Financial Analysis: Management Accounting Report for Businesses

This report provides a comprehensive overview of management accounting, specifically tailored for small and medium-sized businesses. It begins with an introduction to management accounting, its types, and the advantages and disadvantages of various accounting methods. The report then delves into the calculation of marginal and absorption costing, comparing and contrasting their applications and benefits. It also examines budgetary control techniques, including their advantages and disadvantages. Furthermore, the report evaluates financial systems and reporting, emphasizing the relationship between accounting systems and reports in organizational processes. The content includes a detailed analysis of different costing systems, such as lean accounting and traditional management accounting, along with various methods used for management accounting reports like budgets, cost reports, and performance reports. The report concludes with a discussion on how accounting systems and reports are interlinked and essential for effective business operations, offering valuable insights into financial management and decision-making.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1&M1.Management accounting and its type.......................................................................3
P2. Various methods used for the management accounting report........................................5
D1. Evaluation of financial system and reporting..................................................................6
TASK 2............................................................................................................................................7
P3: Calculation of marginal and absorption costing...............................................................7
M2. Evaluation on the basis of calculation............................................................................9
D2. Interpretation on the basis of marginal and absorption cost............................................9
TASK 3 .........................................................................................................................................10
P4, M3 & D3. Budgetary control and its advantage and disadvantages of its techniques . .10
P5. Adoption of accounting system to solve financial problems.........................................12
M4. Management accounting responded towards financial problems................................13
CONCLUSION..............................................................................................................................14
REFERENCE.................................................................................................................................16

INTRODUCTION
The following project report is the description of the management accounting of the small
and medium size businesses. It began with the concept of the topic and its advantages and
disadvantages, types of accounting, methods used for the calculation and different types of tools
of budgetary control (Kaplan and Atkinson, 2015). The most basic thing that to manage their
accounts they are given more priority to the management decision and the planning their
operation for the future to maximise more profit and tried to get the goal and objectives of the
organisation.
Through this report we have made certain assumption about the business for the future
planning and implementation .It is based on the personal and statistical assumption of the
available data of calculation to manage the operations of business. Main purpose of report is to
explain about the management of accounts of small business enterprises.
TASK 1
P1&M1.Management accounting and its type
It simply defines the overall accounting system of an organization which means it deals
with all the financial issues. In fact management accounting is concerned with the preparing of
all the accounting reports to control the future cost. Basically management accounting shows the
appropriate report which act as an effective and useful tool while planning period or to estimate
the future sales and return on investment (Bodie, 2013). As management accounting express the
managing of all monetary terms in appropriate manner by minimizing their losses with the help
of accurate estimation. In other words the term management accounting is about controlling of
extra cost by making effective balance sheet so that all the company must aware about their
available assets and liability.
Management accounting system consist of various type of accounting systems to control
the cost of the company by maximizing their sales. In fact management accounting system is
mainly made for the making of proper financial report because for the betterment of company or
to minimize the organization liability every company need to pays the equal attention on the
financial reports also as all the business is depend on the capital only(Ward, 2012). Capital act
as a backbone for every small and large industry as initially everyone requires a sufficient
amount of monetary fund to establish a business.

Basically types of accounting system is a system made by the organization to collect all
the relevant accounting data and information or to store them so that it become useful while
taking decision for the company (Bodie, 2013). In fact accounting system have different types of
accounting system which is very essential for appropriate analysing of all the monetary terms.
Here are various types of accounting systems:
1. Lean accounting: - Mainly lean accounting is the term which is not only concerned with
cost in fact the main target of lean accounting is to reduce the extra and unusual cost by
eliminating the wastage. Basically with the help of lean accounting a company get aware
about their wastage and try to solve that problem by using appropriate data and
information which is available in the financial system for minimizing their cost. In other
words lean accounting main aim is to reduce or to control the extra cost (Burritt,
Schaltegger and Zvezdov, 2011).
2. Traditional management accounting systems:- This accounting system is a kind of old
system of managing accounting which means they are mostly deal with all the relevant
fact and figures to control their company overall wastage of cost. In fact this system of
accounting uses the job order and process costing methods. Both of the costing methods
are used to identify how a company use their fund relating to direct labour, raw materials
and manufacturing overhead.
Management accounting system is very beneficiary for all the organization because it is
very helpful for enterprises as due to financial accounting system a company can easily try to
control their wastage by controlling their unusual cost. Capital plays a major role during
establishment of an enterprise as all the resources are available with the use of cost only.
Management accounting system is very effective and useful for the company as this
systems contains all the past records of financial transactions which is very indispensable while
taking decision regarding financial activities. In addition applications of management also act as
a very helpful in reduction of extra cost (Parker, 2012).
Simply management accounting system throw some light on all the factors which comes
under accounting system to reduce all the upcoming issues related to finance. In fact for smooth
functioning of all the organization a company need to make appropriate accounting system to
overcome the instant difficulty which means the main task is to complete all the activities
effectively and efficiently tom achieve their target and goals.

