Management Accounting Report

This report examines the principles of management accounting and its application in a real-world scenario using Sollatek Ltd., a company producing electrical and electronic equipment. It analyzes various management accounting systems, reporting systems, costing techniques, and planning tools, analyzing their benefits and drawbacks. The report also includes a critical evaluation of financial tools for overcoming financial issues and a comparison with other organizations.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Types of management accounting systems and its essential requirements..........................1
P2: Types of management accounting reports and its importance to management....................3
M1: Benefits and application of management accounting systems............................................5
D1: Critical evaluation of various reporting and accounting system..........................................5
TASK 2............................................................................................................................................6
P3: Calculation of cost using an appropriate techniques............................................................6
M2: Various types of accounting techniques..............................................................................8
D2: Data interpretation................................................................................................................8
TASK 3............................................................................................................................................9
P4: Merits and demerits of using planning tools used in budgetary control...............................9
P4. Advantages and disadvantage of different types of planning tools......................................9
M3: Use of different planning tools and their applications.......................................................11
TASK 4..........................................................................................................................................11
P5: Comparison with other organization to overcome financial issues....................................11
M4: Roles of management accounting in analysing financial problems..................................12
D3: Evaluation of planning tools for respond financial issues.................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the principle of preparing financial accounts on annual basis
so as to facilitate an organisation in maintaining their financial position in competitive market.
Such financial accounts includes Profit & Loss a/c, Balance sheet, Cash Flow statement etc. It is
beneficial for the shareholders who supports an organisation in operating their business
operations in an effective and efficient manner. The accounting managers are responsible to
convert financial data into useful information which makes easy for them to make an effective
decisions and profitable plans for an organisation. It strong the presence of company among their
rivals in better way.
Sollatak Ltd., a company which is producing and offering electrical and electronic
equipments to the people of UK with an aim of protection other businesses and customers from
power problems is taken for the purpose of preparing this report. The project summarises the
different accounting systems and its essential need within an organisation. In addition with this,
different reporting systems which makes easy for management in decisions making process are
discussed under this report. Along with this, different types of costing which are used in
calculation of net profitability are also covered under this report. Apart from this, planning tools
to control budget, financial tools to resolve financial issues are also briefly explained under this
report (Amidu, Effah and Abor, 2011).
TASK 1
P1: Types of management accounting systems and its essential requirements
Definitions of MA:
Institute of Management Accountants (IMA): Management accounting is a profession
consisting different roles and responsibilities such as decision-making process, making of plans
and policies, preparation of accounting reports etc. which drives an organisation to achieve pre-
determined goals and objectives within given time frame.
Institute of Certified Management Accountants (CMA): Management accounting
requires knowledge and professional skills of management accounts so as to prepare accounting
reports facilitating management to make a profitable decision and suitable policies for the
betterment of an organisation.
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Meaning: Management accounting facilitates an organisation in competing with their
rivals through maintaining their financial position in market. It can be done through maintaining
financial reports on annual basis which includes Profit & Loss a/c, Balance sheet, Cash Flow
Statement etc.
Therefore, management accounting plays a vital role in the growth and success of an
organization. There are various functions which are required to performed by accountant
manager such as preparing financial reports, adoption of management accounting systems,
selection of best costing method, preparation of budget and using planning tools to control etc.
Sollatek Ltd. is a manufacturing company producing electrical equipment which facilitate
business and customers to consume less energy and save more (Arroyo, 2012). Therefore, it is
essential for its management to maintain financial position in order to expand its business
operations to a large scale. It can be done through using different accounting systems which
includes price optimization system, cost accounting system, job costing system etc. in order to
make an effective plans and decisions to achieve growth of an organization. It brings many
advantages to company which are given as below:
Increase in achieving loyalty of targeted customers: Using of various accounting
systems such as price optimization system help Sollatek Ltd. in identifying the perception of
targeted customers towards the price charged by them on their products and services. It enables
management in making an effective pricing policies which maximizes their satisfaction level.
