Management Accounting Report

This report examines management accounting principles and practices applied in Aston Chemicals, a European personal care industry supplier. It explores various management accounting systems, their benefits, and their integration with management reporting systems. The report also delves into absorption costing and marginal costing techniques, including income statement preparation and break-even analysis. It further analyzes the advantages and disadvantages of planning tools for budgetary control and evaluates their application in preparing, forecasting, and analyzing budgets. Finally, the report explores how Aston Chemicals' management accounting techniques respond to financial problems and how planning tools can be used to solve them.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
Explaining management accounting and various benefits of management accounting. ............4
Explaining the different types of management accounting reports ............................................6
Benefits of management accounting systems and how they applied in the organization...........7
Evaluating the integration of management accounting systems and management reporting
systems in an organization. ........................................................................................................8
TASK 2 ...........................................................................................................................................8
Explaining the absorption costing and marginal costing............................................................8
Drawing a income statements with the help of marginal and absorption costing .....................9
B. Computing the following problem with the help of break-even analysis. ..........................11
Applying the range of techniques in producing the financial report. .......................................12
Producing the financial report that accurately apply and interpret data for business activity.. 13
TASK 3..........................................................................................................................................14
A. Advantages and disadvantages of planning tools for budgetary control..............................14
B. Application of the planning tools for preparing, forecasting and analysing budgets...........15
C. Comparing the management accounting systems of Aston Chemicals and how it deals with
the financial problems...............................................................................................................16
D. Analysing how Aston Chemical's management accounting techniques respond to financial
problems....................................................................................................................................16
E. Evaluating how planning tools can be used to solve financial problems.............................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

Index of Tables
Table 1: benefits of management accounting..................................................................................8
Table 2: income statement with Marginal costing.........................................................................10
Table 3: income statement with Absorption costing......................................................................11
Table 4: break even analysis .........................................................................................................12

INTRODUCTION
Management accounting plays an important role in business organization. It is a type of
accounting which helps manager in decision making. Decision making is process which takes
place in every organization.
Aston chemicals was formed in 1990. It provides raw materials to European personal care
industries. The present assignment is based on management accounting. Present assignment will
explain meaning of management accounting and also provide essential requirements of different
types of management accounting systems and their benefits. Report will also present different
type of management accounting reports and their importance in Aston Chemicals. This
assignment will also provide deep insight of integration of management accounting system and
management reporting. Report will also depict information about marginal and absorption
costing techniques of accounting with their income statements. The advantages and
disadvantages of different planning tools for budgetary control will be covered in report. Later, it
will provide techniques of management accounting with respect to responding financial
problems.
TASK 1
Explaining management accounting and various benefits of management accounting.
Management accounting is a profession that consisted of combination of financial and
non-financial statements which gives useful information to management for managers to take an
effective decision making. It plays a very significant role in giving information to workers
working inside organization. It has very wide scope as it gathers and retrieve all information that
is related to particular organization.
It includes process of preparation of managerial reports accounts helping to render
accurate and well-timed financial and statistical data that is essential for managers to make
important judgments in business organization. Unlike financial accounting, MA gives
information in the format of report on weakly basis to managers of departments and CEO.
Different types of management accounting systems are discussed under.
Cost accounting systems
This system of accounting is also known as product costing and costing systems. This a
technique which management of Aston Chemicals used for estimating the cost of their products
for valuing their inventory, analyzing profit and to control cost. Sometimes it becomes difficult

to estimate the correct cost for product and services so that profit can be earned. For an
organization it is very important to them to know about profitable or non-profitable services
products in organization should have and this could only be possible when organization have
estimated the correct cost of product (Ax and Greve, 2017). This systems help Aston chemicals
in identifying exact cost for products which are essential to them. Includes the three costing
examples which helps management is ascertaining the good cost accounting system that are
standard, normal and actual costing.
Requirements
 It is required measuring the efficiency of organization. It is required in fixation of prices.
Job costing system
Allotment of manufacturing cost to individual products and batches of products known as
job costing system. When product manufactured are sufficiently different from each other job
costing systems are used. The management of Aston chemicals uses job costing when
management have to allocate manufacturing cost in organization.
Requirements
 It is required to obtain the cost of each activity individually. It is required to allocate the cost of each activity.
Prize optimizing systems
The system aids to analyze the best practicable cost that should be quoted for production
of goods and services, is price optimizing system (Cooper, Ezzamel and Qu, 2017). It provides
opportunity to concentrate on different goals and objectives of Aston chemicals.
Requirements It helps in identifying the best possible price of product and services.
Inventory valuation systems
This system inside the organization helps in managing inventories. To manage inventory
in proper way, Aston chemicals uses inventory management systems. The system manages each
and everything for inventory starting from purchasing of raw material to the finished goods and
to closing stock. Examples of these systems are LIFO (Last in first out) and FIFO(First in first
out) these two are inventory management system which helps Aston chemicals in managing
inventories.

