Management Accounting: Portfolio of Calculations and Comments

This article discusses management accounting, including its definition, roles, and principles. It also covers the advantages and disadvantages of planning tools, the use of different planning tools for budgeting, and how organizations respond to financial problems. Additionally, it includes a portfolio of calculations and comments related to income statements under marginal and absorption costing.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author’s Note

1MANAGEMENT ACCOUNTING
Table of Contents
Task 1...................................................................................................................................2
Part A: Portfolio of calculations and comments..............................................................2
Part B- Presentation.........................................................................................................8
Task 2.................................................................................................................................12
Answer to Part A...........................................................................................................12
Answer to Part B............................................................................................................13
Answer to Part C............................................................................................................13
Answer to Part D...........................................................................................................14
Answer to Part E............................................................................................................14
References..........................................................................................................................15

2MANAGEMENT ACCOUNTING
Task 1
Part A: Portfolio of calculations and comments
Preparation of Income Statement Under Marginal Costing
Marginal Costing Income Statement (Year 1)
Amount
(£)
Amount
(£)
Sales Revenue (2900x100) 290000
Marginal Cost of Sales
Add:
Direct Materials
(2900x15) 43500
Direct Labour
(2900x10) 29000
Variable Production
Overhead (3700*5) 18500 91000
Contribution 199000
Fixed Costs
Total fixed indirect
production overhead 100000
Interest expense 1000
Fixed Administrative
overheads 60000
Fixed Distribution overheads 30000
Corporation Tax
(290000*15%) 55100 246100
Net Profit 43900

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Marginal Costing Income Statement (Year 2)
Amount (£) Amount (£)
Sales Revenue
(3300x100) 330000
Marginal Cost of
Sales
Add:
Direct
Materials
(3300x15) 49500
Direct Labour
(3300x10) 33000
Variable
Production
Overhead
(4100x5) 20500 103000
Contribution 227000
Fixed Costs
Total fixed indirect
production
overhead 100000
Interest expense 1500
Fixed
Administrative
overheads 60000
Fixed Distribution
overheads 30000
Corporation Tax 62700 254200
Net Profit 75800
Marginal Costing Income Statement (Year 3)
Amount (£) Amount (£)
Sales Revenue (4500x100) 450000
Marginal Cost of Sales

4MANAGEMENT ACCOUNTING
Add:
Direct
Materials
(4500x15) 67500
Direct Labour
(4500x10) 45000
Variable
Production
Overhead
(3900x5) 19500 132000
Contribution 318000
Fixed Costs
Total fixed indirect production
overhead 100000
Interest expense 1000
Fixed Administrative overheads 60000
Fixed Distribution overheads 30000
Corporation Tax 85500 276500
Net Profit 173500
Preparation of Income Statement Under Absorption Costing
Absorption Costing Income Statement (Year 1)
Amount (£) Amount (£)
Sales Revenue
(2900x100) 290000
Marginal Cost of Sales
Add:
Direct Materials
(2900x15) 43500
Direct Labour
(2900x10) 29000

5MANAGEMENT ACCOUNTING
Total fixed indirect
production
overhead 100000 172500
Gross profit 117500
Interest Expense 1000
Fixed Administrative
overheads 60000
Fixed Distribution
overheads 30000
Variable Production
Overhead (3700x5) 18500
Corporation Tax
(290000x19%) 55100 164600
Net Profit 172500
Absorption Costing Income Statement (Year 2)
Amount (£) Amount (£)
Sales Revenue
(3300x100) 330000
Marginal
Cost of Sales
Add:
Direct Materials (3300x15) 49500
Direct Labour (3300x10) 33000

6MANAGEMENT ACCOUNTING
Total fixed indirect
production overhead 100000 182500
Gross profit 147500
Interest
Expense 1500
Fixed
Administrative
overheads 60000
Fixed
Distribution
overheads 30000
Variable
Production
Overhead
(4100x5) 20500
Corporation
Tax 62700 174700
Net Profit 182500
Absorption Costing Income Statement (Year 3)
Amount (£) Amount (£)
Sales Revenue
(4500x100) 450000
Marginal Cost
of Sales
Add:
Direct Materials
(4500x15) 67500
Direct Labour (4500x10) 45000

7MANAGEMENT ACCOUNTING
Total fixed indirect
production overhead 100000 212500
Gross profit 237500
Interest
Expense 1000
Fixed
Administrative
overheads 60000
Fixed
Distribution
overheads 30000
Variable
Production
Overhead
(4100x5) 20500
Corporation
Tax 85500 197000
Net Profit 212500
Comments
As per the application of the Marginal costing the following results are inferred:
 In year 1 the contribution is computed as £ 199000 and the Net Profit of £ 43900
 In year 2 the contribution is computed as £ 227000 and the Net Profit of £ 75800
 In year 3 the contribution is computed as £ 318000 and the Net Profit of £ 173500
As per the application of the Absorption costing the following results are inferred:
 In year 1 gross profit is computed as £ 117500 and the Net Profit of £ 172500

