Management Accounting Report

This report examines the concepts and applications of management accounting within the context of Tech (UK), a UK-based manufacturing company. It analyzes various management accounting systems, including cost management, inventory management, and job costing, and their importance in decision-making. The report also examines different types of managerial accounting reports, their benefits, and how they contribute to addressing financial issues. Additionally, it discusses budgeting techniques and pricing strategies, highlighting their role in planning and control.

Management Accounting

INTRODUCTION
Management accounting is an activity or a process of making an important information
available to the management on the basis of which business operations has been executed in an
appropriate manner. It is also known as cost accounting which helps managers to make an
effective decisions regarding increasing value of an organisation through utilising available
resources at an optimum manner. Preparing of financial reports includes balance sheet, profit &
loss account, cash flow statement which help in knowing the actual financial position of
company in market. Tech (UK), a UK-based manufacturing company which deals in producing
special charger for mobile telephones and other various gadgets for the purpose of selling it to
the retail outlets in UK. Such company is take for the purpose of preparing this report (Albu and
Albu, 2012). The project briefly summarises the various management accounting as well as
reporting system along with the difference between financial and management accounting. All
other aspects are also covered under this report with the context of Tech (UK).
TASK 1
P1: Management accounting concept and their essential requirements
Management accounting: It is such a practices of bringing out an important data
through using various accounting systems in order to enhance the value of an organisation so as
to sustain in competitive market for longer period of time. It will also help stakeholders to get
ensure about getting maximum return on their investment through showing them true and fair
financial reports. Such value data and information can be provided with the help of using various
management accounting system which be briefly described after making comparison between
financial and management accounting:
Comparison between management and financial accounting
Management accounting Financial accounting
It is an activity of maintaining valuable
information of all departments through using
various accounting system due to which the
management are bale to make a profitable
decisions for company.
It is related with finance thus preparing only
financial accounts in order to assess the
actual financial position of company in
market.
They are liable to provide financial as well as It only provides financial related information
1

non-financial data so as to make an effective
plans and policies.
thus tool less time as compared to Financial
accounts.
It helps in preparing accounts of all
department in order to provide sufficient
information to internal management of
company.
They are wholly liable to prepare financial
accounts which help stakeholders and
investors to make investment decision in
order to get profitable income in return.
Such management accounting, documents are
prepared only when there is need to
requirements of an organisation.
Finance department is liable to make decision
regarding preparation of financial report on
annual basis.
Importance of management accounting in decision making process
Determination of aim: The aim can be determined with the help of information available
through using various management accounting system.
Helps in formulation of plans: Availability of information includes financial as well as
no financial will help management of various departments to make a better decisions and suitable
plans to execute business activities in more effective and efficient manner (Endenich, Brandau
and Hoffjan, 2011).
Measurement of performance: With the help of accounting systems, all the informations
about employee’s performance, daily business transactions etc. help management in identifying
and measuring the actual performance through comparing actual with desired performance and
thus able to make corrective actions if any deviations found.
Different management accounting systems
Tech (UK) has different options of using management accounting systems which are
briefly explained as below:
Cost management system: It refers to such management accounting system through
which Tech (UK) can able to decide what amount of price should they charged from their
customers in order to recover all cost incurred manufacturing process along with profit margin.
Such cost includes labour coats, material cost, overhead expenses etc. equals to total product
cost. Before setting prices for products and services, the management need to first find out the
interest and buying behaviour of customers and according to which prices has been fixed which
helps in maximising the satisfaction level of customers. For example, increasing in the price of
2

special charger which are more in demand in market, it will help company in maximising their
revenues. Such accounting system has been further dived into three different types which are as
below:
Actual costing Standard costing Normal costing
It incudes actual cost, direct
cost rates as well as actual
qualities that are used in
manufacturing process in
order to determine that cost
of specific products.
It refers to an estimation of
cost which to be incurred in
executing business
operations to produce
products and services. IT is
used as target cost and are
developed on the basis of
historical cost.
It is such type of cost
allocation method which
helps in assigning cost to
specific products on the basis
of material, labour, and
overhead cost used in
manufacturing process.
Inventory management system: It is another type of management accounting system
with the help of which the management of Tech (UK) are able to decide what amount of
inventory they have at present and what amount of inventory they should required to placed in
order to fulfil needs and requirements of customers (Alleyne and Weekes-Marshall, 2011). It
also directs management to allocate inventory to specific departments on the basis of their
requirements and outcomes received in near future. There are different techniques of valuation of
inventory which are determined as below: FIFO: In the First In First Out method, the management decide to use materiel in
production who comes first in warehouses. Du to this, the cost of oldest materials will be
identified as cost first. In this, there is no requirement to follow GAAP restrictions while
reporting financial outcomes. LIFO:In this method, the valuation of cost is based on the assumptions that the materials
who came in warehouses at at last will be sold at first. In this, IRS allows the use of LIFO
but use it as any subsidiary. AVCO: Under this, the valuation of cots has been determined through dividing cost of
inventory by the number of products at any pint of time.
Job costing method: Such management accounting system is used with the purpose of
allocating cost to particular product or group of products. Such system is more profitable when
3