Some of the essential examples of management accounting system are-
1. Cost accounting system: - This system is mainly based on overall manufacturing cost by
analysing the desired profits. Basically this accounting systems covers all the cost which
incurred while producing a product and helpful in differentiating in between expenses
and profit (Renz, 2016).
2. Job costing system: - Mainly this system helps in analysing the cost which incurred while
performing particular job in the business. In other words this method is very helpful in
identifying the expense of the particular job.
3. Batch costing system: - It is based on the lot size which means expenditure is determine
on the basis of different batch.
4. Inventory management system: - Accounting system also covers the inventory control and
try to manage it properly with the help of various effective methods.
5. Price optimisation system: - Actually this system is based on the pricing strategy in which
companies changes cost of their products according to the demand of a particular product
at a market place. Apart from this, enterprises increase and decrease cost while
performing business to business as well as business to consumers.
P2. Various methods used for the management accounting report
Management accounting report is the term which consist of all the past relevant data and
information to monitor the performance of their employees and goodwill of their company at
market place. Basically management accounting report is mainly based on all the facts and
figures of accounting system through which a company can take their decision effectively and
estimate the overall cost (Weißenberger and Angelkort, 2011). In fact reports are made for the
betterment of organizations as in report all the terms and conditions or effective policies are
mention for the better understanding of company. A company must use different kinds of
methods while making management accounting report. Budgets :- Budgets are very important for all the organization as before establishing a
plan and machinery a company need to prepare their budget either monthly, yearly, half-
yearly or weekly because appropriate is required to estimate the future cost. Basically
budget shows all the applicable cost which was going to require while making budget
report.

 Cost reports: - Managerial accounting need to calculate their all the cost to differentiate
all the necessary cost. Basically cost report is the report which consist the appropriate
balance sheet of asset and liability by showing all the expenses and profit correctly. With
the help of cost report a company can easily get the accurate result for the company.
Mainly it deals with all the cost issues of the organization or try to reduce the extra cost.
 Performance reports: - Performance reports shows the overall performance of the
employees and company at a market place. In fact it is very important to monitor the
performance of an employee to achieve their company target and goals as smooth
functioning of an enterprise is depend on their performance only. Mainly the main
advantage of performance report is to compare the present performance and past
performance to take appropriate actions to increase their profit by increasing the
productivity (Qian, Burritt and Monroe, 2011).
So the main aim of management accounting report is to get aware about all the internal
and external factors through which a company get influenced.
D1. Evaluation of financial system and reporting
Management accounting systems and management accounting reporting are linked with
each other while continuing the process of organization as accounting systems controls all the
cost by reducing wastage whereas accounting report consist all the relevant data and information
which required making plans for betterment of company. Basically accounting systems defines
all the financial things which is very important in organizational processes. For effective running
of an organization processes accounting systems records all the monetary terms in a proper way
so that it can act as beneficial for a company. Whereas accounting report consist of availability
of appropriate data by highlighting all the sparking issues.
Organizational processes is the term in which company way of performing their task or
the description of policy adopted by the enterprise to follow the effective channel to achieve their
business goals and targets. In fact for the useful working of organizational processes a company
need to plan all the things initially before starting their task. Basically process is the adopted path
by company for the final consumption of a product to maximize their profit (Nixon and Burns,
2012).
To deal with all the sudden uncertainty or risk a company need to follow the proper
organizational process by considering the effective accounting system and accounting reports

