Management Accounting Report for Tech (UK) Limited

This report delves into the fundamentals of management accounting, exploring its application to Tech (UK) Limited. It examines the importance of management accounting for strategic decision-making, highlighting its distinction from financial accounting. The report analyzes income statements using marginal and absorption costing to evaluate the company's performance. It also explores the benefits and limitations of budgeting, outlining a comprehensive procedure for budget preparation. The report concludes by examining the balance scorecard and six-sigma methods as tools for addressing financial challenges and achieving sustainable success.

Management Accounting report for Tech (UK) Limited
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Contents
Introduction.................................................................................................................................................3
TASK 1.......................................................................................................................................................4
TASK 2.......................................................................................................................................................9
TASK 3.....................................................................................................................................................12
Introduction...........................................................................................................................................12
Content..................................................................................................................................................13
Conclusion.............................................................................................................................................18
TASK 4.....................................................................................................................................................19
Conclusion.................................................................................................................................................23
REFERENCES..........................................................................................................................................24
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Introduction
This report deals with the various fundamentals of management accounting which can apply to
the organisation so as to solve the financial problems and attain sustainable success. The
importance of the management accounting has been explained which can be used by the
managers for taking the strategic decisions in the organisation. Also, how the management
accounting is different from the financial accounting has been identified. The income statements
using the marginal and absorption cost has been prepared to evaluate the performance of the
organisation. With the benefits and limitations of the budget the proper procedure of preparing
the budget has also been highlighted.
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TASK 1
A) Management accounting is the procedure of analyzing the cost and operations of the
business so as to prepare the internal financial reports which helps the managers of Tech
(UK) Ltd in taking the strategic decisions (Accounting Tools, 2017). Financial
accounting means analyzing the financial reports of the company to track the financial
tractions.
I)
Point of Distinction Management Accounting Financial Accounting
Focus It focuses on the decisions
which are to be made for the
future.
It focuses on the past to take
the decisions.
Scope The scope of the management
accounting is narrow.
Its scope is wide.
Primary Users Internal audience like
managers.
External audience like
investors.
Regulations GAAP and IFRS None
II) Management accounting information is the crucial part in the organisation for taking the
appropriate decisions. The results which arise from analyzing these statements will provide the
managers of the Tech (UK) Ltd an idea to plan their resources and profit margins accordingly
(Butterfield, 2016). Collecting the data from the various departments and then comparing those
with the actual or the budget one will help the organisation to enhance their performance
(Butterfield, 2016). The analyses of the reports can be done through various tools and techniques
some of which includes Key Performance Indicators (KPI’s), Benchmarks and balanced
Scorecard. The evaluation of the performance also helps in achieving the growth (Butterfield,
2016).
III) Cost accounting systems are a framework which is used by the organizations for analyzing
the cost of the products so as to predict the profit and valuate the stock. There are three cost
accounting systems:
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Actual Costing: It means recording the actual cost of the products which includes actual cost of
material, labor and overhead incurred during the allocation of the resources (Ryckman, M. L.,
2018).
Normal Costing: It is the cost analysis tool which assigns the cost to the product including the
cost of the material, labor and overheads (Ryckman, 2018).
Standard Costing: It is the technique for analyzing the expected cost for an actual cost and then
analyzing the variance between both the costs (Business Dictionary, 2018).
IV) Inventory management system is the basic instrument for all the organizations which helps
in analyzing the inventory of tangible goods. This tool is basically used by the organizations that
manufactures and sells the finished and semi-finished goods in order to prepare work order and
other related documents (Kontus and Kastav, 2014). Inventory management system is basically
used by the large scale industries as this system is quite expensive and costly so the small scale
industries cannot afford it. This tool is used by the mangers in the organisation as it is highly
optimized and effective for the overall success of the business (Kontus and Kastav, 2014).
V) Job costing is an accounting method of tracking the cost for manufacturing the particular
product. Through job costing systems the accountant can keep a track on the cost of the goods
which are under production and can maintain the data which is relevant to the business
operations. The job costing forms includes the direct labor, direct material and direct overheads.
The projects such as construction use this tool widely to analyze and determine the cost. This
analysis is important for the company to determine the accuracy in the estimating system of the
organization which allows achieving the reasonable profits (Wilkinson, 2013).
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B) I) There are various types of managerial accounting reports which are used by the
managers for analyzing the company’s performance (Sullivan, 2018). Some of which are:
Image: Types of managerial Accounting Reports
Source: By Author, 2018
Budget Report: This report reveals the actual performance of the company by defining
the variance between the actual and the predicted cost.
Job cost Reports: This report shows the expenses of the particular project. It identifies
the areas where the higher earnings can be achieved in order to gain profits (Sullivan,
2018).
Inventory and Manufacturing: These reports are used by the companies for making
their manufacturing process more efficient as this includes the wasted inventory, labor
cost and the overhead cost (Sullivan, 2018).
II) The information should be presented in the manner it should be understandable as it is
the evidence through which the analyses of the financial performance is measured by the
top level managers of the company. The information which is depicted by the financial
accounts is first measured with the actual performance and then the variance is
calculated. This variance shows the path to organizations for achieving the desired
objectives. If the information is not presented in the understandable form so it will be
difficult for the organizations to evaluate it take the decisions accordingly.
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B u d g e t R e p o r t
J o b C o s t R e p o r t s
I n v e n t o r y a n d
M a n u f a c t u r i n g