Measurement of performance: Management accounting facilitate departments in
enhancing their overall performance through measuring by comparing actual with standard
performance. It contributes maximum in achieving desired goals and objectives of an
organization. For example, formulation of budget using cost accounting system help in allocation
of cost to different departments on the basis of their needs and requirements (Bedford, Malmi
and Sandelin, 2016).
Effective management control: With the help of management accounting system,
Sollatek Ltd. are able to reduce business cost and operation through making an effective plans
and policies after determining the useful data gathered from management accounting system.
Different management accounting systems:
Price Optimization system: Such accounting system makes easy for management to
formulate an effective pricing policies as it help in identifying the perception of targeted clients
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and how much they willing to pay for the products and services offered by Sollatek Ltd. This
will result in maximizing the satisfaction level of targeted clients and easy to achieve their
loyalty as well. For an instance, increment in prices of electrical products on regular basis may
increases the chances of shifting loyal clients towards their rivals which is not a good sign for
Sollatek Ltd. So using such system help in identifying what amount of cost the customers
satisfied at the time of purchasing (Hall, 2012).
Inventory management system: It is another effective accounting system which directs
management to maintain sufficient level of stock with company so as to meet market needs and
requirements. Sollatek Ltd. must required to adopt such system in order to grab the situation of
rising demand of products in near future through getting availability of raw materials in their
warehouses. For example, increases in demand of electricity products in near future should
required for company to have sufficient amount of stock to meet and it can be supported by such
system.
Cost accounting system: It refers to such accounting system which facilitate management
in identifying the total expenditure that to be incurred in execution of different business activities
such as production or marketing activities. Sollatek Ltd. is small-sized company having limited
amount of resources thus it is important for the management to utilize in an optimum manner so
that the chances of wastage are minimized. It can be possible through using cost accounting
system which restrict and guide company to incur cost after analyzing the future uncertainties
and their effectiveness.
Job costing system: This is the accounting system which help in identifying the overall
cost incurred in producing individual or group of products which drives management to prepare
an effective budget. The management of Sollatek Ltd. requires to consider all the activities
performed in producing products and on the basis of which cost has been allocated in order to
bring profitable outcomes in near future. There are various methods using under such system
such as Batch costing, process costing and contract costing. Sollatek Ltd. May have option to use
batch costing due to dealing with electricity equipment (Johnson, 2013).
P2: Types of management accounting reports and its importance to management
Sollatek Ltd. Is small-sized company deals in manufacturing electrical products and
selling it to the other businesses and customers. The management always tried to expand its
business which can be possible through maintaining accounting reports on daily, monthly,
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quarterly or yearly basis. Such reports includes Profit & Loss a/c, Balance sheet, Cash flow
statement etc. which shows actual and exact financial position of company in market. This
directs management to make an effective decisions and suitable plans in order to achieve
competitive advantage. Therefore, it is essential for Sollatek Ltd. To maintain different types of
reports such as performance report, account receivable report, job cost report etc. which provides
useful information on the basis of which an effective plans and policies will be formulated. Such
reports are also useful to present such report towards its shareholders so that further financial
help will be get to expand business to different countries. Such shareholders includes investors,
creditors, suppliers etc.
Therefore, it must required for Sollatek Ltd. to prepare different kinds of reports in order
to bring ahead than their rivals and sustain in market for longer period of time. Such reporting
systems are further discussed under the below:
Performance report: It is such a documentation which provides relevant information
regarding the performances of various departments within an organisation. The managers of each
department should required to maintain all records related with the activities performed by them
in achieving desired target. On the basis of which, the management of Sollatek Ltd. prepare a
budget and assigning roles and responsibilities. Contribution of each departments maximizes the
overall performance of an organization due to which investors are easily attracted towards them
regarding investment (Lee and Cobia, 2013).
Account receivable report: Such report is essential to maintain in order to strong
financial position of company. Such type of report communicates company regarding the list of
debtors which are not yet paid to company for the transactions they made with company earlier.
