Management Accounting and Financial Planning at Hammond Electronics

This report provides an in-depth analysis of management accounting principles and practices at Hammond Electronics, a medium-sized enterprise operating in the UK market. It covers various aspects of management accounting, including its principles, role, and systems within the company. The report details different techniques and methods used in management accounting, such as capital budgeting analysis, cash flow statements, budgeting analysis, and inventory costing, with a specific focus on variable and absorption costing methods for income statement preparation. It further compares and explains three planning tools for management accounting: activity-based budgeting, cash budgeting, and financial forecasting, highlighting their benefits and limitations. The report also examines how organizations adapt their management accounting systems to respond to financial problems and provides recommendations for Hammond Electronics to improve its financial management. The analysis reflects on the benefits of management accounting functions to the company, emphasizing efficiency, control, and optimal resource utilization. Desklib offers more solved assignments and resources for students.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART 1............................................................................................................................................3
1. Principles of management accounting.....................................................................................3
2. Role of management accounting and management accounting systems.................................4
3. Explaining different techniques and methods used in management accounting and income
statement by using variable and absorption cost..........................................................................4
4. Explaining management accounting within the company.......................................................6
5. Benefits of function to the company........................................................................................7
6. Conclusion on the reflection of management accounting........................................................7
PART 2 ...........................................................................................................................................7
1. Comparing and Explaining three planning tools for management accounting .......................7
2. Comparing how organization adapt the management accounting system to respond financial
problems.....................................................................................................................................10
3. Recommendations..................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting refer as the process which helps in identifying, interpreting and
communicating the financial information of the company as to attain the set goals on particular
time limit. This function is mainly used for recording the transactions related to finance of the
company. The current report provide details about the Hammond electronics which is mainly
recognized as the medium sized enterprise operating in the UK market. This report will also
helps in analysing about the principles of management accounting, its types and role of
management accounting and its systems in the business. Further it will outlie the details of using
different methods which helps in reporting the company financial transactions. Providing the
details of the income statements, marginal and absorption costing. Further, it will also provide
details about using the different planning tools by denoting its benefits and limitations. Lastly
determining the ways for responding the financial problems of the organizations.
PART 1
1. Principles of management accounting
Management accounting refers to the process that used to maximize the profit and
minimise the losses of the company. This is basically main concerned with the finances of the
company that helps them to make important decisions. There are different principles of
management accounting which is described below:
1. Accuracy of accounts
2. Stability and consistency
3. Measuring the efficiency
4. Maximization of the resources
5. Principle of exception
6. Forecasting of the problems.
7. Punctuality
These are basically some principles of the management accounting that makes the accounting
more reliable and accurate (Rikhardsson and Yigitbasioglu, 2018). It is basically the factors
which are designed by the standards of accounting that helps to have better accounting.
2. Role of management accounting and management accounting systems
Management accounting is termed as the important part of the organization which helps
them to grow in the market. Hammond Electronics is basically engaged in manufacturing of the

products such as classic audio frameworks, small enclosures, etc. So it is very important for the
company to have better management accounting that helps them to have higher productivity in
the market. This used to play an important role in order to have key actions by having the better
potential in order to make the decision (Johnstone, 2020). The management accounting further
makes the company to have better investment and have additional funds to have proper
management. There are some key tools that includes the cash flow management and income
statement that makes to have better flow of cash. This used to pave the path and have proper
movement of the cash by having better controlling.
Management accounting system is the method that helps to make the statements and
other reports in order to have the proper management of the cost accounting systems, job costing
systems, cash flow analysis, leverage metrics, etc. This helps the company to have better
accounting practices in order to meet the organizational needs. Moreover by having the proper
accounting systems it makes the company to have reduction in the cost and having the best
outcomes to have the rational practices.
3. Explaining different techniques and methods used in management accounting and income
statement by using variable and absorption cost
There are different types of methods and techniques used in the management accounting
which helps the company to make the better decisions in the market. By making the appropriate
and better decisions it helps the company to grow in the market. There are some methods of
having the management accounting are as follows:
1. Capital budgeting analysis: In this analysis there are some methods used which
are IRR, payback period, net present value and average rate of return, etc. This
helps and suggests that company to have the long term investment and earn better
revenues in the market (Ndemewah and Hiebl, 2022). By making the big
investment it will be possible for the cited organization to have the alternatives in
order to have better evaluation of the cost.
2. Cash flow statements: This is considered as one of the most important statements
that used disclose the cash and liquidity that used to inflow and outflow from the
firm. This method is helpful in order to have better control on the outflow of the
cash in the market. As the company is doing the manufacturing process so it will