because they contains all the indispensable information whatever is going to require in business.
Organizational process is a very broad nature because of their vast area of dealing process as
every factors requires a lots of attention and instructions before evaluating.
Due to the broad nature of an organization accounting system and accounting reports are
interlinked with each other as both are very essential while completing any task in the business
because they make available all the past and present records manually and computerised also
(Fullerton, Kennedy and Widener, 2014). So both the term accounting system and reports are
dependent upon each other for best performance of the organizational process.
TASK 2
P3: Calculation of marginal and absorption costing
Cost: It is the monetary value that has paid to for the delivering of goods and services of the
business operation.
Techniques of costing
1. Marginal costing: It is techniques through which the cost allocation on expenditure while
in production is protected to those expenses which are used in the production of one extra
unit. Like expenses on the labour, material and overheads. Fixed expenses are not
included in the marginal costing.
Benefits:
 For the investment purpose
 To calculate reporting cost.
 To increase the profitability.
For the internal reporting: This is important benefit of the marginal cost because through
this they can make the decision for the future budget forecasting.
2. Absorption cost : It also known as full cost which means the all the cost incurred on the
production like variable and fixed all are come under the absorption cost.
Benefits:
 It includes fixed cost of operation like salary ,rent etc.
 In the evaluation of the profitability of the company.
 It also determine the costing of the products.
Difference between marginal cost and absorption cost

Marginal cost Absorption cost
1. Those cost of inventory at the time of one
unit of the production is incurred with the
small businesses (Christ and Burritt, 2013).
2. Under this cost, only variable cost is taken.
3. The cost of the product is lower.
4. Total contribution of the product is
presented through the cost.
1. Under the absorption cost, all costs related
with the production of all unit of the product
produce.
2. Both fixed and variable cost are taken.
3. The cost of product is higher.
4. Conventional data is present through the
cost.
NET INCOME AS PER MARGINAL COST
Amount
Sales (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable cost -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed overheads -2000
Admin & selling cost (700+600) -1300
-3900
Total 9300

NET INCOME AS PER ABSORPTION
COSTING:
Sales (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
Less: Over absorbed fixed production overheads -100 -1800
NET INCOME AS PER ABSORPTION
COSTING: 9600
M2. Evaluation on the basis of calculation
From the above calculation, it has been found that through marginal costing, net profit is
9300 while from absorption costing, it has generated 9600 which is more appropriate for
company to manage its operations (Hiebl, 2014). So, the firm should go for absorption costing
techniques which assist company to make the profit in more efficient manner.
D2. Interpretation on the basis of marginal and absorption cost
According to the above information about the marginal cost and the absorption cost
method of accounting the calculation has been done to get the net profit of the businesses
(Dillard and Roslender, 2011). The interpretation shows that there is fluctuation in the
absorption cost and the marginal cost in the form of over valuation. In the case of the absorption
there is over absorption in the profit statement of 200 , as per as marginal costing is concern
there is not such effect as over or under value.
There is huge difference in the case production of the company which is calculated as
13300 in the case of the absorption cost while it is just 9800 in the case of the marginal cost.
Another important point to be consider is about the fixed expense are also come down to 3300 in
the absorption cost but in the contribution is generated 10800 in the marginal cost which is good