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 In year 2 gross profit is computed as £ 147500 and the Net Profit of £ 182500
 In year 1 gross profit is computed as £ 237500 and the Net Profit of £ 212500
Some of the main reasons for the difference in the profit figures under the absorption costing and
marginal coting are listed as follows:
 The overall value of the closing stock as per the marginal costing is relatively small as
only the variable costs are taken into consideration
 In year 1 and year 2 production is more than the sales, this is reason for reporting more
profits under the absorption costing. This is also identified as the reason why the value of
the stock is included as a portion of the fixed cost in the current period and same is
shifted to following period.
 In year 3 the production is less than the sales the previous year’s fixed cost is included in
the opening stock and the same is charged against the sales revenues 1
Part B- Presentation
Slide 1
Management Accounting definition, roles and principles
 Management accounting is defined as any advice to a company based on the provision of
financial data which may be used by any organization for its development
 Management roles are aimed to serve the four core needs of the organization which
includes internal management for enhancing the decision support objectives, capacity
utilization for achieving the corporate goals, resource application and customer value
1 Kaplan, Robert S., and Anthony A. Atkinson. Advanced management accounting. PHI
Learning, 2015.

9MANAGEMENT ACCOUNTING
 Principle of causality specifies the need for cause and effect insights and
 Principle of analogy implements the application of casual insights based on the
management activities 2
Slide 2, 3, 4
Specimen of Management Accounting
Slide 5
8 Management Accounting reports with their contents and purpose
1. Financial Reports
The contents of the financial report will include profit and loss statements which
will depict the overall earnings and breaking these numbers into groups. The
purpose of this report is seen with summarizing the total profits earned3.
2. Pro Forma Cash Flow
The pro forma cash flow depicts the total sum of money expected in short and
medium-term accounting periods and amount anticipated on the spending. This
managerial accounting report is aimed at providing a month-by-month summary
2 Otley, David. "The contingency theory of management accounting and control: 1980–
2014." Management accounting research 31 (2016): 45-62.
3 Fullerton, Rosemary R., Frances A. Kennedy, and Sally K. Widener. "Lean manufacturing and
firm performance: The incremental contribution of lean management accounting
practices." Journal of Operations Management 32.7-8 (2014): 414-428.

10MANAGEMENT ACCOUNTING
for the outgoing and incoming cash and at the same time predict the shortfalls and
surpluses4.
3. Sales Reports
The contents show the sources of your company's revenue and enumerates the
avenues which are least and most successful for the company. This report is
intended to highlight the areas in which the business activities earn the most
income, such as wholesale versus retail sales in particular accounts.
4. Item Costs Reports
This management account tool is conducive for portraying the overall sales in
each category for understanding the areas in which the business is most profitable.
The purpose of such a report is defined to produce the breakdown costs associated
to labor, materials and other expenses such as fees and licenses.
5. Budget Reports
These reports are evaluated as very critical in measuring the performance of a
company which is considered as a whole for any organization. Each company
prepares such a report to understand the grand scheme of their business.
6. Account Receivable Aging Reports
These reports include all the necessary information about the accounts receivable
from the trade debtors. The purpose of such a report is seen with Breaking down
the remaining balances as per specific time periods, which allows the managers
for identifying the defaulters and any issue which exists in the collection process.
4 Fullerton, Rosemary R., Frances A. Kennedy, and Sally K. Widener. "Lean manufacturing and
firm performance: The incremental contribution of lean management accounting
practices." Journal of Operations Management 32.7-8 (2014): 414-428.

11MANAGEMENT ACCOUNTING
7. Cost Managerial Accounting Reports
Managerial accounting is responsible for calculating the costs of articles that are
manufactured. This report offers the details of the capacity to procure the cost
prices of items against their selling prices.
8. Performance Reports
These reports are aimed at reviewing the performance of the companies as a
whole for the individual employees. These reports are used for taking key
strategic decisions about the future of an organization5.
Slide 6
Management accounting benefits and their application within an organization
 Provides better understand of the proceedings of the business with statements such as
profit and loss, which is able to specify how the financial performance has unfolded over
time
 Management Accounting can track and use information in a quantified manner
 Capacity of presenting the financial picture in a clearer manner for the bankers and
potential investors
 Better projection of the overall profitability of the company 6
5 Cooper, David J., Mahmoud Ezzamel, and Sandy Q. Qu. "Popularizing a management
accounting idea: The case of the balanced scorecard." Contemporary Accounting Research34.2
(2017): 991-1025.
6 Malmi, Teemu. "Managerialist studies in management accounting: 1990–2014." Management
Accounting Research31 (2016): 31-44.

