Management Accounting Report: Comprehensive Analysis of 4COM plc

This report provides a detailed analysis of management accounting practices, focusing on the case of 4COM plc. It explores the significance of management accounting, outlining its role in providing financial and non-financial information for internal decision-making. The report delves into various accounting methods, including job costing, cost accounting systems, and inventory management, highlighting their benefits and applications within the company. It further examines the use of different costing methods, such as absorption costing, and analyzes their impact on financial reporting. The report also discusses budgetary control tools, their merits, and their role in financial planning. Finally, it addresses how 4COM plc responds to financial problems, offering insights into effective planning tools and strategies for overcoming financial challenges. The report concludes with an evaluation of the financial position of 4COM plc, providing a comprehensive overview of its accounting and financial management.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1: Management accounting and its significance.......................................................................1
P2: Different methods which are used by managers in an organisation.....................................3
M1: Benefits of accounting system and it utilities.....................................................................4
D1: Critically evaluate accounting reporting..............................................................................5
TASK 2............................................................................................................................................5
P3: Use of various costing methods by the company.................................................................5
M2: Analysis of various accounting method used by the company............................................7
D2: Interpretation of above profit and loss statements...............................................................7
TASK 3............................................................................................................................................7
P4 Merits of tools used for planning in budgetary control..........................................................7
M3: Planning tools analysis for the company.............................................................................9
D3: Ways to overcome financial problems through effective planning tool..............................9
TASK 4..........................................................................................................................................10
P5 Response to financial problems...........................................................................................10
M4: Financial problem analysis................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is responsible of providing both financial as well as non
financial information of the cited company. It involves participation of management decision,
devising and performing critical analysis of transaction (Chen and et. al., 2011). In other words,
it is said to be a field of accounting that delivered economic and financial data for managers and
other internal users. In every organisation there is huge responsibility over a managers to control
and maintain financial records into accounting books of accounts. The project report is
categories into various tasks which consist of management accounting use and its importance is
daily business activities.
The several methods which are used by concern person in preparing accounting reports.
There are some other aspects of this the project which summarise the costing techniques that are
used by the company under their businesses. Benefits and limitation of budgets or how they are
useful in planning procedure of financial statements (Goyal, 2014). It also covers all those
financial issues which are arise in an organisation and tools which are used by managers to
overcome all those issues are discussed under this project report. In the last phase of project
explains about comparison of financial position of one company with the another one in order to
achieve its aims and objectives.
TASK 1
P1: Management accounting and its significance
In an organisation accounting is said to be recoding, summarising and evaluating the
financial data into company's books of account. While, management is responsible for managing
business transaction into perfect order so that positive results can be achieved by the company.
Through this, company can have the opportunity to make future plan and take appropriate
decision to increase profitability of the company. This accounting system helps the cited
company's to allocate right kind of people at the right place. So that more effective results can be
possible in quick time. As it has been found that management of financial statements are one of
the major concern for the company's.
With the help of statistical data regarding other competitive forces can help the company
to manage the plan accordingly. In order to know the performance of the company managers use
to prepared daily, weakly reports. It will help to analyse the total cost incurred by the company
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during its daily operations. The most effective aspect of this accounting system is that, it provide
timely and more reliable results to the board of directors. Every business concern is responsible
for determining a perfect plan accounting system in order to achieve it objectives. It is important
for the company to increase its sales and to generated maximum profit. In previous time,
management is not aware about various functions that is why they are not able to meet out its
plan in proper manner. Now, in present era the concepts are changes because of new accounting
system. The most effective system the management need to apply in its business plan is to
determine the actual need of that particular accounting system.
The company need to identified its operational cost and tried to overcome it. By the use
of management accounting system business person can determine their fiscal sources and also
established total required capital to manage its activities (Bodie, 2013). 4COM plc is that
company which is operating at a small scale level in order to established its accounting system.
For the effective planning managers need to use this accounting system so that extra costs can be
control and company can earn maximum profit. The overall decision are taken through this
system. There are some of the techniques which are used by the company during preparation of
final account. Different types of managemet accoutning systems used by the managers are as
follows:
 Job costing: It is a system of cost accumulaton and recording of transactions where there
is an well known activity for whcih cost are considered. It is used at at the time when
production is not highly repretitive and in addition, consists of different lots and orders.