This will direct management to collect recovery amount through contacting them. It also forces
company to re-think about their credit policies so as to avoid the situations of bad-debts or non-
payment by their debtors.
Job cost report: It is also an important accounting reports which need to be maintained
by Sollatek Ltd. so as to determine the cost incurred in producing particular product or group of
products. The management of an organization are required to analyze whether invested amount
will be recover to product particular product in near future. The main aim of preparing such
report is to identifying the cost involved in different job orders. It will directly make positive
impact on the profitability of company (Luft and Shields, 2010).
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Inventory management report: This is the accounting reports which brings company in position
to meet market needs and requirements through maintaining sufficient level of stock with them.
As the clients of Sollatek Ltd. Are businesses and customers thus the demand of their electrical
products will be high at anytime due to which sufficient amount of stock is necessarily required
to maintained by company. This can be possible through collecting information from such report
so that the managers are able to place an order to inventory at right time at right place so as to
run production process more effectively. EOQ, ABC costing technique and inventory system are
useful technique which facilitate management to prepare inventory report (Mistry, Sharma and
Low, 2014).
M1: Benefits and application of management accounting systems
Sollatek Ltd. May get several benefits through applying different management
accounting systems. Such benefits are given as below:
Management accounting systems Benefits
Cost accounting systems It helps in minimising wastage of cost though
allocation of cost after analysing the outcomes
received in future.
Inventory management system It help Sollatek Ltd. To maintain adequate
level of stock in order to meet market needs
and requirements.
Price optimisation system It help in maximising the satisfaction level of
targeted clients through setting an effective
pricing policies.
Job costing system It helps in determining total cost incurred in
producing individual product or group of
products.
D1: Critical evaluation of various reporting and accounting system
There are several accounting and reporting system which facilitate management in
making an effective decisions and suitable plans through getting information from using such
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systems and reports, For example, account receivable reports contains the information related
with list of unpaid debtors due to which the management are able to changes its credit policies in
order to prevent uncertainties regarding recovery of payment (Noreen, Brewer, and Garrison,
2014).
TASK 2
P3: Calculation of cost using an appropriate techniques
Cost: It refers to the amount of value which is incurred to produce or acquire something
in order to achieve profitable outcomes after selling such manufactured products and services. In
other words, cost is mainly valuation of the efforts, resources, time and utilities, risks etc. which
are required to be invested in execution of different business activities. Such cost are related with
material, labour, overheads etc. used in production process. For this, the management have two
methods in order to determine net profitability.
Sollatek Ltd. is a manufacturing company thus required to determine costs incurred in
execution of different business activities in order to achieve huge profitability and sustainability.
It directs management to minimize wastage in order to increase profits. There are mainly two
types of costing methods such as marginal costing and absorption costing. It is further discussed
under the below:
Marginal costing:
It is a method considering only variable costs while making calculation of net
profitability. Such method is useful when an organization produce one extra unit of output other
than the main output. It either increase or decrease the total cost of production process which
depends on the level of output produced. Marginal cost is also known as variable cost which
includes labour and material costs in addition with estimated portion of fixed cost (Otley and
Emmanuel, 2013).
Absorption costing:
It is also another effective costing method includes all types of costs such as variable and
fixed cost due to which the net profitability are affected. It is required to Generally Accepted
Accounting principles (GAAP) external reporting. It considers both variable as well as fixed cost
while calculation of net profitability. For example, Direct cost includes wages cost, raw materials
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used and overhead costs. As due to inclusion of fixed cost, the net profitability of company
decreases thus less preferred by most of the companies.

Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is said to be one of the crucial point at which every cost and
expenses needed to provide equal outcomes for Sollatek (UK). It is known as effective point in
which company neither get profit or nor goes into any kind of loss.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
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Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is known as one of the reliable aspects that is related with better
management of various intrinsic value of stock at market cost. It is termed as more accurate ways
to provide effective ways as an end sales volume which would be depend as appropriate business
range to overall break even analysis.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Various types of accounting techniques
There are mainly two types of accounting techniques which includes:
Standard costing: It is a useful method which help in calculating future profitability b y
considering various elements including future sales revenue, costs and demand. Such method is
most preferable by most of the companies in order to ascertain future outcomes.
