Management Accounting Systems and Reporting in Associated British Foods

This report discusses the importance of management accounting systems and reporting in the context of Associated British Foods (ABF), a manufacturing company. It covers topics such as types of management accounting systems, different methods used for management accounting reporting, benefits of management accounting system (MAS) in ABF, integration between MAS and management accounting reports (MAR), and two planning tools: Activity Based Costing (ABC) and Inventory Management System (IMS).

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
EXECUTIVE SUMMARY.........................................................................................................................4
INTRODUCTION.......................................................................................................................................4
MAIN BODY..............................................................................................................................................4
TASK 1.......................................................................................................................................................4
A..............................................................................................................................................................4
Management Accounting.........................................................................................................................4
Types of management accounting systems..............................................................................................5
B..............................................................................................................................................................6
Different methods used for management accounting reporting...............................................................6
C..............................................................................................................................................................7
Explaining benefits of Management Accounting System (MAS) along with execution in specified
company..................................................................................................................................................7
D..............................................................................................................................................................9
Evaluating how management accounting systems and reporting is integrated.........................................9
E............................................................................................................................................................10
Explaining two planning tools in detail.................................................................................................10
CONCLUSION.........................................................................................................................................11
TASK 2.....................................................................................................................................................12
PART A.................................................................................................................................................12
PART B.................................................................................................................................................13
REFERENCES..........................................................................................................................................18

EXECUTIVE SUMMARY
Management accounting is important in current competitive environment for having
smooth functioning of business practices. Associated British foods has been selected which is
part of production industry of United Kingdom. The current case study has included management
accounting system and its benefits of implementing in concerned organization. Methods of
management accounting reports have been highlighted as well integration with MAS included.
Two effective planning tools such as BEA and ABC have been explained in detail.
INTRODUCTION
Management Accounting (MA)is one of the crucial component that is implemented in
organization to prepare, analyze and interpret the various reports in order to take appropriate
decisions. In present scenario, it becomes essential for organization to develop effective MA
plan to gain competitive advantages. The current report will include MA and its system along
with benefits, methods of management accounting reports, etc in the context of Associated
British Foods (ABF) which participate in manufacturing sector. Integration between MAS and
Management Accounting Reports (MAR) will be included in case study. Two [planning tools
will be comprised in present report.
MAIN BODY
TASK 1
A.
Management Accounting
Management accounting is the key business function wherein the financial information of
the business shall be communicated to the managers who use this data in the decision-making
process as associated with the organization. It majorly involves the budgeting of the future
business operations like their capacity of operations, level of activities, requirement of the
finances, allocation of the resources, incomes and expenditure related to the future period of the
business (Turner and et.al., 2017). It involves the various facets of the accounting like the cost

accounting, financial analysis, budgeting and forecasting etc. It is basically the process that
involves the internal processing of the data for the upcoming business transactions of the
company. It proves to be beneficial for the company as the past information is adjusted with the
future changes and the estimated targets for the company are established. This shall boost the
operational efficiency of the company as the blueprint is prior provided to all the employees of
the business, optimum allocation of the resources, better achievement of the organizational
objectives and the minimization of the wasteful expenditures in the company.
Types of management accounting systems
There are different types of the management accounting systems that are applied in the
business to serve the essential requirements:- Cost accounting systems- The cost accounting system is applied in the business to
estimate the cost of the products and services in the company and controlling the costs to
simultaneously fix the profit margin of the company. It is very important in the business
to make the cost and the profitability analysis of the products and the services that are
offered to the company. The inventory valuation is also the major part of this as the costs
of the raw material, work in progress and the finished goods have to be analysed
accurately. Inventory management systems- These are also an essential requirement in the
organization wherein the system shall be tracking the inventory levels in the organization
based on the orders placed, inventory stored in the warehouse, sales made and the scrap
material discharged. They fix the system such that the overstocking and the under-
stocking shall be avoided and the right levels of the inventory are maintained in the
organization. Job costing systems- It is related to the system that is build to track the costs of the
specific job order of the company where all the costs pertaining to that are allocated and
accordingly the profits will be recognized. All the costs are accumulated under the single
head that is in the name of the particular job.
 Price optimization systems- This system is applied to optimize the prices of the products
and services of the company so that the price sensibility of the customers can be tackled
by the company. An effective price point is decided wherein the company shall be able to
decide over the prices of the products that generates value for the customers.