 Cost accounting system: It is used to identify with the recording, classifying and
summaraising cost those are incurred in the development of products and services. It is
done to control costs and furnishing of data to management for taking effective decision.
 Price optimisation system: It is considered as one of the crucial tool for 4COM
company which they used in order to analyse price sensitivity regarding their products
and services. It is based on the concept that how customer react over various prices which
are charged by the company for their products.
 Inventory management system: It is said to be that system of accounting which is used
by the company to manage and control its stocks. The timely supervision of the stocks are
recorded and maintain so that if any demand comes to the company it would fulfil
accordingly.
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 Batch Costing: A system in which the cost of manufacturing a product is determine by
the batch rather than by the individual product. It comprises of comparing costs of
various sizes of batches those are made during the year.
There are various essential aspects of accounting system:
Designing of effective plan: Any business can not operate without a plan. So 4com
company is using these accounting system which are used to achieve its objectives. The manager
of 4com company should control its cost through applying these systems (Chen and et. al.,
2011).
It help in decision making: In an organisation most of the decision are taken on the
basis of company current year performance. It will be analysed through all accounting records
which are maintained by the manager during the year.
P2: Different methods which are used by managers in an organisation
All the information which are associated with the development of organisation
performance are realised with the proper accounting systems. Accounting record are use by the
managers in order to utilised valuable information in future also. Management are responsible for
the controlling and maintaining balance among each and every department. It is done through
proper accounting systems. The reports related with financial transactions of the company are
prepared for the specific time period. It is an observation which is made by the managers that
each operation which are done by the company during the year are helpful for decision-making.
The major responsibility of managers is to maintain balance and stability among each
department in order to achieve its aims and objectives. The data collected by the company from
each departments are summarised and on that basis a perfect reporting is done that would
represent the image of the company. Under this, there are so many reports are prepared and will
be determine. So that short term and long term goals can be achieved. Some of them are as
follows:
Performance report: In an organisation such as 4com Ltd, this kind of reports change
the management to access the execution of goods and services (Salehi, Rostami and Mogadam,
2010). The departments or selected groups are linked with business concern in order to
formulated effective business plans. In order to get maximum benefits from the company they
need to analyse the performance on regular basis. It would help to increase the efficiency and
productive of the company in future context.
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Account receivable report: Under this report, manager need to manage its cash in
relation to those creditability which are applicable to its customers. The maintenance of account
should be checked and realised according to the payment received by the company. All those
accounting transactions are recorded under this report.
Operational budget report: In this types of budget various all those expenses which are
incurred by the company during the year are summarised and recorded. It is done in order to
identified that total expenditure incurred by the company to generate net profit (Quagli, 2011). It
is responsible for making plan, evaluate and control extra costs which are incurred during
production process. The benefits from this methods is to identified the total cost a company is
spending over its products.
Inventory management report: In 4com there are some physical stocks which are use
under management accounting reporting to manager various stock position. There are some of
the techniques such as ABC controlling and LIFO or FIFO methods which are more reliable to
control its wastage of stocks. It consist of total labour costs which are incurred by the company
during management of inventory. The basic role of managers are to analyse cost of productions
in order to analyse any improvisation under controlling methods.
Job costing reporting: It is related with that costs which are obtain by the company for
its particular projects. The total revenues are identified by 4com company in order to determine
total job profit. It will be more helpful for the company to established most profitable areas of
business operations. It considered that particular areas which are generating maximum profit
without investing more time and cost on an individual job that are not that much effective for the
company. Those conditions are ignored which are having less profitability.
M1: Benefits of accounting system and it utilities
As per the above explained management accounting systems, company need to use all
those in their business operations in order to solve their issues. It will be more important to
generate maximum profit for the business with the limited resources. The major benefit from
using these system is to increase the profitability and efficiency (Kulesza, Weaver and Friedman,
2011). It also help to utilised the resources in such a ways that company would reach at perfect
position. The financial stability would help them to motivate and work according to set
objectives. The basic advantages of this system is to maintain a proper record of each and every
financial transaction which are done by the company during the year.
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D1: Critically evaluate accounting reporting
In the opinion of Hyvönen, 2010 reporting of each transaction are analysed before it get
posted under the books of accounts. It is so that the position of company is most decided
according the statements recorded under that particular books . Operating budgets are need to be
evaluated on weakly, monthly as well as yearly basis so that total estimation of cost incurred by
eh company can be identified. However, inventory reporting are most effective method use by
the company to determine the position of stock level. It will also help to manage and control its
wastage.