Requirements
 It is required in managing the inventory of an enterprise so that warehouse could be
effectively managed
 Inventory management system required to enhance the accuracy of inventory.
Explaining the different types of management accounting reports
Management accounting put the emphasis on internal information of organization. The
reports of management accounting are used for regulating, decision making, planning and
measuring performance. These reports are prepared on continuous basis all through financial
years. They provide the internal information of the organization. Following are management
accounting reports which Aston chemical uses are listed under.
Budget reports: Budget reports are the fundamental reports of management accounting.
It is very useful for the manager and owner of the business in understanding and controlling cost
in an organization. It does not matter whether organization is unified or having several
departments (Management Accounting: Meaning, Functions and Characteristics, 2017). Aston
chemicals uses budget reports to understand the grand scheme for their business. With evaluation
of expenses in prior years it becomes easy for organization in estimating the budgets for the year
and finds place to cut costs.
Account receivable aging reports: In an Organization there are some customers's which
are provided with credit facilities. This type of reports is essential for those businesses that offers
credit to the customers. It gives the enactment of credit balances including different categories
for products that are 30, 60 and 90 days late (Eldenburg and et.al., 2016). These reports help the
organization in identifying defaulters as well as issues in administration in collecting that credits.
Aston chemicals prepares accounts receivable aging reports in order to identify the defaulters to
their company.
Job cost report: These report are the sight view of cost accumulated in a one project
while comparing expected revenue obtained by them. This report aids leaders to measure
fruitfulness of particular types of activity and modify their operations by direction on jobs that
provide more profit. This report offers summary of full information. Aston chemicals uses these
report for realization of cost incurred as comparison with their selling price.

Performance reports: These are the reports which are made to review performance of
whole company as well as new employees. In large organization, departmental reports are
prepared to analyze performance of every departments of organization. Aston chemicals uses
these reports in order to determines performance of an employee as well as organization
(Fullerton, Kennedy and Widener, 2014).
Benefits of management accounting systems and how they applied in the organization.
Management accounting
systems
Benefits
Cost accounting systems  It helps in budget compliance, as actual cost is compared
with standard cost to see if any department of business is
spending more than expected.
 It helps organization in measuring efficiency, than maintain
and last in improving.
 It helps in fixing of prices for the products and services.
 It identifies profitable and unprofitable activities of
business.
Job costing system  Profit of every activity in the organization is clearly
identified.
 Detailed analysis of the cost of material, overhead and labor
of each activity are given by the job costing system.
 In job costing management can estimate the cost of job on
the basis of past records.
Prize optimizing systems  It helps in investigation of competent cost over product and
services (Kihn and Ihantola, 2015).
 It finds out the appropriate cost of several products of goods
and services.
Inventory valuation
systems
 The accuracy of inventory orders are improved by inventory
management systems.
 It helps in organizing the warehouse properly.

 If there are so many places, then this system become
important because necessity to co-ordinate supplies at all
position depends on variances in demand and other factors.
Table 1: benefits of management accounting
Evaluating the integration of management accounting systems and management reporting
systems in an organization.
Management reporting and management accounting systems are efficiently integrated
inside Aston chemicals. Working of both systems leads the organization at top. The qualitative
and quantitative data of functional and operational performances are obtained by integration of
management accounting and reporting systems. The combination of management accounting
systems and reporting is very much beneficial for Aston chemicals. The data obtained from these
managements accounting systems is stored in form of reports and helps in identifying the
performance of organization. The reporting systems are made supervise operations in Aston
chemicals timely. And if any problem arises, corrections are to be taken (Malmi, 2016). This
effective combination helps organization to identify objectives and goals within in time
periphery. Aston chemicals uses these systems in order to identify problems in the organization
in the formal so that appropriate steps are to be taken. This helps firm in developing better
understanding of effective decision-making and helps in establishing the planning in all levels of
organizations.
TASK 2
Explaining the absorption costing and marginal costing.
Absorption costing
Absorption costing is also known as total absorption costing. It is a technique of MA
which imply total cost of production or providing a service. This method not only includes the
cost of labor and material but also all the expenses of production whether fixed or variable. This
method of MA absorbs all the cost that are produced by the units. It is also referred as full
costing method. Absorption costing is frequently line with variable costing or direct costing. It
includes all the cost which are indulged in the production like direct labor, overhead cost and
direct material. Basically, its nature is different from other costing methods because it takes all
the cost into consideration. For Aston absorption costing has proved very beneficial. It