B.
Different methods used for management accounting reporting
The MA reporting provides assistance to the businesses in effectively monitoring the
performance of the entity periodically as per the requirement. The different methods of the same
are described below.
Budget reports
These types of reports are created by the organization for the purpose of making a
comparison between the set standards and the actual outcome during a specific period. This
supports in measuring how close the real outcome was in contrast to the budgeted one (Guffey
and Harp, 2017). The budget plans are monetary objectives to be accomplished which depend on
future projection. It is mainly dependent on the past encounters. It drills down every one of the
sources of income and utilization of assets. The reason for the business to achieve its targets and
objectives while remaining inside the spending plan.
Account receivable aging report
This report accounts to the managerial tool which is being utilized by the association in
assessing the company’s account receivables details and current situation. It drills down the
association’s complete client list alongside the leftover balance or the due amount. It likewise
helps in deciding the defaulters and any issues in the firm’s collection handling team (CHAN,
2020). This report gives an insight into the measure of chances of converting account receivables
into bad debts and based upon this, decisions are undertaken pertaining to the creation of the
provision and avoiding the future shock of the same. Based upon this, better insight is taken
pertaining to the efficiency of the collection team in recovering the due amount form the debtors
so that relevant actions can be undertaken like providing training to them.
Job cost report
This report helps in determining the ongoing cost in regard to the project which is being
carried out. These costs are later being compared or matched with the revenue so that the
management can identify the profits in relation to the particular job. It supports the organization
in putting more focus on the area which results into providing higher earnings in contrast to those
which offers lower margins. In addition to this, it also assists in effectively analysing the expense
pertaining to the current projects which is being executed so that timely remedial actions can be
taken before the cost escalates.

Performance report
This report is set up to quantify the business entity’s performance and productivity as a
whole along with its individual employees as well. In huge associations, division wise reports are
created, these reports are utilized by divisional heads in take key choices for accomplishing
future objectives of the association (Kuzina, 2019). These reports give profound knowledge into
the functioning of the firm. This report assumes a significant part for the organization to
precisely measure and monitor the strategy being implemented by them. Based upon this report,
decision are undertaken in regard to appreciating and recognising the high performing employees
while proper taking care of the lower performing employees. In addition to this, better targets are
set for the high performers leading to better and effective accomplishment of the goals of the
company.
C
Explaining benefits of Management Accounting System (MAS) along with execution in
specified company
Benefits of Price Optimization System (POS)
 The one of the main advantage which ABF will obtain is time saving through identifying
appropriate price level helps to achieve effective profitability margin.
 Market transparency through deriving customers’ responds to particular price aids in
scalability advantages.
 Full control over business practices can be executed by Associated British Foods with
help of POS implementation (Ismail, Isa and Mia, 2018).
 Relying on heavy discounts to sell its manufactured products by ABF can be eliminated
to get sustainable advantages of customer survey.
Pros of Job Costing System (JCS)
 This particular system of management accounting system helps organization to estimate
profit of each task so that identifying contribution of particular job in success becomes
possible.
 Evaluation of performance of single department in order to eliminate irrelevant expenses
to increase profit margin through assessing related cost in systematic pattern.