TASK 2
P3: Use of various costing methods by the company
For an organization, cost is an important aspect which they need to considered while
making any planning for future. Costs are that amount which a company pays for its products
and services. It is simply mean that in order to receive something they need to pay some amount.
In the accounting system, costs are generally linked with the valuation of financial data those are
related with materiality and efforts. It is said to be that cost which is associated on invoices as the
cost and mentioned under financial regime as an expenditure or assets. There are various costing
methods which are used by the company in order to calculated its net profit and loss. Some of
them are:
Absorption costing: According to the identification of profitability company uses this method.
The cost of production which are associated with the 4com company in their operations are
linked to it either directly or indirectly. Under this costing method both variable and fixed costs
are considered as important part (Harris and Durden, 2012). It consist of various cost such as
direct labour, material and other overheads. It is also associated with the full costing or the full
absorption techniques.
Marginal costing: It is that cost which is incurred on additional cost of production which are
used in production of extra units. It is considers as fixed cost as total period cost. It assume that
fixed cost are for the organisations are need to be ignored. Marginal costing is calculated through
addition of prime cost plus total variable costs. It is that amount at any quality of output at which
collective cost are varies with increase or decrease by one units.
Comparison among both costing methods
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Absorption costing Marginal costing
At the time when there is no sales the total
inventory is carried forwards and there is no
any kind of trading or profit and losses are
recorded.
Under this situation, if there is no any sales the
total fixed costs will be considered as loss in
the absence of contribution. It is not carried
forward.
It is more suitable for taking long term
decision and for setting pricing of a products
for long term basis.
It is beneficial for short term management
decision (Boyns and Edwards, 2013).
Its total focus is on product process during the
year.
It gives more emphasis on selling and products
pricing aspects.
It is mostly consider as external reporting and
computation of taxable income.
Under this head variable costing is mainly
considered and use for internal reporting.
Absorption costing is more reliable to calculate
Net profit.
Under his contribution is calculated per unit is
calculated by the concern entities.
Income statements through marginal costing
Particulars Amount
Sales 35*600 21000
Less:
Production cost 6+5+2 - 9100
Closing stock: 100*13 - 1300 -7800
Contribution 13200
Less:
Variable sales overhead 600*1 600
Fixed overhead -2000
Selling and administrative cost expenses (700+600) -3900 -3900
Total Profit / Loss 9300
Income statements through Absorption costing
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Particulars Amount
Sales 35*600 21000
Less:
Production cost 6+5+2 9600 9600
Contribution 11400
Less:
Variable sales overhead 600*1 600
Less: Over absorbed Fixed production overhead -100
Selling and administrative cost expenses (700+600) 1300 -1800
Total Profit / Loss 9600
From the above information it has been found that company have the option of two
costing methods which they can use in order to calculated net profit. The results are varies
according to both the method results are varies. If the cited company adopt marginal costing they
are get a profit of 9300. while, if they are using absorption costing it will incurred a profit of
9600 which is more from marginal. So it has been concluded that the best methods for managing
the operations and generated more profit the company would go with absorption costing.
M2: Analysis of various accounting method used by the company
According to the above used accounting system a company need to plan their project in
proper manner. This is all done in order to achieve is objectives (Carenzo and Turolla, 2010).
There are so many management techniques which can be helpful for the company to analyse its
profitability and performance. The nature of business is identified through all those reporting
methods. There are historical cost which are arise sometimes in an organisations in order to
maintain accounting records of a company. It also helpful for making comparison to actual and
standard costing.
D2: Interpretation of above profit and loss statements
In the above mentioned income statements it has been found that company do have the
option of both marginal and absorption costing methods. Both of these methods are individual
results after making evaluation of information. If the company used marginal costing they are
getting a net profit of 9300. but, through absorption costing they are able to receive a profit of
9600 which is much higher than marginal. The best option is to go with absorption because as
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from the results it is clear that it is the best method through which company can get positive
outcome.
TASK 3
P4 Merits of tools used for planning in budgetary control.
In any business it is very important that proper planning and controlling shall be carried
out and for that budgets are made. With the help of this all the aspects that are involved in
business process will be taken into consideration in most appropriate manner. This will be
beneficial as by it comparison will be made by which deviations that are present can be
identified. It will be helping management in carrying out various operations in most effective and
efficient manner.
