Management Accounting and Reporting Practices

This assignment delves into the world of management accounting and reporting. It examines core concepts such as budgetary control and the role of financial statements in informing strategic decisions. The importance of integrating risk management within reporting frameworks is also explored, emphasizing the interconnectedness of these elements in driving organizational success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and essential requirements of different types of management
accounting systems......................................................................................................................1
P2 Various methods used for management accounting reporting ..............................................3
TASK 2............................................................................................................................................6
P3 Calculate of costs by using appropriate techniques of cost analysis for formulating an
income statement using marginal and absorption costs..............................................................6
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of different types of planning tools used for budgetary
control.........................................................................................................................................9
P5 Ways through organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management can be stated as a process in which there are certain guidelines which are
being utilised by the managers in order to monitor accounting of data so that decision-making
process can be much more effective. There are various steps and plans which are being involved
in the process of management accounting (Management accounting, 2017.). This process is
highly involved in gaining proficiency while creating reports regarding finance for supporting
the management. Company chosen for this report is Bizdaq which was established in the year
2015 and since then, they have been dealing in sales projects. Moreover, company’s turnover is
approx. £100,000 and it compiles of less than 50 staff members. There are certain things which
are being discussed in this report like understanding of management accounting systems and
implementation of management accounting techniques. Apart from that, there are various tools
which are being utilised planning techniques in management accounting so that aims and
objectives can be attained in effective manner of firm.
TASK 1
P1. Management accounting and essential requirements of different types of management
accounting systems
Management accounting system can be stated as a process in which motivation is being
provided to employees so that they can be involved in the decision making process. This kind of
process is highly essential and beneficial for the leaders as support is being provided to them
while planning and performance management system. While making financial reports, expertise
is being required in management accounting system.
Below shown is the diagram which explains various kinds of management accounting
systems:
 Inventory Management System: In this kind of management accounting system, the
main focus is on dealing with raw materials, methodologies and finished goods and thus,
they are being used in process of production by an organisation. There is high need of
managing the stock and therefore, various kinds of stock management software tools are
needed so that measurement can be taken of level of stock, number of orders as well as
sales and delivery of products (Armstrong and Taylor, 2014). This kind of software is
needed the manufacturing firms so that their process can be controlled for obtaining
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maximum amount of output within limited input material. This kind of process can be
adopted by Bizdaq so that they can control and measure their inventory level and thus,
eliminate wastage of necessary resources. This in turn can help company to enhance their
net worth by using their limited resources at optimum level in order to gain maximum
profitability. This factors should be known by Bizdaq so that by this techniques they can
enhance the productivity.
 Price Optimisation: In this kind of technique, company mainly calculates the price of
product by applying various mathematical applications like linear equations, sensitivity
analysis and method of graphs. This is highly essential for a company that is working on
a large scale and needs to manage the various kinds of data so that required modifications
can be made through this in products and services. Besides this, management accounting
approaches mainly focus on optimum level of cost at which a company can earn desired
amount of profits (Assaf, Josiassen and Cvelbar, 2012). Many organisations are still
struggling and finding ways through which they can form proper price which can be
charged from vendor and customers. Therefore, suggestions can be provided for price
optimisation in which graph values can be provided so that demand curve can meet the
maximum profits. These kinds of methodologies can be utilised by Bizdaq so that
appropriate solution can be extracted in which the best price of products can be seen in
maximising profits and demand can also not get affected.
 Job Costing System: This kind of technique is highly essential for a company so that
manufacturing cost can be determined and measured. However, in this process, cost is
being ignored. Feasibility of data can be monitored and measured by any company that
adopt this kind of technique like job costing system which can also measure the cost of
particular job. This kind of technique is being mostly used in construction industry which
mainly deals in infrastructure and diversifies the cost which is being related to particular
construction project of company. This kind of methodology can be applied by Bizdaq in
which various kinds of jobs like direct labour, material. Moreover, there is overhead costs
which is being allocated among these kind of jobs. This type of technique can be applied
by cited organisation so that measurement can be taken of production and profit ratios
and thus a perfect job report can support Bizdaq in monitoring and calculating profits and
loss during a year (Bebbington, Unerman and O'Dwyer, 2014).