influenced value of fixed costs involved in production (Nitzl, 2018). It displays less modification
in net profits in case of constant production but fluctuating sales.
Marginal costing
In this tool of accounting fixed cost for every period is totally written off against
contribution while variable cost is charged into units. This technique of management accounting
do not consider the fixed cost in estimating the expenses. An extra cost occurred in producing
one single additional is expresses as marginal cost. It is calculated by taking all the variable cost
like , direct material, labor, expenses and other variable overhead.
Direct Labour + Direct Expenses + Direct Material +Variable Overhead + variable
expenses = Marginal Cost
However, it aids managers to taking various decisions of business like discontinuing a
commodity or services, substitutions f machines etc. It also helps management in deciding the
appropriate level of job, through Break Even Point analysis or CVP analysis, that signals the
effect of increasing or decreasing production level, on the company’s overall profit.
Drawing a income statements with the help of marginal and absorption costing
 Marginal costing
Particulars
Amount
(in £)
Amount
(in £)
Sales 33000 33000
Material 5600
labour 4800
Variable manufacturing
expenses 1600
Variable gross revenue
expenses 800 12800

Less: closing stock
Direct material 1400
Direct labour 1200
Variable manufacturing
expenses 400
Variable gross revenue
expenses 200 3200
Cost of Production (per unit) 9600
23400
Less: FC
Expenditures (Manufacture) 3200
Static office cost 1200
Static selling cost 1500
5900
Net income 17500
Table 2: income statement with Marginal costing
Interpretation
Above the statement is prepared on the basis of marginal costing technique. According to
this, all the variable expenses are taken into consideration while the variable cost is totally
exempted. By calculating it is observed that this method has provided the profit of £17500.
Absorption costing
Particulars
Amount
(in £)
Amount
(in £)

Total Sales 33000 33000
Direct material 5600
Direct labour 4800
Variable expenses 1600
Variable revenue expenses 800 12800
Deduct: stock at the end
DM(direct material) 1400
DL (direct labour) 1200
Variable sales expenses 200
Less: Variable sales overhead 600 3400
Less: Absorption of Overheads
(Fixed)
Cost of production 9400
Per unit contribution 23600
Less: FC
Expenses (production) 3200
Fixed office expense 1200
Fixed selling expense 1500 5900
Net Income 17700
Table 3: income statement with Absorption costing
Interpretation
The method has been adopted for the calculation of following information is absorption
costing for the all the expenses are taken into consideration whether fixed or variable. On
evaluating these figure it is obtained that organization has earned income of £17700, which is

more than marginal costing. So this technique is more useful for the Aston Chemicals for further
use.
B. Computing the following problem with the help of break-even analysis.
Break even analysis is the point of production at which the organization do not have
profit or loss. Under the calculation has done with the help of break even analysis.
Break-Even analysis
Particulars Formula
Figures
(in £)
Selling price per unit 40
Variable cost per unit 18
Share per unit
SP per unit - changeable cost per
unit 22
Determinate cost 6000
BEP (in units) Fixed cost / contribution per unit 273
BEP (in value or monetary terms)
BEP (in units) * selling price per
unit 10909.09
Table 4: break even analysis
Applying the range of techniques in producing the financial report.
From : Memorandum of association
To : General Manager
Subject : providing the information about suitable techniques of management-accounting which
must be implemented.
Sir,
With respect to the productivity of business, on your supreme order our marketing research
team under the expert supervision of marketing research manager has been went through

various locations in the markets for collection of customers views of that product which is
going to be launch. It is found that customers are approximately satisfied from our pricing
techniques. Observing their views our team has arrived over conclusion, pricing of that
organization for new product development management should develop the appropriate
accounting techniques so that profit can be stated clearly ((Nitzl, 2018)). Below some essential
techniques are mentioned which must be implicated by Aston chemicals. In this scenario the
organization has uses the marginal and absorption costing techniques in which absorption
method has been proved beneficial to firm.
 Cash flow statements, historical checking
 Analyzing the financial accounts
 Financial accounting
 Communicating the information etc.
 Review of the accounts.
Comparing both method's absorption costing has gained the profit of £17700.
So it is profitable to use absorption method in place of marginal. This method of account
belongs to some management techniques like-
 Cash flows
 Startup costing
 Balance sheet
 Budget and forecast table.
Thank you
Producing the financial report that accurately apply and interpret data for business activity.