be helpful for them to have the better understanding of the cash flows in the
market.
3. Budgeting analysis: This is the most useful and preferable method which helps to
design the various segments of the company (Alabdullah, 2022). By this the
company use to make the proper budget and have better analysis of the cash. It
used to make different types of budgets that is sales budget, cash budget,
operational budgets, etc.
4. Inventory costing: In this costing method it helps the company to have better
process of assigning the value of the inventory and the goods sold in the market.
In this method FIFO method is used which helps to sell the things rapidly.
Marginal and absorption costs-
Net profit of Hammond electronics: Marginal costing method for the year 2020
Particulars Expenses
Sales of the firm 148223
(Less)Variable cost
Production cost 99053
Selling and distribution costing 31907
Total variable costing 130960
Contribution 17263
(Less) Fixed Cost 9539
Net profit for the year 7724
Net profit of the company: using absorption costing method
Particulars Expenses
Sales 148223
Less: COGS 99053
Gross profit 49170

Less: Indirect expenses
Selling and distribution cost 31907
General administrative cost 5216
R&D 354
Loss on disposal of property 11
Interest expenses 996
Lease expenses 627
Income tax expenses 2575
Other expenses 7484
Total Fixed expenses 41446
Net profit 7724
From the above information per unit cost is calculated then the marginal and absorption cost will
be:
Types of cost Marginal costing Absorption costing
Variable cost 130960 130960
Fixed cost 41446
Products cost 130960 172406
From the above statements it can be depicted that these methods are the most uasable
methods in order to have better valuation of the different types of costs. In the marginal costing
method it has been used that the net income of the company shows that the variable cost of the
company is calculated by having the better cost of production (Korhonen, Laine and Suomala,
2020).
This type of difference in this costing method and this used to have great influence on the
final outcomes and the cost management factors of the company. The inventory costing and

valuation in the both methods will be different. This shows that the company must use the
suitable method in order to find the better costing of the things and have better profits as well.
4. Explaining management accounting within the company
Management accounting is basically the wide term that helps the company to outline and
have better respond to the financial statements. As the cited company is engaged in the
manufacturing work so it will be beneficial for the company to have make the better decisions in
the market. As the market of electronics is well developed so by having the better management
accounting it helps the company to have better inclination. By having rapid changes in the time it
is seen that the company is growing and expanding well in the market. In order to be competitive
and become the market leader they have to do innovation in their product line and have the
strong management in the market.
The cited organization is formed on 1934 and from this they have done the better
progress in the market by having better decision- making. It has faced the lots of sets backs in the
market but by eradicating this supports them to grow well in the market (falih Chichan and
Alabdullah, 2021). Previously the company was not having better management accounting but
by having the growth it has done the better management accounting by having the rapid changes
in the market.
Hammond electronics must also focus on the above things as by having the better
management accounting it makes the company to have better respond with their cash flows.
5. Benefits of function to the company
The management accounting department of the company used to perform the various functions
that helps them to have drastic changes in the market. The benefits is as described below:
1. It increases the efficiency of the company by having the feasible planning.
2. This also helps to control the management accounting and direct the better
directions to grow in the market.
3. By having the proper financial data it helps the department to manage the funds in
the better and appropriate manner.
4. Further this helps to have the better and optimum utilization of the funds in order
to have growth in the market.

6. Conclusion on the reflection of management accounting
From the above sections it has been evaluated about the management accounting which
makes the organization to grow in the market. It has described about the various benefits that use
to have proper management of the accounts and have the better decision-making (Eldenburg,
Murthy and Pawsey, 2020). By having the proper decision-making it will be easy for the
company to grow and expand in the market.
PART 2
1. Comparing and Explaining three planning tools for management accounting
Planing tools are mainly used for guiding the company for taking different ways which
helps in mitigating the problems being faced by the company while transacting the business.
Activity based budgeting
This planning tool in management accounting is mainly used for analysing the business
with ascertaining its cost by recording, researching and analysing its transactions being occurred
(Drury, 2018). while using this tool in the business mainly helps in evaluating the future costs to
be occurred in the business, which mainly helps in attaining efficiency by allocating the
resources for conducting all the business activities.
The following are the benefits and limitations of activity based costings:
advantages disadvantages
 While calculating the activity based
costing it mainly helps In building
better relations with the company and
its consumers.
 While calculating the ABC helps in
being competent in the company.
 Activity based costing helps in
identifying the inefficient processes for
improving the set targets.
 This tool helps in eliminating the
hindrances and removes the bottleneck
arise by various activities.
 It mainly focuses on attaining short
term goals of the business.
 Making these budgets are not suitable
for those companies which having the
small overheads.
 This is time consuming in nature and
highly expensive on nature.