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 Cost Accounting System: This type of technique can be stated as product cots system. It
is highly essential for a company because it determines and describes the structure of
finance by calculating various costs incurred. Support is being provided to company in
setting up of estimates cost budgets for the very next financial year. It provides guidance
to company in choosing the best method of accounting for calculating cost of product and
profits. This kind of methodology can be applied to Bizdaq in order to make smooth
running for the entire financial year. Company should refer marginal costing and
absorption costing methods for evaluating and analysing net earnings during year. For
example: in the given scenario, the budgeted cost of production expense, administration
and selling cost were determined by this type of approach.
P2 Various methods used for management accounting reporting
This kind of management accounting report helps the process of business to determine
functions and operations of business. There is difference between management accounting and
financial accounting as they prepare reports for the internal company along with external
stakeholders. This has to be produced in periodically basis so that current status and financial
performance of company can be measured and monitored. The main role of management
accounting is to provide support to managers by providing them financial and statistical status on
time so that day to day operations can be conducted in a smooth manner along with short term
decisions (Bellandi, 2012). The reports which are being generated by management accounting
are highly confidential and only obtained for internal use which are in opposition to financial
accounting statements which are being reported in public.
Below is the diagram which will explain different types of methods used in Management
Accounting Reports:
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 Budget Report: This kind of report is highly essential for every business industry in
order to determine the current level of performance of company. This can be stated as
combination of various internal reports which are being utilised by management for
distinguishing between the actual level of performance with estimated hand made figures.
If the obtained results and values are more then the estimated figures then the condition
obtained can be stated as under budgeting. Besides this, if the estimates are more then the
actual results obtained then this situation can be stated as over budgeting. The main
motive behind formulating up if this report is that it provides support in analysing the gap
which was between estimated and actual performance of company (Bessis, 2011). This
can be applied within Bizdaq and its operations in finance in order to determine the
variations in estimated prices and actual figures of company. As more gaps states that
poor budgeting techniques which are adopted by company.
 Accounts Receivable Aging Report: This kind of report can be stated as periodic report
which mainly focus on receiving the account of an organisation within time limit which
can be considered as invoice outstanding. Apart from that utilisation of gauge in order to
determine the financial position of customers who are related to company. Applications
of accounts receivable ageing reports can be done by Bizdaq so that determination can be
done by minimum balance of amount which is being permitted on doubtful debts. Budget
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tools can be utilised by Bizdaq so that sales invoices can be sorted and thus better
position can be analysed (Bezhani, 2010).
 Job costs Reports: It can be stated as process in which cost can be clarified which are
directly related to particular work of business process. This kind of process is mainly
used by constructing companies and they mostly allocate the cost of individual project of
construction project. This kind of technique can be applied by Bizdaq by creating various
kind of categories through which fund can be utilised and sorting can be done regrading
activities who utilise more funds. Best example can be stated as production, selling and
distribution cost of Bizdaq.
 Inventory and manufacturing reports: This kind of management accounting mainly
consist of joining values of several stocks at three stages of productions and those are
manufacturing, whole-selling and retailing. It is highly needed by company as it consists
of sum of business sales at each three stages of production. This provide major benefits to
supervisors to maintain the management of stock, track the movement of products in
warehouse and list of several categories like items which are at hold and visible (Crippa
and et. al., 2010). This method should be applied by Bizdaq so resources can be
determined for integration of various kind of activities. Company can get support by this
report in counting cycle period and their deviation in data which is accessible on daily,
weekly and monthly purpose.
 Income statement report: This kind of management accounting system mainly is
utilised by financial authorities to identify and calculate the profit which is being earned
during the financial year which is usually march end. This in turn helps out company to
determine the performance level by comparing with current and previous year income
statements. This method can be applied by Bizdaq in order to determine the profit along
with expense statements (Van Greuning, Scott and Terblanche, 2011). Company could
also know how much outstanding expenses, arrears and payments are due and
unidentified resources from which the left payment can be recovered in future time.