 Associated British Foods will be able to obtain flexibility in determination of
manufacturing overhead which provides assistance in allocating expenses to designated
account in significant manner.
 Scalability to continue complex procedure will become possible for ABF through
implementing in its organizational practices.
 ABF will get advantage of controlling expenses through providing consideration on job
costing system which will aid in moving towards desirable position.
Advantages of Cost Accounting System (CAS)
 Cost accounting system provide several pros to organization but one of the significant
factor that company derives is ability to measure and improve efficiency of operational
practices (Rikhardsson and Yigitbasioglu, 2018). It is achieved by proper estimation of
cost related to business activities.
 It is one of the simple process to implement and understand as ABF can segregate
between profitable and unproductive activities to attain elimination of irrelevant
functions.
 Fixation of prices becomes possible by having this specific management accounting
system in firm. ABF will as well get assistance in reducing prices according to prevailing
situation.
 Information planning for continuing company process can be attained by Associated
British Foods with appropriate monitoring over manufacturing process.
 Reason for losses by detecting inappropriate actions prevailing in organization by
identifying lacking areas to make significant decisions for improvement will become
possible for ABF with help of cost accounting system
Benefits of Inventory Management System (IMS)
 There are various advantages of IMS but the one of the significant attribute which can
help Associated British Foods is cost saving. With help of this, company will be able to
sustain in industry for longer duration.

 Risk regarding out of stock can be avoided to meet market forces by ABF to derive
leading position in sector.
 Associated British Food will become able to manage its inventory in accurate and simply
manner (Azudin and Mansor, N., 2018). Company can make more appropriate and
profitable decisions through implementing inventory management system.
 Data visibility can be improved by having IMS into business practices to accomplish
purpose of having financial stability
 It tries to protect fluctuation occurring in manufacturing process by avoids duplication in
order of stock.
D.
Evaluating how management accounting systems and reporting is integrated
Business is made up of various several functional areas which require to be coordinated
and managed to make systematic functioning of organization. Management accounting helps
ABF to get various qualitative and quantitative information to take accurate business decisions.
These decisions are needed to be implemented after analyzing and interpreting reports in fair
manner to obtain relevant information which can influence process in both positive and negative
pattern.MAR aids in summarizing complex business transaction in effective manner. Systems
helps in utilizing presented data by reports to manage different segments of company in order to
move towards success. Data reflected by budget and performance reports can provide details
regarding cost in such cases ABF can implement cost accounting system to minimize
expenditure of manufacturing (Labro, 2019). This is exerted by making proper breakdown
between direct & indirect cost to know important factor contributing towards success.
MAS measure & monitor quality related cost also contribute to continuous modifications
whereas reports gives crucial information regarding the quantitative information. From this it can
be interpreted that it becomes important to interrelate for establishing coordination to achieve
goals and mission of company (Gottlieb, Hansson and Johed, 2021). Having effective
integration provides appropriate relevant, reliable information to obtain ability to corrective
course of action to remove lacking areas so that desirable position can be derived. It as well
assists in getting all financial and non monetary data to have effective smooth functioning or
business processes.

E.
Explaining two planning tools in detail
There are various planning tools that helps in attaining road map to move towards
success. The two effective planning tools area s follows:
Activity Based Costing (ABC)
 It is one of the crucial planning tools which identifies and assigns cost to activities in
appropriate manner. This particular tool is taken into organization to recognize irrelevant
components that are not capable of serving fair amount of profit. In addition to this,
business becomes possible to analyze resource requirement and allocating accordingly to
production process prevailing in firm.
 ABC is applicable throughout company financing, accounting & costing to attain full
scope in effectual manner (Novas, Alves and Sousa, 2017). In addition to this, helps to
identify inefficient products, departments and activities to allocate proportion in
appropriate way. Fixing prices with desired analytical resolution becomes possible by
executing activity based costing planning tool in organization.
 These planning tools provides various benefits to organization in significant manner by
providing realistic costs of specific products (Advantages and disadvantages of Activity
Based Costing (ABC). 2021). With help of ABC ABF will be able to identify profit
margins more precisely through determining irrelevant and wasted cost. Organization
will become able to offer better understanding and justification of costs in manufacturing
overheads.
 Every technique has its pros and cons which require being recognize at initial stage to
derive sustainable financial condition. Collection & formulation of data is time
consuming which is one of the adverse situation. It is expensive to implement as
analyzing & interpretation gives negative impact on organization process. In addition to
this, reports from activity based costing may produce conflict scenario in managerial
performance standards.
 There are variety of disadvantages which ABC can outcome in ABF such as measuring
performance does not give proper results which may mislead decisions. Selecting most
suitable cost drivers becomes difficult while giving focus on this planning tool.