Cash budgeting
With using this planning tool mainly helps in estimating the outflows and inflows of the
company. This helps in ascertaining the surplus and the deficits attained by the business while
conducting the business. Further using this mainly helps in managing the cash flows of the
company with proper estimating the cash receipts, payments and the cash balances (Bedford, S
and Speklé, 2018). Thus, with using this it helps in forecasting the availability of the cash with
determining the expenses and the revenues occurred in the business. These budget of the
company are prepared on the monthly, yearly and the quarterly basis.
The following are the advantages and disadvantages of cash budgets:
advantages disadvantages
 While making these budget helps in
overcoming the debts of the companies.
 Cash budgets helps in attaining the set
financial position for the business in the
market.
 With making these budgets helps in
determining the surplus and deficit of
the company attained in particular year.
 It limits the spending power by limiting
the cash.
 It creates the theft while tracking all the
movements of the cash being occurred
in the organisation.
 Cash budgets is mainly impacted by the
new trends and the current changes.
Zero based budgeting
Zero based budgeting refers to the process which helps in allocating the funds to attain
efficiency of the programs (Dai and et.al., 2021). The main aim of this is to ascertain and make
the plan for allocating the expenses in the proper manner with aligning the goals with lowering
its cost. These budgets are mainly created while ascertaining the costings with analysing the
needs of the monetary concerns for addressing the future circumstances (Wadesango and et.al.,
2019). Thus, with making these budgets it mainly helps the managers for justifying their
expenses to attain better results for ascertaining the value in the company.
The following are the advantages and disadvantages:
advantages disadvantages

 With making the ZBB helps in
improvising the decision making
processes.
 With making these budgets helps in
attaining the competitive position in the
business.
 This helps the business in attaining the
cost related benefits.
 With calculating the ZBB it results in
allocating the funds efficiently in those
resources which helps in attaining
profits of the company by setting the
objectives.
 These budgets results in minimising the
irrelevant activities which are not
suitable for the business.
 By using this method it affects the long
term goals in the business.
 This planning tool is subjective in
nature.
 Cost calculations by using this method
is very high and for this it needs the
expertise individuals.
 While calculating the cost it needs wide
range of staff personnels
2. Comparing how organization adapt the management accounting system to respond financial
problems
By using the different management accounting systems it helps in responding to the
financial problem being attained which are as follows:
KPIs
kpi are mainly used as for focusing on the strategic and the operational improvements,
this mainly helps the company in attaining the set business objectives while operating in the
dynamic market. With using this it helps in better responding to the financial problems being
attained in the company by monitoring the performance for attaining growth in the company.
Advantages: By using the KPI it mainly helps in measuring the best results for attaining success
in the company.
Disadvantages: with using the KPI mainly aid in decreasing the output level and difficulty in the
communication arises.
Benchmarking