12MANAGEMENT ACCOUNTING
Slide 7
Critical evaluation of integration
 Real Time Data Processing through remote tracking of financial information. For
instance, this may be used in remotely tracking of the number of vacant rooms, occupied
rooms and new reservations.
 Functional Simplicity is integrated with automated data processing with simplifying the
accounts and bookkeeping by the use of integrated accounting system
 The integration is identified with use of such efficient systems to maximize your business
performance
Task 2
Answer to Part A
The various types of the advantages of the planning tool are
 It is useful for defining the goals, policies and plans of an enterprise
 Budgetary control establishes specific targets for every department which allows an
employee to work efficiently
 Helpful in securing better co-ordination among the different departments
 The planning tools for the budgetary control are effective in facilitating centralized
control with decentralized activity
The various types of the disadvantages of the planning tool are
 Difficulty in preparing the budget accurately in inflationary conditions
 Heavy expenditure for the small business

13MANAGEMENT ACCOUNTING
 It cannot substitute the management in replacing the decision-making process
Answer to Part B
The use of different planning tools and their application for preparing and forecasting
budgets useful for
 Identification of the areas challenges for difficultly in the planning
 Useful in controlling Finances
 Measuring the Performance with preplanned parameters 7
Answer to Part C
The organizations are adapting management accounting systems to respond to financial
problems in the following manner:
 Identification of the financial problems
 Identification of the non-financial problems 8
Answer to Part D
Responding to financial problems, management accounting can lead organizations to
sustainable success in the following manner
7 Coad, Alan, Lisa Jack, and Ahmed Othman Rashwan Kholeif. "Structuration theory: reflections
on its further potential for management accounting research." Qualitative Research in
Accounting & Management 12.2 (2015): 153-171.
8 Coad, Alan, Lisa Jack, and Ahmed Othman Rashwan Kholeif. "Structuration theory: reflections
on its further potential for management accounting research." Qualitative Research in
Accounting & Management 12.2 (2015): 153-171.

14MANAGEMENT ACCOUNTING
 Computation of Liquidity, solvency and debt ratio -Indicates the ability of paying
short term debts
 Profitability ratio- Percentage of sales which a company has left to pay the operating
cost
 Revenue Ratios- Provides tracking of the sales equation with CRM systems
 Management of Human Resource- Evacuating the main reason for staff turn over
 Product and service quality- Analyze Service quality to evaluate service quality
effecting long-term sustainability
 Brands awareness and profile of the company- Useful in Reflecting future growth of
the company 9
Answer to Part E
Planning tools for accounting respond appropriately to solving financial problems in the
following manner:
 Planning and controlling
 Implementing plans
 Providing a competitive edge
9 Kihn, Lili-Anne, and Eeva-Mari Ihantola. "Approaches to validation and evaluation in
qualitative studies of management accounting." Qualitative Research in Accounting &
Management 12.3 (2015): 230-255.

15MANAGEMENT ACCOUNTING
References
Coad, Alan, Lisa Jack, and Ahmed Othman Rashwan Kholeif. "Structuration theory: reflections
on its further potential for management accounting research." Qualitative Research in
Accounting & Management 12.2 (2015): 153-171.
Cooper, David J., Mahmoud Ezzamel, and Sandy Q. Qu. "Popularizing a management
accounting idea: The case of the balanced scorecard." Contemporary Accounting Research34.2
(2017): 991-1025.
Fullerton, Rosemary R., Frances A. Kennedy, and Sally K. Widener. "Lean manufacturing and
firm performance: The incremental contribution of lean management accounting
practices." Journal of Operations Management 32.7-8 (2014): 414-428.
Kaplan, Robert S., and Anthony A. Atkinson. Advanced management accounting. PHI Learning,
2015.
Kihn, Lili-Anne, and Eeva-Mari Ihantola. "Approaches to validation and evaluation in
qualitative studies of management accounting." Qualitative Research in Accounting &
Management 12.3 (2015): 230-255.
Malmi, Teemu. "Managerialist studies in management accounting: 1990–2014." Management
Accounting Research31 (2016): 31-44.
Otley, David. "The contingency theory of management accounting and control: 1980–
2014." Management accounting research 31 (2016): 45-62.
Tappura, S., et al. "A management accounting perspective on safety." Safety science 71 (2015):
151-159.

16MANAGEMENT ACCOUNTING
Wagenhofer, Alfred. "Exploiting regulatory changes for research in management
accounting." Management Accounting Research 31 (2016): 112-117.