Process used for budgetary control:
1. In first step it will be required that all the needed information shall be collected so that it
can be used in planning of any budget. All the information will be attained from different
departments which will be utilised in formulation of budget (Callahan, Stetz, G.S. and
Brooks, 2011).
2. After making of budget it will be needed that comparison shall be carried out with the
actual performance so that it can be identified that whether the set targets are achieved or
nor. If not, then it will be required that reason for same shall be identified and then
corrective actions will be taken to eliminate all variations.
3. Once the factors which have resulted into differences are determined then they will be
used to formulate the new plan or modifications can be made in the existing budget. All
measures will be incorporated in it so that further repetition of it can be avoided.
Merits of budgets:
 With the help of this future aspects will be anticipated and by that work will be carried
out in most effective manner.
 As all the information will be collected from various departments so by this good
coordination will be established among all of them.
 Reduction in wastage will be achieved as requirements will be identified in advance by
which material will be utilised in proper way. Therefore it will help in increasing the
profitability.
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Demerits of budgets:
 This will be increasing cost to company as expenditure will have to be made in its
formulation in respect of research which will be carried for collection of required
information.
 As they will be made on the basis of estimates so it may be possible tat data will be
incorrect leading to carrying out of wrong process (Bebbington, Unerman and O'Dwyer,
2014).
 The process will be time consuming so delay in activities will be made and also this time
could have been utilised for other productive aspects by which more sales or profits can
be achieved.
Various tools which are used in planning:
 Operating budget: In business there are many operations which are performed and
schedule in respect of them id provided under this budget. All the data regarding
production, administration will be incorporated under this.
 Financial budget: This is made as by the help of this financial decisions will be made.
Under this budgeted balance sheet will be made in which information about assets,
liabilities, investments will be mentioned. All the requirements of cash will also be
identified in this and for that cash budget will also be made. It will help in arranging for
the funds in advance so that no problem is faced due to them.
 Static budget: All the inputs and outputs which will be used in production will be
anticipated in this. It will be required to compared with the results which are obtained in
actual. As this budget is fixed so there will be more variations which will be there from
actual results.
So all of them are some of the planning tools which will be used in order to maintain
control in budgetary process. This will prove to be of great help to the organisation.
M3: Planning tools analysis for the company
All the tools which are mentioned will be used so that proper planning can be carried out
and by that business will be conducted in more effective manner. It will be helpful in controlling
the cost as all irrelevant expenditure will be identified and then avoided. This will lead to
maximisation of profits which is main objective to be achieved in all businesses. They will be
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providing the company with guidance about the manner in which work shall be performed for
attainment of best results.
D3: Ways to overcome financial problems through effective planning tool
In an organisation there are important decisions that are to be made and for that it will be
needed that factors that will be affecting profits shall be evaluated (B Douglas Clinton and CFM,
2012). For this purpose planning tool s will be used by the help of which performance will be
checked and it will be identified that whether required outcomes are achieved or not. All the
problems which arise in business will be identified and resolved by using them. The main tools
which can be used for this purpose will be benchmarks and financial governance.
TASK 4
P5 Response to financial problems.
In business there are various systems which will be followed and if they are not managed
in proper manner then certain problems will be arising. By them the profitability and
development of organisation will be affected. In order to overcome them there are various tools
and techniques which can be sued and one such is balance scorecard approach by the use of
which it will be possible to evaluate the performance so that proper decisions can be made that
will lead to attainment of all objectives. The different departments will be responsible for all
problems and so by the help of it balance will be established among them so that issues can be
resolved in effective manner. It shall be noted that resources shall be utilised in most judicious
manner so that maximum return can be achieved.
There are various other tools also which can be used by company such as:
Benchmarks: In this the performance of company will be compared with the other such
organisations which are best in this field. By this standards which are set by them will have to be
adopted and this will lead to enhancement in companies working.
Key performance indicators: In this various parameters are made and told to employees
according to which they are required to carry out different functions. By this their performance
will be checked so they will be motivated and will be conducting the activities in better manner.
This will lead to reduction in problems which are currently arising.
Financial governance: Under this funds will be managed in most appropriate manner so
that issues related to it can be resolved. The needs will be determined and hen sources from
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