This is mainly used for measuring the metric of the business while comparing with
others. With using this it helps in understanding the changes that the company must adopt the for
improving the performance (Verenich and et.al., 2019). With using this methods helps in
responding better to the financial problems ascertained.
Advantages: with using this method it helps in improving all the internal business
partitions. A by reducing the cost he;p in increasing the efficiency level in the business. Further
with adopting the practices helps better performance while operating in the dynamic market.
Disadvantages: By using this method it results in providing insufficient information, also
it decreases the satisfaction of the consumers with increasing the dependency.
Variance analysis: This is mainly used for identifying the gaps in the actual and the planned
behaviours while managing the accounting (Meric and Gercil, 2018). This plays very important
role as it helps Inn fining out the actual and the planned outcomes with this making th
forecasting plan for determining the deviations occurred and managing the work in accordance.
The main purpose of this is to ascertain the prices of the raw materials, Laboureur etc.
Advantages: By using this method in the organisations it assist in planning for the
business effectively for the profits and managing all the activities with finding out the deviations
occurred in the inefficient processes.
Disadvantages: With adopting this system it helps in solving all the financial problems
in the business as it also requires the skills, expertise. Also it is time-consuming processes.
Financial governance: This management tool is mainly used for defining the ways which help
in collecting, monitoring the financial performance of the business with managing all the
information by overseeing the transactions (Samuel, 2018). These are mainly the policies which
aid in using the procedures of the company as to manage the data that it is correct or not.
Advantages: with using this method it helps in reducing the errors in the business and helps in
attaining growth. Further more this results in improving the productivity of the organisation.
disadvantages: The main limitation of this is the uncertainty while using this system in the
business. As it Also it may sometimes in accurate decision taken based on the data taken by the
company and the unavailability of the information hinders in predicting the financial
performance of the business.

3. Recommendations
The following suggestions will help Hammond electronics for making the development
in their processes and achieving success which are mainly as follows:
 It is suggested that the Hammond company must use variance analysis for measuring the
success for responding the crises faced in the finances. This mainly helps the company as
for attaining the actual and the planned behaviour while conducting all the business
activities.
 It is suggested for the company as it should adapt the and prepare the cash budgets which
helps in attaining better availability of the financial resources. Further more, it assists the
company with the ease to identify the deficits being attained with avoiding the debts
while operating in the market. Further more, With making these budgets it mainly helps
in stabilising the business with properly identifying the surplus and deficits while
sustaining in the dynamic environment.
Thus, with using these mainly helps in growing the performance of the business and attaining the
set objectives on timely manner with determining the surplus and deficits and adapting the
variance analysis.
CONCLUSION
From the above report it has been summarized about the management accounting that
helps the company to have better financial records. The current report has been evaluated about
the different accounting systems that are cost accounting system, inventory management
systems, job costing systems, etc. Moreover, the report has explained about the different methods
used in management accounting and the report that has include cost report, budget report, etc.
The above report has also calculated the cost of the company and advantages and disadvantages
of the different planning tools that are used in budgetary control.
Furthermore, the report has also explained about the management accounting systems
which helps the firm to have positive respond to its financial problems. At the end the report has
recommended some recommendations which will have improvement in the profitability to
develop in the market of UK.

REFERENCES
Books and journals
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Enterprise. 9(2). pp.244-257.
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accounting and control research. Journal of Management Accounting Research, 30(2),
pp.23-58.
Dai, M and et.al., 2021. A dynamic mean-variance analysis for log returns. Management
Science, 67(2), pp.1093-1108.
Drury, C., 2018. Cost and management accounting. Cengage Learning.
Eldenburg, L.G., Murthy, V. and Pawsey, N., 2020. Management accounting. John Wiley &
Sons.
falih Chichan, H. and Alabdullah, T. T. Y., 2021. Does environmental management accounting
matter in promoting sustainable development? A study in Iraq. Journal of Accounting
Science. 5(2). pp.110-122.
Johnstone, L., 2020. A systematic analysis of environmental management systems in SMEs:
Possible research directions from a management accounting and control stance. Journal
of Cleaner Production. 244. p.118802.
Korhonen, T., Laine, T. and Suomala, P., 2020. Exploring the programmability of management
accounting work for increasing automation: an interventionist case study. Accounting,
Auditing & Accountability Journal.
Meric, E. and Gercil, M., 2018. Usability of time driven activity based costing methods in the
budgeting process of SMEs. Business and Economics Research Journal, 9(4), pp.961-
978.
Ndemewah, S. R. and Hiebl, M. R., 2022. Management accounting research on Africa. European
Accounting Review. 31(4). pp.1029-1057.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Samuel, S., 2018. A conceptual framework for teaching management accounting. Journal of
Accounting Education, 44, pp.25-34.
Verenich, I and et.al ., 2019. Survey and cross-benchmark comparison of remaining time
prediction methods in business process monitoring. ACM Transactions on Intelligent
Systems and Technology (TIST), 10(4), pp.1-34.
Wadesango, N. and et.al., 2019. The impact of cash flow management on the profitability and
sustainability of small to medium sized enterprises. International Journal of
Entrepreneurship, 23(3), pp.1-19.
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