Explaining to shareholders the results obtain from it becomes tough for organization so
emphasis should be given at all aspect while making decisions regarding selecting and
implementing planning tool.
Break even Analysis (BEA)
 This is crucial procedure which helps organization to know how much units it has to sell
in order to reach situation where there is no profits & loss. It is achieved by covering cost
of organization which it has incurred in form of fixed expense. Breakeven point is at
which fixed & variable cost are equal to revenue (Pasch, 2019). This is one of the
essential technique to make planning for carrying forward business transaction in
effectual manner.
 There are various benefits of having this BEA in firm one of which is that it is simple to
understand and execute. Determination of prices to attain desirable financial position in
current working scenario becomes possible by BEA. Setting revenue targets provides
motivation to perform properly through encouraging employees to share full potential
(Collis Hussey and Hussey, 2017). Mitigating risk by getting knowledge regarding no
loss & profit helps organization to derive sustainable growth.
 Break even analysis has some limitations as well which need to be remember by specified
firm like it ignores competition while providing insights. There are some assumption like
variable cost will always rise steadily which does not provide clear cut division.
CONCLUSION
From the above report it can be concluded that management accounting is essential to
have smooth functioning. It has included MAS along with its benefits while implementing g in
organization. In addition to this, different methods MAR and its integration with MAS has been
included in current case study. Two different types of planning tools such as break even analysis
and ABC have been included in present report. It is recommended to organization to implement
effective price optimization & cost accounting system to have significant appropriate advantages
in order to get sustainability with higher efficiency and profitability.

TASK 2
PART A
Income Statement as per absorption costing technique
Particulars May June
Revenue 4720000 4720000
Opening inventory 0 0
closing inventory 0 221250
4498750
Marginal Cost of sale
Direct cost
Material 992,000 992,000
Workers 1,376,000
1,376,00
0
Fixed overhead 650,000 3,018,000 650000
3,018,00
0
Gross profit 1,702,000
1,480,75
0
Variable indirect expenses 0 0
Fixed indirect expenses 0 0
Net profit 1702000
1,480,75
0
Income Statement as per marginal costing technique:
Particulars May June
Revenue 4720000 4720000

Marginal Cost of sale
Opening inventory 0 0
closing inventory 0 (221250)
Direct cost
Material 992,000 992,000
Workers 1,376,000 1,376,000
2,368,000 2,589,25
0
Contribution 2,352,000 2,130,75
0
Fixed overhead 650,000 650000 650,000 650,000
Net profit 1,702,000 1,480,75
0
Statement of reconciliation profits under absorption and marginal costing:
Particulars May June
Marginal costing profit 1,702,000 1480750
Add
: Fixed cost difference Nil Nil
Absorption Costing profit 1,702,000 1480750

From the above shown income statement as per costing analysis tool which includes
absorption and marginal this can be articulated that Deniz Ltd is earning fluctuating profitability
for two specified periods such as May and June. Organization has spent its monetary resources
on labor, material, etc. In addition to this, it can be analyzed that profitability has be declined
from May to June.
PART B
Gross Profit Ratio
It helps in analyzing organization’s ability to generate profits through reducing cost.
Gross profit ratio has been calculated for three years as shown below. From the evaluation it can
be interpreted that GPR is in declining direction which requires significant improvements to
achieve business objectives.
Particulars Formula 2018 2019 2020
Gross Profit 22.4 26.1 31.8
Revenue 62.5 78.7 95
Gross Profit
Ratio
Gross Profit/
Revenue*100
35.84 33.16 33.47
Net profit ratio
This is one of the crucial matrixes to measure company’s performance in terms of
profitability. It shows firm’s capacity of utilizing sales to make profits than ideal ratio. The
below illustrated table can be taken into consideration for analyzing net profitability through
comparing it with ideal ratio that is 10%. Online retailer’s 3 years outcome regarding same is
lower than standardize margin and as well is decreasing from 8.64 to 6 which needs
modification.