Illustration 1: financial data
(Source: ASTON CHEMICALS LIMITED, 2018)
The graph has been obtained from financial report of Aston Chemicals. From graph it is
clearly seen that net worth or company is £5 million which quite favorable. There can be seen
that organization do not having much cash on hand. It is having only £1.1 million. In graph it is
clearly stating the gradual fall in cash on hand. As the information is for past seven years from
2011-2017, and it is observed that it fallen from £2 million to £1.1 million. On the other hand the
net worth of firm has been increased for year 2011-2017 from £2 million to £5 million. Talking
about current liability of Aston chemicals which were stable for 2011 -2015, but risen for 2015 –
2017 from £2.5 million to £3 million. In 2015 it has taken little rise but did affect much
profitability of the company.

TASK 3
A. Advantages and disadvantages of planning tools for budgetary control
Budgeting is a method which is used by an organization in order develop a plan inn
which it helps to identify the spending of your money. This spending plan is known as
Budgeting. It is basically a simple which helps in balancing company's expenses with its total
income. It has so many advantages which is very beneficial for Aston Chemicals. For example, it
helps in preparing and planning the strategies for the future planning of the organization and then
using that to control the operations of the business (Kovaleva and et.al., 2016). It is also helpful
in planning the future financial plan for the organization.
There are various tools which can be used as a planning tool for budgetary control for
Aston Chemicals, such as, activity based budgeting (ABB) and zero based budgeting (ZBB),
which is explained below:
 Activity Based Budgeting (ABB): It is a type of planning tool in which it uses the past
records of the organization to set the budget of different activities that are present in
company. This ABB is generally analysing the previous budgets and searches for
efficiencies in business operations and then develops budgets with the help of these
activities (Activity Based Budgeting, 2014). It helps in providing transparency into the
process of budgeting. It has some advantages and disadvantages as well, which is
explained below:
Advantages Disadvantages
 It helps in providing more control over
the process of budgeting in the
organization.
 ABB helps in revenue and expense
planning to occur at a precise level.
 It also helps in supporting performance
management.
 This process is costly as compared to
the traditional method of budgeting.
 It is a lengthy process and takes a lot of
time to be developed.
 This can be easily misinterpreted,
which can affect them a lot (Cole,
2018).
 Zero based budgeting (ZBB): This is a process which start the planning of their budget
from zero, i.e., they do not consider the past budget records to make new. The process of

zero based budgeting starts from a zero base and every activity within an organization is
analysed as per their requirement and costs. Some advantages and disadvantages of zero
based budgeting is explained below:
Advantages Disadvantages
 As it depends on needs and benefits for
the organization, it focuses on efficient
allocation of resources.
 This approach identifies and eliminates
wastage and out-of-date operations.
 This process of zero budgeting is time
consuming.
 It requires a lot of knowledge and skills
to apply this approach effectively.
B. Application of the planning tools for preparing, forecasting and analysing budgets
Planning tools helps an organization to plan their budget effectively which can be used
for enhancing their performance and management as well. Planning tool basically helps in the
preparation, forecasting and analysis of the budget for Aston chemicals. Some planning tools
which is used by Aston Chemicals are activity based budgeting (ABB) and zero based budgeting
(ZBB) which has so many applications.
 Activity based budgeting is very helpful in planning company's financial direction for the
coming years based on their past budget. This helps in analysing the overall cost or
expenditure for the organization which has to be made by them. It also helps in
forecasting the future budget by using accumulated historical data to predict financial
outcomes. For activity based budgeting process, approach which is being used is that the
planned volume of activity is deducted from a particular activity in company and through
this the budget is prepared for them respectively (de Campos and Rodrigues, 2016).
 Zero based budgeting process is also helpful in analysing, preparing and forecasting the
final budget for Aston Chemicals. It helps in focusing on all the different activities that is
performing in the organization before planning or forecasting the budget. It also helps in
the identification of the decision units in the organization. The main application of this
process is that it aims to drive more value for the organization by optimizing their costs.