sign of the investment by the company to make the future plan to achieve the goals of the
business.
As by analysis the both of the techniques we come to know that the both of them are very
different in the nature the results are also different through net profit because they are following
different principle and techniques (Shah, Malik and Malik, 2011). In the case of the absorption
cost is shows less profit and as it compare to the marginal costing .because of the variable and
the fixed cost differences they are generating different profit. In both the case the one more
difference is seen in the stock position which is more challenging in both of them. In the
absorption cost, the stock at the end is 1900 and in the marginal cost it is 1400 at the end of the
year. Thus, conclude the change in the net income in the statement. The evaluation is done
through proper calculation of the cost methods and the statements are prepare on the basis of it.
TASK 3
P4, M3 & D3. Budgetary control and its advantage and disadvantages of its techniques
Budgetary control: It is method through which managers monitor and control the cost of
the operation by using the budget in one financial period. Under this actual result and adjusted
performance is need to analysis the cost of the businesses.
Following are the advantages of budgetary control:
1. Certain planning: The plan of the budget are to be well planned. So that they get desire
result from the activity.
2. Increase efficiency: It is an effective way to control the cost and wastage. This leads to
the economic growth and development of the businesses (Ahadiat, 2013) .
3. Communication: Any business can starts with the taking feedback consideration from the
all supplier of the lower management. Before preparing the budget all the department
must be consult with the department to lay down the budget.
4. Coordination: The management must coordinate with each and every member of the
division and the department of the business to facilitate the regulation of the operations.
5. Power of authority: It deals with the delegation of the authority it helps to manage the
role and responsibility of the management by proper execution of the power in the
budget. The executive member and the sub ordinate must take initiative to make the
judgement regarding the budgetary plan limit.

6. Credit need projection: The important benefit of the business that they must predict the
credit availability for the arrangement of the finance in advance.
Disadvantages
1. Chance of inaccurate possibility: As we know that budget are always based on the estimation
for the future activity. But there is a possibility of the inaccuracy in the management of the
finance for the business (Arroyo, 2012).
2. Rigidity: once the budget is finalised it often to get rigid. This leads to very difficult for the
management to make changes in the circumstances.
3. Expensive: sometime it is very difficult to manage the expenditure in respect of the time, effort
and money. An appreciable time is needed to make the budget effective. The management get
loss there expectation from the budget projection (Strumickas and Valanciene,2015).
4. Over budgeting: The budgets are mainly in the detailed manner which some time get mixed up
and crate meaningless and unduly expensive.
5. Cost benefit analysis: Budget making is highly expensive task for any business enterprises. It
company get always good result when there is a proper relation between the cost and its benefits.
There are mainly 3 tools of planning of the budgetary control:
1. Financial budget: the small business are trying to get more profit from the next coming
period through the budgets. Financial budget is the planning to manage cash in such a
way that is will benefit as revenue for the company. It may of various type :
A. Cash budget: All the cash related items are shown and included in the budget
regarding the expenses on the production of products (Budget, 2017).
B. The balance sheet budget: It highlight the organisation structure after making of the
budget for the company. Through the control of the flow of the debts and assets are to be
managed properly.
2. Operating budget : it the planning of the business operation in a financial year .it is also
of various type :
A. Sales and revenue budgets: Income generation from the expected operation by the
organisation.
B. The expense budget: It anticipate the flow of expense by the organisation in the
particular period.

C. Estimate budget: It is the comparison between the expenses and the sales. If it is too
low then the planning to increase it is made.
3. Non-monetary: The sales and expenses are recorded in terms of non-monetary basis
because if the expenses are too much for the company then it should be control to
increase the profit.
Problems in the management of the accounting of the financial statement
The evaluation of the planning tools of the accounting is to know the problems which are
come at the time of budget preparation.
1) Budget are generally time taking and costly: Although we have various techniques of
budget planning but they are still not too costly and time consuming.
2) Poor value to the user: the budget process are widely used because of the perception of
the people. Sometimes, the member get confused because of the data available with the
no use.
3) Shareholder values are not clear mention from the budget: It focus inside target of the
trend which leads to the change in the earlier outcomes.
4) It always a chance of rigid which prevent to the fast response: according to the data only
few companies are making changes in their budget in fiscal year. And one more issues is
that they do not even go for the strategy implementation for the growth and expectation
of the business (van der Steen, 2011).
P5. Adoption of accounting system to solve financial problems.
Management accounting system act as a solving tool for every organization because it
contains all the relevant facts and figures which is very essential while solving their problems.
Basically most of the company are adopting this technique of accounting system because of their
advantages and positive result outcomes to solve their business problems by reducing their risk.
The main aim or motive of the company is to minimize their losses by making their
company policies more effective and useful through which they can easily able to solve
upcoming financial problems.
1. Accounting system gather all the relevant data and information through which a company
tries to solve their business problems.
2. Availability of appropriate resources so that there is no shortage of useful resources while
working their task and activity.