the company produce products of different nature. Through such system, the management are
able to track cost which includes material, labour cost etc. which are incurred in production
process. Allocation of cost is based on the future outcomes from particular products. For
example, if Tech (UK) produce chargers of two and three pin then such systems becomes more
profitable to company (Gond and et. al., 2012).
P2: Different types of managerial accounting reports along with their importance
The management of Tech (UK) should able to make an effective plans and policies on the
basis of information available through using various types of management accounting reports.
Such types of reports includes:
Budget report: It includes all important information regarding the aspects and elements
which are required to produce quality products and services for the customers. Such kind of
reports helps management in allocation of cost to specific business activities after analysing the
outcomes that may received in future. It is prepared on the basis of previous year budget in order
to avoid any discrepancies occurred in executing business activities in previous years.
Account receivable report: Such reports is prepared to record all information about the
unpaid debtors of an organisation with an aim of recovering unpaid amount from them on
particular data. In order to assess the unpaid amount, the management need to make
segmentation of bill invoices according to their due date. This wilt direct managers to make
changes in their credit polices so that debtors should not delay in making payments to company.
Performance report: It is such kind of reports which is prepared to record the
performance of each departments of an organisation so as to confirm whether they are performed
according to the pre-determined plans or not. It helps management in finding out the deviations if
any which restricts employees to give their best. For example, to main financial performance of
Tech (UK), the management can use various financial tools such as Key Performance Indicators,
Balance Scorecard Approach etc.
Inventory management report: Such reports helps in updating management about the
inventory level the company have at present and on the basis of which they took decision
whether need to placed order of inventory to suppliers or not in order to meet needs and demands
of market. This will help in supplying adequate level of stock in market so as to avoid situation
of shortage (Nixon and Burns, 2012).
Benefits or importance of management accounting reports
4

Reduction of cost: It helps management in identifying the aspects which may affect the
business operations due to which the cost of company may increased. Such reports directs
management to make a suitable plans to eliminate such aspects in order to run business more
successful and execute as per the standards so as to reduce cost of operations.
Decision making: It helps management in getting information about financial and non-
financial transactions due to which management can easily able to find out the actual financial
position of company. It further help in formulating an effective plans, enhancing performance of
employees, and handle risk factors which makes positive impact on company’s productivity and
profitability (Renz, 2016).
TASK 2
P3: Calculation of cost and preparation of income statement
Cost: It may be defined as value of money which is to acquire or produce something in
standard quality in order to maximise satisfaction level of customers. Thus, irt may be increased
as per the requirements in production process. Example, labour cost cost, material cost, overhead
cost etc. which are incurred in manufacturing quality products.
Marginal costing: It refers to an increment cost which is used to produce one additional
unit of products item. Such cost in considered as variable costs which includes labour and
materiel cost. Using marginal cost method, the fixed cost should be ignore and only variable cost
has been taken into account. Through this, the profit of Tech (UK) may goes up.
Absorption costing: It includes all cost and expenses associated with manufacturing a
specific product will be taken into account thus includes fixed as well as variable cost while
calculating cost for products. Such kind of costing are generally required by the accounting
standards in order to generate inventory valuations which is stated in balance sheet of an
organisation (Macintosh and Quattrone, 2010).
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
5

Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Cost of production
Closing stock
Variable sales overheads
Contribution
Less Fixed costs:
Fixed Production overheads
Fixed Selling overheads
Net loss
0
30000
(7500)
15000
10000
52500
(22500)
(7875)
22125
(25000)
(2875)
Income statement on the basis of Absorption costing method:
Selling Price per unit £35
Unit costs
Direct materials cost £8
Direct Labour cost £5
Variable Production overhead £2
Variable sales overhead £5.25
6

Budgeted production for the period is 3000
units
Fixed cost for a month:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000 and Actual cost is £7875
7

Reconcile statement:
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
From the given statement, it has been seen that after modification the closing stock
valuation will be 2500. The profit under marginal costing after making settlement of fixed cost it
comes as 2125.
TASK 3
P4: Different kind of Budgets and their merits and demerits
There are various forms of budgets which are essential for management of Tech (UK) to
prepare in order to execute business activities during whole accounting year. Such types of
budgets includes Master budget, Rolling budget, Fixed Budget and Flexible budget which are
further explained as under:
Master budget: It is a strategic plan made by management for the future in which all
aspects required in production process is chartered and documented with the purpose of future
8

