Management Accounting for Nelson Hotel

This assignment delves into the importance of management accounting for organizations, focusing on how Nelson Hotel can utilize various tools to address financial challenges. It examines concepts like budgetary control, responsibility centers, benchmarking, key performance indicators (KPIs), and financial governance, illustrating their practical application in improving organizational efficiency and profitability.

MANAGEMENT ACCOUNTING
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Introduction
The process of management accounting enables an organization to prepare reports which gives
accurate and timely financial information to managers who are associated with short and long
term decisions. It also enables an organization to purse goal by measuring, communicating and
analyzing information (Agrawal and Cooper, 2017). Besides, organization carrying out proper
management helps in building positive variances and handles negative ones. The assignment will
be carried out on two identical scenarios. The scenario 1 will be presenting a report to general
manager from the management accounting officer. The other one will be presenting a report for
analyzing the issues that are related with accounting information function including budgetary
control and budgeting.
TASK 1:
LO1: To understand management accounting system
P1: Management accounting and different types of management accounting system
From: Management Accounting Officer,
To: General Manager of Nelson Hotel,
Sub: Management Accounting System.
Introduction: The particular task will give an understanding of management accounting and its
importance within an organization. The present assignment will be carried out by acting as
Management Accounting Officer who will be presenting a report to general management of
Nelson Hotel UK a medium sized enterprise. The company is not having more than 50
employees and the net turnover is not exceeding £500,000.
Management Accounting System: Baker et al. (2017) defined management accounting as a
system that collects financial data from an organization including sales data, changes in cost of
raw materials and inventory in order to change the information to analyze a report.
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Types of Management accounting system:
Figure 1: Types of Management accounting system
(Source: Self Created)
Cost accounting system: This is also called product costing system which is used within business
enterprise for estimating cost of products in order to analyze organization profitability. For
example, Nelson hotel need to know which services will help in earning more profit and which
are not and it can be done by estimating correct price of products. Kim et al. (2013) added that
cost allocation is a technique of cost accounting system that helps in incorporating departments
and several services given by the hotel enterprise. For example, cost of furniture, food items and
many more. Besides, job order costing is another technique that takes cost of manufacturing for
each department of the organization. Such process is appropriate for the business enterprise
which is associated with production of distinctive products. Hou et al. (2017) stated that, activity
based costing is associated with calculation of several activities that is carried out within an
organization.
Inventory Management Systems: It is an ongoing progression used for planning and tracking
inventory activities. The inventory items are always tagged with a bar code number to make it
identical from one another. In case of hospitality industry the same happens where the inventory
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items are brought to warehouse and the items are scanned by bar code. Hence, it becomes easier
for the business enterprise to figure out the products that are bought to the organization. With the
help of this system the business enterprise are able to carry out their operation in a systematic
manner. It also helps the business enterprise to stock goods in appropriate manner without any
kind of misplacement.
Price Optimization Models: Christensen et al. (2013) stated that price optimization model is a
mathematical process used in business enterprise to analyze the variation of changes in price
levels. Later the information is estimated for creating costs and inventory level with an
appropriate price cost. Such system can be used for implementing pricing and segments to target
right cost in order to attract right customers.
Job costing systems: It enables in collecting information and data that is associated with the
production or various range of services within the business enterprise. For example, Nelson hotel
gives various ranges of services including food and lodging where job costing system enables in
collecting data of each service.
M1
Benefits of management accounting system
Cost accounting
Advantages Disadvantages
 Cost reduction
 Helps in eliminating waste, loss and
inefficiencies
 Assists in price fixation
 It leads the issue of under and over-
absorption of overhead
 It presents suitable view of cost only
when full capacity is utilized.