C. Comparing the management accounting systems of Aston Chemicals and how it deals with
the financial problems
Management accounting system plays an important for an organization to perform its
activity effectively. This system basically focuses on the financial accounts of Aston Chemicals.
Company has a good management accounting system to deal with financial problems. For
example, this helps in analysing the workflow in a production process or activities in the sales
process (Nnoli, Adeyemi and Onuora, 2016). The main aim of this system is that it focuses on
preparing the budget for the organization which can help them in increasing their productivity
and performance as well. There are various financial problems which can be resolved by using
management accounting system, such as:
 Funding issues: This issue is related to the funding process for the organization. For
example, from their past records in the accounts they can analyse about how and from
where they got funds and how they spend that.
 Cash Flow problem: This is the most common issues which is faced by an organization.
There are many a time, when there is a mismatch in the cash flow. From management
accounting it can be analysed by checking their previous records of their cash flow and
expenditure which has taken place (Kovaleva and et.al., 2016).
Management accounting system also helps the organization in various ways related to
their financial issues, such as, they can use performance reports, known as variance analysis for
the identification of the actual cost has been used by Aston Chemicals. It is also useful in
protecting all the data relayed to their financial statement.
D. Analysing how Aston Chemical's management accounting techniques respond to financial
problems
Aston Chemical has good management accounting system through they can resolve their
financial issues effectively.
 Forecasting: This system helps a lot in forecasting the aspects of financial accounting by
preparing a sample budget for Aston Chemicals which they will be spending for their
business activity receptively. As forecasting has a huge impact on any business activity it
is essential for Aston Chemicals to properly manage it in order to work effectively.
 Financial Governance: Management accounting system helps in controlling the
financial governance for the company. It is a process from which Aston Chemicals

collect, monitors and manages all the financial information that is related to the company
(Financial Governance, 2014). Factors that are included in this financial governance are,
their financial statements, overall transactions which have been made by them, company
track and also helps in managing and controlling data, compliance, operations, and
disclosures.
 Cash Flow issues: This type of issue are more frequent for the organization. Cash flow
problems are those in which company spends more amount or money more that what they
have earned. For example, if Aston Chemicals have spent £5,000 on different things, for
example, on supplier, for raw material purchasing, etc. but only earned £4,000 in sales.
This implies that they have negative cash flow of £1,000 which is considered as cash
flow problem or issue for the company. To deal with such situation, Aston Chemicals can
check their previous financial data of their cash flow and by comparing it they can easily
resolve their issue. This has to managed accurately by Aston Chemicals, so that the can
perform their business activities accordingly in order to increase their productivity.
E. Evaluating how planning tools can be used to solve financial problems
Planning is very useful in resolving financial problems or issues which can arise in an
organization. Planning tools are very effective in enhancing the overall performance of an
organization by maintaining their budget properly. Company uses activity based budgeting
(ABB) and zero based budgeting (ZBB), which help Aston Chemicals to resolve their financial
issues effectively and can enhance their overall performance in industry as well.
Financial issues such as, cash flow problems, financial governance, etc. all these can be
solved with the help of these planning tool (Nnoli, Adeyemi and Onuora, 2016). They can cross
check or compare their past or previous records of the financial statements through which they
can analyse all their transactions which has been made by them in the past. This will help them
in getting all the important information related to their business activities that is being performed
in the organization and how much they are costing to them.
CONCLUSION
From the above report it can be sum up that management accounting is an important in an
organization for managing their financial transactions and also in keeping their records. It has
explained about the essential requirement of management accounting system for Aston
Chemicals what are the different methods that has been used for this system. Furthermore, it also

discussed about the appropriate techniques of cost analysis to prepare an income statement using
methods like, marginal and absorption costs respectively. Aston Chemicals is using various
planning tool for preparing, forecasting and analysing budgets, for example, activity based
budgeting (ABB) and zero based budgeting (ZBB) is also explained in this report. In the end it
has described Aston Chemical's management accounting techniques which they used to deal with
their financial problems or issues and also evaluating how their chosen tool, i.e., planning tools,
can be used to solve their business problems effectively. All these helped Aston Chemicals to
analyses the importance of management accounting how it can help them in improving their
overall performance.

REFERENCES
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