such as
growth rate, GDP, disposable income level, inflation rate also affect the business. For example,
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high employment rate positively affect the selected firm's business as it provide more customers
but at the same time it increase the cost of hiring skilled and professional people.
Social Factors: The culture, religion, gender ratio, education level, beliefs, attitude,
power structure, leisure level, health and safety of the population in an economy also have
impact over business. In case of Aston Martin, the people of UK are fond of leisure and luxury
which is good for the sale of luxury cars but recession can impact the sale adversely.
Technological Factors: Today's world is the world of technology and implementation
and usages of modern technology affects the business. The cost of new technology, cost of
production and trade, depreciation are all of the technological factors that impact the revenue of
any establishment (Naheem, 2017). The Aston Martin is already using latest technology in
manufacturing but it has to invest more in research and development section.
SWOT Analysis:
Strengths Weaknesses
 Aston Martin has a strong goodwill
within the industry with well known
brand name since 1913.
 The sports cars manufactured by the
company are of very good quality with
heavy-duty manufacturing.
 The company provides luxury sports
car and the market for the products is
very less.
 The models and product range provided
by the company are very few.
Customers have small selection range.
Opportunities Threats
 Currently the company is serving in
several countries. It can provide its
availability worldwide.
 Company can widen its products range
and provide regularly usable products.
 The prices of the fuel and petroleum is
increasing rapidly that is reducing sale.
 The company is facing huge
competition from other companies such
as Porsche, Bentley, etc.
Balance Scorecard:The balanced scorecard can be defined as a strategic management
and planning system for an organization that is used to communicate the goals into the entire
company, implement day-to-day strategies with job classification, provide priorities to projects
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and monitor and control the progress of the task (Supriati, Aryani and Maesaroh, 2017). The
Balanced scorecard divided the performance of the organization into Four major parts that are:
Financial: The management have to measure the financial performance and ensure the
effective use of resources on a regular basis.
Stakeholders: This part evaluate the performance of the Aston Martin from the customer
perspective and try to provide the sufficient profit to the customers and other stakeholders.
Internal Process: The management of the selected firm has to evaluate the quality in the
process of production along with the growth of employees.
Organizational Capacity: The management is also liable to view the organizational
performance from the lenses of infrastructure, human capital, culture and technology.
M3 Analysis of different planning tools for preparing and forecasting budgets:
With the help of internal and external analysis tools such as balanced scorecard, PEST
analysis, etc., the management accountants are capable to evaluate the strengths and weaknesses
of the organization and can effectively apply various planning tools such as capital and operating
budget which helps the management in planning for day-to-day as well as capital transactions.
Cost accounting techniques such as standard costing, normal costing, batch costing, etc. helps in
evaluating and controlling the cost according to the budgeted plans and providing positive
behavioural implications of budgetary control and planning tools.
TASK 4
P5 Adaptation of management accounting in response to financial problems
Financial Problems:
Financial problem or financial pressure is the situation faced by all the business
organisation where required finances for conducting business operations are not appropriate.
This situation in business gives negative impact to owners and managers together with
employees for not achieving the desired objectives. As Aston Martin is a brand for luxury cars
the fulfilment of financial requirement will always be their primary concern. When financial
stress arises in business managers uses various tools and policies that helps in resolving these
issues. Some of the financial problems faced by Aston Martin are as-
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High investment in research and development: As this is one of the premium brand for
launching luxury cars huge funds are invested for research and development purposes. In the
recent times it can be seen that due to change in business environment there is high requirement
to make investment for innovation purposes. This innovation needs research and for which
unplanned expenses needs to be spend and crises for finance rises in the business.
Increased marketing cost: Marketing is the mantra of success in the new age era of
business and this is clearly analysed by marketing department of Aston Martin organisation.
Implementing new and expensive marketing techniques will increase expenses and leads to
financial crises.
To resolve the following financial issues and providing them with appropriate solutions
are some of the techniques that will be used by Aston Martin are specified as under-
Key Performance Indicators (KIP): It is termed as a measurement tool that helps
business organisations to identify their key performance indicator that will help in tracking
critical factors crucial for success of an organisation. An effective marketing will be termed as
the key performance indicator for Aston Martin. As investing for innovation is not a regular
expense and needs to be made in long run.
Benchmarking: When performance of one organisation is measured in comparison to
best organisation dealing in the same industry. This benchmarking system will help Aston Martin
organisation in identifying the reasons for loosing their financial stability more in comparison to
others dealing in same industry. On the basis of the reasons for variations required changes will
be made to minimise the variation gap (Benchmarking, 2019).
Budgetary target: A budget target is the estimation of amount that will be received and
paid in a particular time period. Estimation of budgets helps in setting financial targets and all
the activities of Aston Martin will be performed to achieve the targeted financial position and for
resolving various financial issues. This will also served as base for financial planning in future.
Financial Governance: Effective financial governance includes collecting, monitoring
and managing financial information in the most profitable manner for achieving business
objectives. All the financial translations are tracked to manage and control the data and to
provide relevant information to financial managers. In Aston Martin organisation a strict
monitoring will be made on the expenses made for marketing and innovation. Financial records
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will be maintained effectively to bring a way out in the situation of financial crises (Financial
Governance, 2019).
Comparison of different organizations in context with financial problems:
Aston Martin Plc Rolls Royce Plc
The organization is applying price optimization
system in order to set an effective price policy
for its sports cars that helps the management to
cope up with the problem of increased
marketing cost.
The company is using cost accounting system
to track the records of all the costs related to
the production and eliminate the unrealistic
costs during production.
With the help of financial governance,
company is capable to follow all the standards
which help it to sort out the problem of late
payments from its customers.
Rolls Royce is using the financial governance
in order to apply the standards and ensuring the
availability of the funds so that sudden
expenses can not be a burden on the budgets.
Characteristics of management accountant:
 An effective managerial accountant must contain the capability of accurate predictions
and preparing the strategies to evaluate difficult circumstance and ability to cope up with
the difficulties.
 The impressive management accountant must have the skills of making effective
decisions in order to face the crucial situations and understand the view and expectations
of the owners and upper management.
M4 Analysis of management accounting techniques in leading sustainable success:
In a changing and competitive environment, every organization has to face financial
problems once in a while but but with the help of an effective management accountant, company
can be already prepared for defeating all financial problems such as increased market cost, cost
of R&D, unexpected overheads, etc. All the characteristics of a management accountant helps
the management in applying standards and techniques such as benchmarking, KPI, Budgetary
targets, etc. and following financial governance which is compulsory to resolve the financial
problems and attain a sustainable organizational success.
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CONCLUSION
With the help of above report, it can be concluded that having an effective management
system is as important as efficient administration for an organization. Implementation of
management accounting system provides reliable and updated information to the managers to
create impressive accounting reports. These reports are necessary to evaluate and control the
productivity of the establishment.
It also can be concluded that effective costing system and budgetary control help the
management in identifying financial problems of the company that can be solved with the help of
various planning tools such as benchmarking, KPI, budgetary target and financial governance. A
professional managerial accountant is capable to provide help in cost control, price optimisation
and maximization of profit and increase the productivity of the entire organization.
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Online:
Benchmarking, 2019. [Online] Available through
<http://www.businessdictionary.com/definition/benchmarking.html>
Financial Governance, 2019. [Online] Available through
<https://www.perpetual.com.au/impact-newsletter/what-is-the-role-of-financial-
governance>
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