Job costing
Advantages Disadvantages
 Helps in making estimation about cost
on the basis of past records
 Requires clerical work
 Highly expensive
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 Gives input for trend analysis and
budgetary control
P2 and D1: Different methods used for management accounting reporting
From: Management Accounting Officer
To: General Manager
Sub: Management Accounting Reports
Introduction: Here various methods that are usually used in management accounting reporting
will be discussed. Besides, the methods will be discussed in respect to the chosen organization
Nelson Hotel. Fuentes-Alabi et al. (2017) stared that management accounting is used for
planning, decision making and controlling. The management accountant of an organization
usually depends on normal financial statements such as balance sheet, cash flow statement,
income statement and other accounting reports that are used for interpreting and analyzing
company information. Hence, management accounting report enables small and medium sized
business to manage and monitor business performance. The methods used in management
accounting report are stated below:
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CostReports

Figure 2: Methods used in management accounting report
(Source: Self created)
Methods used in management accounting report:
Cost Reports: In the managerial accounting process the cost is calculated for the items that are
produced. It is carried out by considering the raw material cost, additional cost if any, overhead
and labor cost. In cash report the total of all particulars are divided with the amount of products
or services that are given. Hence, all the essential information is summarized in cost report. ()
added that with the help of this report the managers gets the ability to estimate the cost price of
the items and selling prices. Thereby, it allows the managers to get a helping hand in planning
and controlling profit margin (Håkansson and Olsen, 2015).
Budget Reports: Preparing business budget is a major element in managerial accounting system.
Every organization sets a budget in while planning business operation so that they do not fall in
shortfall in between business operation. Budgets are usually created by using present year’s
budget by estimating with the future budget. While preparing a budget report all the essential
source of revenues and expenses are noted. This allows in accomplishing organization goal in an
appropriate manner as they stay in a budgeted amount. For example, Nelson hotel can use this
report to maximize sales and minimize expenses as well as cost of operation. Besides, it can
itemize the costs such as staffing, food, maintenance, taxes furniture and other necessary
equipments (Vasilakos and Nagano, 2017). However, on the critical note, it can be depicted that
budget report sometimes present high deviations when manager failed to set appropriate
standards. In this, budget report leads inappropriate decision making and negatively affects
organizational growth.
Job Cost Reports: Here the expenses are shown for a particular project. In order to evaluate the
profitability of job the business enterprise can estimate the revenue beforehand. It is an effective
procedure that allows in identifying high areas of earning that can able the business to focus
instead of wasting money and time. For example, Nelson hotel uses this report to assess the
expenses included in giving internet services, buying kitchen items and items used for keeping
the hotel clean and hygienic.
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Performance Reports: McDonald (2013) stated that budget is used by management accountant
for comparing revenue and expenditure. In performance report the information regarding the
amounts are recorded for determining new budgets. Every year small and medium sized
enterprise calculates performance reports for creating monthly and quarterly report. It enables the
business manager to make effective planning for future demand. For example, in seasonal time
the hotel industry like Nelson hotel uses performance report to estimate the future demand which
will increase occasionally.
Accounts Receivable Aging Report: This is a significant report used for managing company’s
cash flow which widens customer’s credit. For example, Nelson hotel can use this report to find
organization problem. Sometimes problem are faced by them where customers fails in paying
their balance due to which they can tighten credit policies. Hence, the business can periodically
use this report to keep updated report of every department from overlooking old debts.
Inventory and Manufacturing: In order to make the manufacturing process more resourceful,
business enterprise can use this report to keep report of inventory waste, per-unit overhead cost
and labor hours cost. Hence, the manager of nelson hotel can use this report to compare different
departments and find the area that can improve their business performance (Messeghem et al.
2017). On the critical note, it can be presented that preparation and updation of stock report is
considered as highly time consuming process.
TASK 2:
LO2: To apply management accounting techniques
P3 and M2: Calculation of cost by using cost analysis techniques
i. Absorption Costing Method
Particulars Amount Amount
Sales
£
21,000.00
Less cost of production
Opening stock xx
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Direct materials
£
3,600.00
Direct labor
£
3,000.00
Variable production
overhead
£
1,200.00
Closing stock xx
Contribution
£
13,200.00
Less fixed cost
Production overhead
£
1,800.00
Administrative cost
£
800.00
Selling cost
£
400.00
Total profit and loss
£
10,200.00
ii. Marginal Costing Method
Particulars Amount Amount
Sales
£
21,000.00
Less cost of sales
Opening inventory xx
Variable cost of production
Direct materials
£
3,600.00
Direct labour
£
3,000.00
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Variable production
overhead
£
1,200.00
Fixed overhead absorbed
£
3,000.00
Less closing invetory xx
£
10,200.00
Under/over absorption
£
210.00
Gross profit
£
10,410.00
Less non production cost 400
Profit and loss
£
10,010.00
The differences between two management accounting techniques are stated below:
Marginal Costing Absorption Costing
It is also known as variable costing where the
decisions are taken for determining the total
cost of production or fixed and variable cost in
order to find out suitable process.