Marginal costing: It is adopted by almost every organization including Sollatek Ltd. So
as to ascertain net profits through considering only variable costs (Shah, Malik and Malik,
2011).
D2: Data interpretation
As according to the above calculation, two methods are adopted in order to calculate net
profitability. While using marginal costing method, the profit is 17500 whereas using marginal
costing method the profit is 15675. Such difference of 9600 comes due to changing in variable
cost. In Break even, total number of units sold are 500 and total amount of sales revenue to
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achieve break even is 20000. To earn minimum profit of 1000, Sollatek Ltd. need to achieve
sales revenue of 1333.33. The safety margin is 37.5 when 800 products are sold.
TASK 3
P4: Merits and demerits of using planning tools used in budgetary control
Budgetary control: There are different departments which contributes maximum efforts
in achieving desired goals and objectives. In order to complete their activities, they needed funds
due to which the management prepare a budget according to the needs and requirements of each
department. It is important to control expenses invested in execution of different business
activities due to which the management also liable to use different planning tools in order to
control budget (Vaivio and Sirén, 2010).
P4. Advantages and disadvantage of different types of planning tools
Budgetary control: This consist to be a system which effective in controlling the cost
which includes coordinating the department, preparation of budgets, establishing responsibilities
and comparing the actual performance through an appropriate amount of budget and works as to
attaining higher profitability and growth. The major purpose of this tool is to eliminate or reduce
the waste of firm and increase the profitability. The process of budgetary control has involve
various elements, which are described as below:
Consult with manager: In the initial step, the supervisors or manager of various divisions
are required to get together and talk about in regards to the business exercises which conveys
long term benefits to the firm or its various operations (Van der Stede, 2011).
Do assumptions: After accumulating all data and information from various departments
are needs to meet for the purpose of discussing about the activities which are effective for the
firm to providing long term benefits and advantages, the manager of Sollatek Ltd. Make
suspicions for future business exercises with a desire for accomplishing relevant results.
Fix data to attain business targets: In this stage, data gathered from all departments, the
administration of Sollatek Ltd. are setting up focus to control cost that will be brought about in
future business exercises.
Compare actual data with budgeted information: In this stage, the administration of
firm consider the past information as to preparing the current budget for the firm. This will help
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in recognizing the past mistakes which are considered to correct in order to not repeat at current
circumstances also (Windolph and Moeller, 2012).
Review analysis: This is the last stage in which every one of the means taken are auditing
precisely so as to distinguish the deviations which may comes during the time spent executing
future business exercises.
Planning tool:
It considered as an effective management process that focuses on evaluating the goals for
firm's future direction. This provides direction to manager and also ensure about the proper
utilisation of the resource in effective manner. There are various planning tools that are applied
by managers of Sollatek Ltd. This can be described as below:
Forecasting tool: It is determined as an effective tool which is utilized to assess with the
assistance of past and current information. The more exact the organization can assess related
with internal and external elements which are influencing business, the more chance of attaining
productive outcome and results (Budgetary Control, 2017).
Advantages Disadvantages
It helps administration in getting real and
appropriate information to management which
additionally help them in settling on a viable
choice and appropriate plans for future
business exercises. It expands the chance of
getting beneficial results.
It is not much effective to anticipate future as it
depends on the assumption. thus, the outcome
may turned out badly if the circumstances are
not as per the assumption.
Scenario tool: It is an effective technique which help in distinguishing the option
accessible to execute business exercises in more effective and proficient way. Such apparatus
guides and aides administration to perform distinctive capacities.
Advantages Disadvantages
It help in gathering valuable data about the
different options and helps in executing
business exercises in wanted way.