predications. It includes cash forecast, budgeted financial statements and a financial plan. Thus,
such kind of budget is prepared in either monthly or quality basis and cover company;s whole
fiscal year (Fullerton, Kennedy and Widener, 2013). Advantage: It helps in coordinating all other budget and to decide short term goals of
company. Te conflicts can also be resolved among the departments as it is consolidation
of all the functional budgets.
 Disadvantage: It is prepared on the basis of forecasting thus they are weak to uncertainty
in the environment.
Rolling Budget: Such budget is newly prepared after revising the financial plans for the
upcoming accounting period replacing the previous one so as to continuing the budgeting
system. Advantage: Budgets are reassessed on regular basis thus should be more reliable and
accurate. Along with this, Uncertainty are also get reduce due to revising financial plans.
 Disadvantage: Such budget requires more time and money due to preparing number of
budget during the fiscal year.
Fixed Budget: It is one which is prepared on the basis of specific criteria without any
provision for any changes at any point during the time covered by the budget. It directs
management not take make changes in budget on the basis of contingent situation and execute
business operation as per the predetermined plans. Advantage: With the help of such budget, the small sized company such as Tech (UK)
can able to achieve growth and success within shorter period of time (Nixon and Burns,
2012). Disadvantage: Sometimes due to rigidity of budget, the complex situation arises in the
process of execution of business activity may affected the result in adverse manner.
Flexible budget: It is such kind of budget which allows management to make changes
according to the changes in production and sale volume. Due to this, the management can able to
control cost of company. Advantage: It helps in analysing the performance of each department of an organisation
and also also helps in evaluating the impact of changing volume of activities on profit
and cash position.
9

 Disadvantage: It requires extra amount of money to spend on business activities this
increasing cost of company.
Different pricing systems:
Price skimming: Through adopting such pricing strategy, the management first increases
the price of newly product in market and later on lowering the price due to giving tough
completion to their rivals.
Economy pricing: Through adopting of such strategy, the management always keep the
price of product lower with a motive of influencing buying behaviour of customers.
Cost plus pricing: Such strategy is made with the purpose of fixing an effective price of
product after considering total cost cost incurred in production which includes labour, material
and overhead cost (Ahadiat, 2013).
Full cost pricing: Such strategy includes direct cost incurred in production process so as
to setting up an effective price for products and services.
Marginal cost pricing: It includes additional cost incurred in manufacturing extra units
of items to the price of products.
Benefits of budget for planning and control:
 It gives suitable direction to workers engaged in manufacturing activities to execute will
in order to achieve profitable outcomes.
 It helps in educating employees about the importance of utilising available resources in
an optimum manner so as to produce quality products.
 It helps in preparing management to face future difficulties so to execute pre-decided
future business activities without any interruptions or breakdowns.
TASK 4
P5: Contribution of management accounting systems to respond financial issues
It has been clearly seen from the given case study that Tech (UK) has suffering huge
losses in previous accounting year which may due to poor quality, insufficient support from co-
workers, ineffective strategies etc.
The major reason which are determined behind the loss of organisation includes low
quality of charger, lack of management etc. Advised by the financial manger of organisation is to
use the approach of Balance Scorecard which helps to to overcome from the issues. In
10

comparison to Tech (UK) Ltd., its competitor 4Com Plc's financial information are mentioned as
below:
Financial statements of 4Com PLC:
Profit & Loss a/c:
Balance Sheet:
Thus, to overcome such financial issues the company’s auditors has advised to adopt balance
scorecard approach which are described as below:
Balance Scorecard approach: This approach helps to improve the internal strength of
organisation. Here, more efforts are provided on the analysis of each and every transaction which
are carry in organisation on regular basis. This will provides the opportunity to attain desired
results (Budgetary Control, 2017).
11

 Employees are guided by the management to improve performance
 Set clear goals
 More emphasis provided on earning aspects
IMDA tech is anther organisation which uses the technique of Just in time to overcome
their losses.
There are four perspectives of Balance Scorecard approach which are defined as below:
Financial: Such perspective is related with financial position which every organisation
want to achieve. Therefore, it is important for Tech (UK) to utilise available resources in an
optimum manner so as to attain strong financial position. Example, optimum utilisation of
resources.
Customer and stakeholder: Customers are the lifeline of company thus need to consider
their needs and requirements and make suitable plans accordingly in order to maximise their
satisfaction level through providing quality products. Example, customer value.
Internal process: It is essential for company to strong their internal management so as to
enhance efficiency in performance of employees. Adoption of technology in the production
process will help in achieving productivity due to which the company can able to provide
products at an affordable prices (Management Accounting, 2016).
Organisational capacity or learning and growth: The management always tried to
improve their capability so as to achieve large market share in business world. It can possible
through providing variety of products at an affordable prices and maintain healthy relation with
customers.
Just in time: This method helps to make the management of inventory more profound in
organisation through it is utilised in optimum manner and wastages are reduced. This can be
achieved through ordering right quantity of items. It helps to attain the results in given period of
time. Therefore, Such financial tool should may required to adopt by 4COM Plc in order to
resolve their financial issues.
CONCLUSION
It has been concluded from the above project report that an organisation can able to
compete with their rivals only when they have an effective management who are more capable to
work in different accounting systems and prepare accounting reports as well on regular basis.
Therefore, Tech (UK) need to prepare different types of budget in order to execute business
12

activities in an effective and efficient manner. Different financial tools are need to be considered
in order to eliminate situation arising financial issues.
13