In this method the manufacturing expenses are
collected to cost for finding the total cost of
production
Here the movement in total cost is shown
which takes place due to additional unit of
output. In marginal costing variable cost is
taken as a cost of product and as a period cost
fixed cost is considered (Paradi and Zhu, 2013).
In this accounting technique both fixed and
variable costs are considered as product related
cost.
The overheads are classified as fixed and
variable cost
Here, administration, selling, production and
distribution are classified as overheads
The profitability is measured by using profit
volume ratio
Here profitability gets affected due to addition
of fixed cost
The cost per unit of output is not influenced in The cost is affected due to the variance
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variances in the opening and closing stock
The cost data is shown for outlining total
contribution of every product
The cost data is presented in conventional
manner
(Source: Sithole et al. 2017)
D2 Interpreting findings
Therefore, the management accounting officer can recommend the importance of two
management techniques for increasing profitability of Nelson Hotel. When the management
accounting will apply marginal cost it will help in finding profitability of each sales activity and
it will appear low under absorption cost.
TASK 3:
LO3: To use planning tools in management accounting
P4: Advantages and disadvantages of various planning tools used to control budget
Various planning tool that are used to control budget are financial control, operation
management, budgetary control, quality control and inventory control. By selecting appropriate
tool the business enterprise can enhance profitability and meet organization goals and standards.
Therefore, it becomes easier for the management accountant to forecast budget in an efficient
manner which able the business to monitor the resources that are required to run a business
operation. Such strategy enables the business to increase the revenue.
Financial System: The control system is used to control the financial resources like shareholders
investments and revenue that flow into the business enterprise. The technique is effective for the
managers in assessing the use of financial resources like cash, inventories, accounts receivable
and payable and long term debt. Moreover, such planning tool can help in achieving profitability
standards, liquidity and solvency (Stanley and Pamela, 2017).
Advantages:
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 It not only give the base to carry out present and future financial activities but also able to
check the actual performance. It enable in giving the manager a base for estimating future financial activities by guiding
the manager in an appropriate manner. The tool of financial control ensures that resources are used in an appropriate manner and
to make sure that financial discipline is proper within the organization. It gives financial stability by controlling productivity and increasing efficiency. Both
productivity and efficiency enables to enhance the earning.
Disadvantages:
 Instead of having advantages the financial control technique have disadvantages as they
have to compare standard performance with actual performance. It possesses difficulty in implementing control measures during business operation. The standards are set rigid by considering the parameters. During the performance of
actual job the conditions are not the same. Implementing financial control requires high cost.
Operating Budget: Khodaverdi (2017) stated operating budget as a statement which presents
organization financial plan during the planning of budget period. It also reflects several
operational activities such as expenses, revenue and profit budget. Through this budget the
organization can make effective planning for a specific period. The operating budgets are of
several types. It includes sales or revenue budget which only focuses on organization income for
receiving normal operation. In case of expenses budget anticipated expenses can be specified.
For example, Nelson hotel need to project the budget beforehand to pint out upcoming expenses
and revenue.
Advantages:
 It enable in keeping a track on the entire business such as the money spent or the income
earned. It helps the business to check that it is on track or the business it facing any
problem or not.
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 It able the business manager to take care of financial responsibilities as it indicates the
future opportunities by removing the threat. Hence, it allows the business to run
smoothly.
 Operating budget is effective when it has investing money where it able in making
suitable investment in the business. For example, if Nelson hotel want to include any
extra services in the accommodation for guests then the manager need to make accurate
budgeting of the cost needed for business operation.
 It is important for a business to address the variables as it include constant budgetary
requirement
Disadvantages:
 Due to the changes in financial information the business operation may fail in meeting
revenue projections. Hence, if the operational budget is not changes it will fail in
reflecting new income figure making the projection of budget inappropriate.
 If revenue and expenses are not estimated accurately the manager may face difficulty in
making new operating budget.
Static Budget: Here the expenses remain unchanged and several elements are composed as per
variation in sales levels.
Advantages:
 In static budget the cost is calculated by estimating the sales. It also able in determining
actual cost and revenue in order to make further budget for the company. Hence, in case
of medium enterprise like Nelson hotel to develop their budgetary system (Cooper et al.