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TASK 2
P3 Calculate of costs by using appropriate techniques of cost analysis for
formulating an income statement using marginal and absorption costs
The main focus area of management accounting is on formulating
accurate reports and most essential element of the report is cost. Better
results can be obtained by using proper cost approach.
Marginal Costing: The main focus area is on incurring of extra
expenditure which company during extra generation of products and
services. The main focus of slim form of cost is on variable cost, if reduction
is done on variable expenditure then the price of certain goods can be
minimised which are present in stores. Thin turn can provide benefit to the
organisation and its managers like it can help them in making effective
decision-making process of cost related to products then the marginal cost
of product can be either increased or the same price can be continued for
process but if the commodity is low in nature, then the item will be less sold
among consumers (Kerzner, 2013). While calculating at final terms, fixed cost
is being considered in this situation which is in final stage.
Absorption Costing: This can be stated as traditional method in
which cost is being calculated. This kind of method can also be called full
costing method. The major benefit of utilising this kind of approach is that
shows the right path as it involves all the expenses which are incurred by
company. There are various kind of elements which are being included like
directly material, labour and upper (Laegreid and Christensen, 2013). There is no
kind of fluctuation in the fixed cost in this kind of method and certain price
is being allotted to every unit and if the cost is being added to final and total
amount in manufacturing then it all goes in marginal costs.
In order to calculate the absorption cost, conversion is being needed
in fixed overhead costs as per unit cost of production. Cost of standard
production is calculated through adding all per unit costs of production.
Below is the difference between Marginal costs and Absorption costs:
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Basis for comparison Marginal Costing Absorption Costing
Meaning In this kind of accounting
system deduction is being
done on variable overheads on
per unit cost on single product
along with the fixed cost to get
total net income from the
company.
In absorption of costing, cost
of production is being
calculated with indirect
expenses or overhead as well
as on the direct cost is being
done.
Cost Identification In this kind of method,
production cost comes under
variable cost and they are
considered as a permanent cost
(Lam, 2014).
In this approach, both fixed
and variable costs are being
considered as final costs of
product.
Costing & Inventory valuation Variable costs is being
considered.
Both fixed and variable cost is
being considered.
Treatment of fixed overhead In this kind of techniques,
period cost can be stated as
fixed costs and profitability of
various kind of products is
being judged by volume ratio.
Here, it is fixed cost is being
charged against the cost of
production. By appointing
fixed overheads, every product
has to share the fixed costs
among various sections.
Unit cost of production No impact is there by
difference on opening stock
and closing stock.
It is being affected by the unit
cost of production because it is
directly related to fixed
overheads.
Lucrativeness Calculation is being done of
profitability in marginal
costing through cost volume
analysis.
Profit ratio gets affected by
deduction in fixed costs.
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High spot In this techniques, contribution
per unit is high spot.
High spot so this type of
technique is gross and net
profit and both are calculated
from net cost of various
sections (Laudon and Laudon,
2016).
Categorization of Expenses Classification is being done of
costs into variable and fixed in
marginal costing.
Different classification is being
done for production in order to
find out gross profit and selling
cost to find net profit.
Cost Collection Gathering of cost is being
outlined by total contribution
of each and every product.
Cost is being collected by
customary way to show the
data cost.
Below is the calculation of Income statement through Marginal costing and Absorption costing
techniques:
Net profit calculation on the basis of marginal costing
Per unit price(£) No. of units Amount(£)
Amou
nt(£)
Sales revenue 35 600 21000
Less: Marginal cost
Opening Inventory Nil
Total Variable production cost 14 700 9800
Less: Closing Inventory 14 -100 -1400
8400
Contribution 12600
Less: Fixed overhead
Production overhead -2000
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Administration cost -700
Selling cost -600
-3300
Net Profit 9300
Direct materials 6
Direct labour 5
Variable production Overhead 2
Variable sales overhead 1
Total Variable production cost 14
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Net profit on the basis of Absorption costing
Per unit price(£) No. of units Amount(£)
Amount
(£)
Sales revenue 35 600 21000
Less: Cost of Production
Opening Stock Nil
Cost of goods Produced(700*16) -16 700 -11200
Less: Closing Stock(100*16) -16 100 -1600
-9600
Gross Profit 11400
Less: Selling and Administration cost
Selling and Administration cost per
unit(1300/600) -2 600 -1200
Sales Overhead -1 600 -600
-1800
Net Profit 9600
Closing stock = (Production cost –
Actual sales) * 16 (700-600)*16 1600
Cost of goods produced:
direct M + direct L + VP overhead +
(overhead/700)
£6 + £5 + £2 + £3
£16
Interpretation: from the above elements, it can be stated that various costing methods can be
adopted for net profit calculation by Bizdaq due to the dependency of profit which is based on
total cost per unit of production. This kind of methodologies shows appropriate calculations and
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Bizdaq being a small business enterprise can attain the profit through absorption of costing
method which is £9600, it is £300 more than that of marginal cost method.