Particulars Formula 2018 2019 2020
Net profit 5.4 5.1 5.7
Revenue 62.5 78.7 95
Net profit ratio Net profit/
Revenue*100
8.64 6.48 6
Current Ratio
Company’s ability to meet short term obligation with help of current assts shows its
efficiency. The mentioned figure are showing declining trend and requires major actions in order
to uplift company’s progress to attract stakeholders.
Particulars Formula 2018 2019 2020
Current assets 42 48 61.8
Current
Liabilities
77.3 96.6 116.5
Current Ratio Current assets/
Current
Liabilities
0.54 0.49 0.53
Account Payable Turnover ratio
Organization’s credibility and trustworthiness sis widely dependent on its efficiency of
paying its debts. There are various stakeholders like financial institutions, lenders, suppliers who
highly give emphasis on this to make decisions (Jack, Florez-Lopez and Ramon-Jeronimo,
2018). In addition to this, specified entity has not good account payable turnover ratio which has
first declined and then inclined. It requires to be low for attracting essential funding to derive
smooth functioning.
Particulars Formula 2018 2019 2020
Account Payable 48.5 56.2 63.3
COGS 40.1 52.6 31.8

Account
Payable
Turnover ratio
Account
Payable
/COGS*365
441.45 389.98 726.55
Account Receivable Turnover ratio
In order to have fluent functioning of operational practices it becomes important
for entity to focus on its collection period (Dutta, Jain and Gupta, 2020). This needs to be low for
having appropriate availability of funds to carry forward business activities. It indicates lower
efficiency in specified filed which needs improvement actions.
Particulars Formula 2018 2019 2020
Account
Receivable
14.3 17.3 22.9
Revenue 62.5 78.7 95
Account
Receivable
Turnover ratio
Account
Receivable/
Sales*365
83.51 80.23 87.98
Return on Capital employed
ROCE is important performance indicator so analyzing and focusing to achieved firm’s
objective become essential. This helps company to generate getter amount of monetary resources
to meet established processes in effective manner. It is in downward trend which needs
appropriate improvement as it has decreased from 7.5 to 6.3%.
Particulars Formula 2018 2019 2020
Operating profit 13.5 14.7 17.5
(Total asset- total
current
256.6-77.3 311.9-96.6 392.8-116.5

liabilities) 179.3 215.3 276.3
Return on
Capital
employed
Operating
profit/(Total
asset- total
current
liabilities)*100
7.5 6.8 6.3

Business Memo
To: Management of Entity
From: Financial Consult (FC)
Subjects: For accomplishing purpose of interpreting financial analysis to recommend
improvement actions
From the quantitative analysis through adopted technique it acne be identified that firm’s
financial growth in company is non effective due to its in appropriate performance. From the
evaluation it can be identified that there are various lacking areas such as less operational
efficiency, lower capacity to generate revenue and paying debt through utilizing available current
resources (Ratio analysis, 2021). In order to make alteration company should pay attention on
attracting stakeholders through taking such course of action.
There is declining trend in gross profit so organization should execute effective cost structure to
decrease expenses through identifying non contributor factor in success. Organization should
give emphasis on net profitability by inclining profit margins through taking price optimization
step, lessening cost, optimum utilization of resources to create profit (Kostyukova and et.al.,
2018). Current ratio play important role in influencing decisions of stakeholders like investors,
customers, competitors, suppliers, etc as they pay attention on higher efficiency so that favorable
outcome can be achieved. Selling off unproductive assets, decreasing short term debt &
inventory, etc to create trustworthiness among these stakeholders to have smooth functioning.
Organization is recommended to focus on its credit policy through defining and making
transparency regarding terms and condition to modify account receivables. Offering discounts,
offers, etc aids customers to get positive scenario and forces them to pay on time which assist in
improving liquidity in industry. Firm can take actions like disposing unproductive assets,
minimizing equity shrinks, etc can provide assistance. Having stable financial condition provides
competitive benefits to deal with competitors in effectual from. The mentioned approaches can
helps specified organization to achieve desirable financial condition.

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