2017).
 It also able in estimating the tax in much easy way. Hence, the company can pay tax on
quarterly basis for avoiding paying interest.
Disadvantages:
 This type of budgetary control system does not have any flexibility. Companies using
static budget fails in handling the changes caused in economic condition of the country.
 Difficulty is experienced in cross charging as it loose money as well as company share.
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Cash Flow Budget: This technique of controlling budget shows the amount received and paid
from the business operation with a particular time period. During the preparation of cash flow
budget various factors are considered like account receivable and payable. It allows the business
enterprise to determine that they are having excess capital or not. Nelson hotel can use cash flow
budgeting technique to assess the cost of new project or services they are going to implement.
Advantages:
 Business analyst uses this budgetary system for analyzing and interpreting financial
statement in order to maintain accuracy in the operation system
 The position of cash investment and the result is also determined.
 Future liquidity is also placed accurately which is helpful in finding the correct area of
investment in case of emergency like shortfall or excess money.
Disadvantages:
 The technique fails in showing the exact profit and loss. Thus, it becomes difficult to
take a position in the market place for determining competitive advantage.
M3
There are several planning tools which can be used by the business unit such as
budgetary control and responsibility centre. Budgetary control tool clearly indicates deficiencies
which take place between planned and actual figures. Hence, referring such results firm can take
strategic measure for improvement. However, unrealistic budgeting framework leads high
deviation and thereby inappropriate planning. On the other side, in the context of responsibility
centre, manager of each department gives input to the higher management and thereby facilitates
appropriate decision making.
LO4: To compare the use of management accounting
P5: Ways in which organizations are adapting management accounting systems
Granlund and Lukka (2016) stated that in management accounting, financial information are
used to make suitable changes in the organization. It provides effective feedback regarding
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efficiency and profitability which can help the business enterprise to find out opportunities and
solve the problematic areas. In order to be effective in the management accounting system the
business should keep a track in activities and information to make suitable response.
Financial problem can be assessed by using benchmarks as it will help the company to determine
the present performance by analyzing present and past performance. Key performance indicator
is also an effective tool to measure company’s effectiveness by achieving business objectives. It
involves in taking feedback to achieve business target and become profitable in the market place.
Kim et al. (2013) added that budgetary target can be set for identifying the problems and
variances.
The chosen organization, Nelson hotel can adapt management accounting systems by the
following ways to respond financial problem:
Quality Information: Fuentes-Alabi et al. (2017) stated that the managerial accounting system is
affected by quality as an organization contributes maximum time to maintain and create
accounting system for receiving accurate information. For responding to financial problem the
information regarding revenue, cost and sales need to be accurate for preparing income statement
and balance sheet.
Availability of resources: Though the business enterprise is having ample information yet it
cannot progress in solving financial problem if they lack in having financial resources in order to
make a strategic project successful. Hence, the operating manager needs to set limit for proper
utilization of resources within given time period to progress in future field. Vasilakos and
Nagano (2017) added that a successful accounting system also depends on having efficient
leaders within the company.
Timeliness of information: If the management accountant system is maintained effectively it will
make the business possible to stay away from unnecessary financial problems that are affecting
the business. For example: if Nelson hotel fails in collecting the necessary data within proper
time then it may affect in proving feedback and making effective planning. \
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D3
Along with this, there are several other management accounting tools that can be used by
business unit for responding monetary problems and leading organizational success such as:
 Benchmarking: On the basis of this, by comparing performance in against to the
benchmarks pertaining to profit, expenses etc firm can evaluate departmental
performance. Hence, it gives indication in relation to taking remedial measures on time
and thereby lead success.
 Key performance indicators: By setting key performance indicators regarding sales,
profit margin etc and comparing performance in against to the same business unit can
assess issue. Hence, identifying reasons behind the non-attainment of goals firm can take
suitable measure for improvement.
 Financial governance: manager of the firm can also deal with the issues prominently by
evaluating performance in against to the stringent rules and guidelines.
Conclusion
It can be concluded that every small and medium sized organization need to maintain
management accounting to measure organization performance. It enables in increasing business
efficiency and targets various departments in achieving the goal. In order to make the
management accounting reporting more appropriate in Nelson hotel different methods can be
used. Planning tools can be used by the business to strengthen their performance and increase
profitability.
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Reference List
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