TASK 3
P4 Advantages and disadvantages of different types of planning tools used
for budgetary control
Budget control can be stated as process in which the current income
and expenses are compared with planned income and spending (Budgetary
control, 2017). This is basically applied when a big project is in process or
there are some modifications which needs to be made in order to make
profit. There are various kinds of tools which are being used and they are
defined as below:
Incremental cost Approach: This kind of budget mainly uses current budget of company and add
on few percent to the value of mark up which is also called increment so that new budget can be
gained (Malz and Lührmann, 2012). This can be utilised by companies who has need to
eliminate overall wastage in process of production. In this kind of approach, Sunk cost is usually
ignored and the main focus is on changes up in cost by possible options presence in possible
options available.
Advantages Disadvantages
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It can be utilised in ease manner as they are
being prepared in systematic manner.
Accurate value is not being showed up of
estimated budget of firm.
The cost incurred on preparation of certain
budget approach is being lower.
This can be stated as rigid in nature as
modifications are hard to make after making
budgets.
This kind of approach is easy in
understanding by every person.
Demotivation can be seen within employees,
as the budget does not allot any kind of share
in incentives for cost reduction, improvement
of product and efforts of employees.
Support is being provided in eliminating
conflicts between various staff members of
department and that can be done through
allocating equal amount to each of them.
 Zero-based Budgeting: It can be stated as method which gives people a budget for their
personal and home expenses but also it can be utilised for business budgets. Certain
advantages and disadvantages are as follows:
Advantages Disadvantages
Effective allocation of funds and other
resources are conducted.
It can be stated as complex process and
struggle is being done by managers in order to
do accounting accurately in this approach.
It provides support to the management in order
to adopt cost reduction methods.
Appropriate training is being required for
employees and managers for application of
such budget.
All wastages are being determined in activities
and thus certain steps eliminate the waste
(Taschner, 2012).
For large scale organisation, this kind of
budget is not suitable and due to complexity of
data and critical details needs for utilising
data.
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The budget have potential of raising conflict
situations between labours and top
management, as under budget may raise the
needs of job reducing or salary deduction.
 Activity-based approach: This kind of method will attain maximum transparency after
the budget is being ready and the profits will be prepared with the help of research
practice (Melloni, 2015). Various advantages and disadvantages are discussed below:
Advantages Disadvantages
It can be easily understood by managers. It could be misrepresented by managers in
ease manner.
Approach can be much more effective if
utilisation of cost per unit is being done
instead of total cost.
Applying this type of approach is not esay top
conduct and thus it is needed lots of sensitivity
analysis.
P5 Ways through organisations are adapting management accounting systems to respond to
financial problems
Management accounting tools supports the management in determining data which is
related to solutions to financial problems of company. Below described are the issues which are
being faced by Bizdaq:
 Profitability: Major financial is being faced by company which is main reason why the
cost are increased. Apart from that, various sources are not being used to reduce the
production cost. This problem can be solved by Bizdaq by adopting zero based costing
approach. This type of method can provide support to company by diversifying expenses
on the basis of particular time period.
 Price-Maximisation: There is a major issue which is being faced by company and that is
low price and due to that profit is not being improved. This type of issue can be resolved
by adopting price optimization method as this method will allow them to measure actual
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cost of certain events and thus manager can decide margin of profit for identifying the
value of product (Palermo, 2011).