Such device devours additional time in
recognizing different choices because of which
the adequacy of business exercises and results
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are quite influenced.
Contingency tool: It is considered as a powerful technique which is utilized by the
organisations as to keeping in mind the end goal to manage possibilities through taking
corrective activities and measures. An appropriate arrangement is figured by administration in
the wake of considering all issues and factors that influences the activities of an association
(Management Accounting, 2016).
Advantages Disadvantages
It help administration in decreasing expense of
business cost and activity that has beneficial
outcome on the net gainfulness of organization.
This kind of tools are appropriate to manage
crises in this manner not material for each
circumstance.
M3: Use of different planning tools and their applications
Budgetary-control is defines as the management of budget in this the management of firm
plays vast role in controlling, monitoring and operates the budget of an organization within a
specified financial period. Scenario, contingency and scenario tools etc. which help in
controlling budget.
TASK 4
P5: Comparison with other organization to overcome financial issues
Every organization in the market especially the small-sized company such as Sollatek
Ltd. To maintain its financial position so as to adopt advanced and updated technologies in their
business operations in order to achieve maximum possible result. The management always tried
to prevent financial issues and problems which can affects their profitability. Such issues may
arise due to lost of important report, low performance of employees, rival's effective strategies
etc. Therefore, there are several financial tools which can help company in eliminating financial
issues and problems in an effective and efficient manner. Such financial tools includes:
Key performance Indicators (KPI): It is considered as an effective tool which help in
measuring the performance of employees through identifying their previous performance and
compare it with the desired performance. It help company in identifying low as well as high
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performer employees so that the need of training are easily identified. The management are in
position to give rewards as well to the high performer in order to encourage their workforce. It
facilitate company to enhance their performance and achieve its desired goals and objectives
within limited period of time.
Financial governance: It is the guidelines which are made for the members of an
organization to work in right direction so as to achieve maximum positive outcomes in near
future. Following rules and guidelines of company minimizes the chances of arising conflicts
among members of an organization which directly makes positive impact on the overall
performance of an organization.
Benchmarking: Employees is a valuable asset of company whose efforts and
contribution decide the incrementation in profitability. For this, the management set targets
towards them to achieve within given time frame. It brings motivation among employees to use
their specific skills and professional knowledge to complete allotted task in an effective and
efficient manner. The target will be set after identifying the rivals' competitive strategies so as to
bring company ahead than their rivals in competitive market.
Comparison of Sollatek Ltd. with other companies
Sollatek Ltd. Hichrom Ltd.
It is the company which deals in offering
electronic equipments with an aim of saving
energy consumption.
It is such an organisation which deals in
offering variable speed AC drives for
adjustable control of electronic motors and
inverters.
It is operated at small level thus required to
adopt KPI and Benchmarking tool which help
in motivating employees to work hard and
achieve allotted target within given time frame.
It is operated at large scale thus must required
to adopt financial governance tool so as to
maintain exist position in competitive market.
It has wider scope. It has narrow scope.
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M4: Roles of management accounting in analysing financial problems
There are various financial issues which causes cash unavailability, product defects and
others which affects the profitability of an organization. For this, KPI and Benchmarking are the
most preferable financial tool to adopt by Sollatek Ltd. as they are operated at small level.
D3: Evaluation of planning tools for respond financial issues
There are mainly two types of financial tools such as KPI and Benchmarking which need
to be adopted by Sollatek Ltd. In order to strong financial position in market. It help company in
acquiring advanced and updated technology which further help in increasing efficiency and
productivity of company.
CONCLUSION
It has been concluded from the above project report that management accounting is an
integrated part of an organization which gives equally support in bringing company ahead than
their rivals. For this, the management are required to adopt management accounting and
reporting system in order to make an effective decision and suitable plans for the betterment of
an organization. There are two costing methods such as absorption and marginal costing method
which are helpful in determining net profitability of company. Different financial tools also
required to consider by management in order to resolve financial issues or problems as quickly
as possible.
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