 Performance and Controls: This kind of issue can hamper the whole process of
business due to low level performance and uncontrollable expenses and thus huge loss in
future. This kind of issue regarding poor level of performance can be resolved effectively
by Bizdaq and thus this kind of techniques will provide effective guidelines for resolving
the issues.
 Cost Efficiency: Bizdaq is dealing with problem of differences between technical
opportunities and financial resources and it can even stated as cost efficiency. By the help
of activity based approach, company can effectively manage their funds with proper
research methods on the available opportunities (Pérez and del Bosque, 2014).
Following are some other techniques of management accounting:
Key performance Indicators: this is also known as KPI which have potential to set up the
targets and later make effective report so that performance level of employee and company can
be obtained.
Benchmarking: this cane be stated as process through which standards of one company is being
measured and compared with another company in order to know the current position in
marketplace (Said Mokhtar and Mellett, 2013).
Financial Governance: If an organisation will predate the rules which are related to accounting
and honourable standards then it will enhance their brand image and it aid them in fighting
various kind of financial issues.
CONCLUSION
From the above report, it can be concluded that wastage needs to be reduced by an
organisation and thus it is needed to utilise the resources in effective and efficient manner. It is
highly essential for an organisation to fulfil the work adequately as this can help in enhancing the
ratios of profit and product. Apart from that, all the activities will be monitored and thus support
will be provided by budgetary-control in deciding many tools and techniques while making
decisions for many activities.
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REFERENCES
Books and Journals
Armstrong, M. and Taylor, S., 2014. Armstrong's handbook of human resource management
practice. Kogan Page Publishers.
Assaf, A. G., Josiassen, A. and Cvelbar, L. K., 2012. Does triple bottom line reporting improve
hotel performance?. International Journal of Hospitality Management. 31(2). pp.596-
600.
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Bellandi, F., 2012. Dual reporting for equity and other comprehensive income under IFRSs and
US GAAP (Vol. 10). John Wiley & Sons.
Bessis, J., 2011. Risk management in banking. John Wiley & Sons.
Bezhani, I., 2010. Intellectual capital reporting at UK universities. Journal of Intellectual
Capital. 11(2). pp.179-207.
Crippa, S., and et. al., 2010. The Bethesda System for reporting thyroid fine-needle aspiration
specimens. American journal of clinical pathology. 134(2). pp.343-345.
Kerzner, H., 2013. Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Laegreid, P. and Christensen, T. eds., 2013. Transcending new public management: the
transformation of public sector reforms. Ashgate Publishing, Ltd..
Lam, J., 2014. Enterprise risk management: from incentives to controls. John Wiley & Sons.
Laudon, K. C. and Laudon, J. P., 2016. Management information system. Pearson Education
India.
Malz, R. and Lührmann, T., 2012. Excellence im Management-Reporting: Transparenz für die
Unternehmenssteuerung. John Wiley & Sons.
Melloni, G., 2015. Intellectual capital disclosure in integrated reporting: an impression
management analysis. Journal of Intellectual Capital. 16(3). pp.661-680.
Palermo, T., 2011. Integrating risk and performance in management reporting. Chartered
Institute of Management Accountants.
Pérez, A. and del Bosque, I. R., 2014. Sustainable development and stakeholder relations
management: Exploring sustainability reporting in the hospitality industry from a SD-
SRM approach. International Journal of Hospitality Management. 42. pp.174-187.
Said Mokhtar, E. and Mellett, H., 2013. Competition, corporate governance, ownership structure
and risk reporting. Managerial Auditing Journal. 28(9). pp.838-865.
Taschner, A., 2012. Management Reporting: Erfolgsfaktor internes Berichtswesen. Springer-
Verlag.
Van Greuning, H., Scott, D. and Terblanche, S., 2011. International financial reporting
standards: a practical guide. World Bank Publications.
Online
Management accounting, 2017. [Online]. Available
through<http://www.businessdictionary.com/definition/management-accounting.html>.
Budgetary control, 2017. [Online]. Available
through<http://www.fao.org/docrep/w4343e/w4343e05.htm>.
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