M1) There are various benefits of management accounting systems which includes:
Image: Benefits of management accounting systems
Source: By Author, 2018
Increase Efficiency: The efficiency of the company can be achieved by comparing and
analyzing the financial accounts (Reddy, 2018). Tech (UK) Ltd. can evaluate its performance by
keeping the check on the cost and selecting the ways in which the revenue of the company can
increase this will help to compete with the external environment.
Cost transparency: There are various costs which are to be considered by the company while
taking the strategic decisions. These decisions will help to ensure that the results are occurred
according to the pre-determined budgets in the organisation (Reddy, 2018). If the results are
achieved according to the set standards then the transparency of the cost is maintained.
Simplifies Decision Making: Management accounting systems simplifies the decision making
process of the company as the decisions related to the financial accounts are taken keeping the
common perspective. For these accountants of the Tech (UK) Ltd. creates a specified reports to
make interpretation simpler.
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Increase
Efficiency
Cost
Transparency
Simplifies
Decision
Making
Flexibility

Flexibility: Management accounting systems of the organization should be flexible in nature.
These accounts are prepared on the annually basis so the accountants get enough time to prepare
the reports (Reddy, 2018).
D1) Management accounting systems and management accounting reporting are integrated
within the organization as it provides companies with both qualitative and quantitative
information about the financial reports. These financial reports help the organisation in achieving
the growth in the market. The integration of the management reports with the management
systems activities of the Tech (UK) Ltd. will make efforts towards the timely collection policies
for ensuring flexibility and accuracy. The integration between the processes will provide better
management of inventory and cost in the organization. These all the reports will ensure that the
decisions in the organisation are taken according to the appropriate situations.
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TASK 2
Marginal costing: the framework in which variable expenses are charged to units and the fix
expenses of the period are charged off in full against the total expenses (Surbhi, 2018). It
includes study of variable cost only because fix costs are fix for a particular period. It shows the
reaction of profit when production volume is changed.
According to the above analysis it can be seen that the company is incurring losses during the
year. This shows that the company is impacted by the cost. The amount of the loss which has
been incurred by the company is £2875.
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Absorption costing: it also known as full costing method. Under this method all variable and fix
production cost are charged to cost of products. Under this method, cost of product will never
change if production quantity remains same (Surbhi, 2018).
According to above analysis it can be stated that the Tech (UK) Ltd. is incurring profits during
the year. This shows that the company is impacted by the fixed cost. So, the amounted profit is
£4625.
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M2: Reconciliation statement between marginal costing and absorption costing:
Reconciliation statement is prepared because profit under marginal costing and absorption
costing are not same. This difference arises because Fix and variable both production costs are
included in total cost of product under absorption costing but marginal costing only includes
study of variable cost. Profit under both methods will be same if there is no closing inventory
remains.
D2: under absorption costing method both variable and fix production cost are consider as total
production cost so profit calculated under this method will be different from profit under
marginal costing method which only includes variable cost. This difference arises only if closing
inventory remains. In present situation absorption costing shows a profit of 4625 and marginal
costing is showing a loss of (2875). This difference arises because of fix overhead are included
by absorption costing. Change in profit with the change in closing inventory is as under:
Increase in closing inventory: high profit under absorption costing
Decrease in closing inventory: low profit under absorption costing
Closing inventory NIL : No difference in profit
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TASK 3
Introduction
This report depicts the various types of the budget which are been used by the organisation while
taking the strategic decisions for the organization. The importance of the budget for planning and
control has also been explained. With these two factors the procedure for preparing the budget
has also been highlighted so as to determine the price.
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Content
A) Budgeting is the planning tool which identifies the goals and the objectives of the
business. There are different kinds of budget but some of them are explained below:
Image: Kinds of Budget
Source: By author, 2018
Financial Budget: This budget deals with the components of the financial statements such as
assets, liabilities and the shareholder’s equity to establish the financial health of the company.
Static Budget: This budget is widely used by the companies as it does not get affected by the
change in sales, volume and revenue.
Master Budget: These budgets are either prepared quarterly or annually to present the overall
situation of the company’s financial health.
Advantages of Budget
 Preparation of the budget manages the income and expenses of the company by setting
the standards.
 It specifies the goals and objectives of the business for the specific time in numeric terms.
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Financial Budget
Static Budget
Master Budget

 Budgeting ensures that the organisation have the adequate amount of working capital to
run its daily operations.
Disadvantages of Budget
 Budgets are prepared according to the estimates. If the estimate is wrong it will impact
the whole organizational decisions.
 These are prepared by determining the future concerns but future is not certain it can vary
according to the situations.
 It requires the qualified and experienced staff to prepare the budget but the possibility of
the specialized staff in all organization is adequate.
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B) The process for preparing the budget is:
Image: Budget Preparation Process
Source: By Author, 2018.
Obtaining estimates: All the estimates related to the sales and cost of the company should be
made by the mangers.
Coordinating estimates: The estimates which are submitted by the different departments are
evaluated according to interest of the employees.
Communicating budget: In this stage the budget is communicated in the different departments
of the organizations which define the common goals which are to be achieved.
Implementing the budget plan: At this stage the budget is implemented in the organisation for
a specific period of time
Reporting: Feedbacks are taken for the implemented budget so that the improvements can be
done next year.
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Obtaining
Estimates
Coordinating
Estimates
Communicating
Budget
Implementing
Budget Plan
Reporting

C) Budget as a tool of planning has various benefits. The most highlighted benefits are:
 The budget plans and predicts the cash flows in the organisation (Bufan, 2013).
 The preparation of the budget identifies the areas where the company is at risk
and takes actions before they become more dangerous for the organisation.
 Through budgets strategic decisions can be taken more confidently in the
organization (Bufan, 2013).
 It formulates the coordination of the activities between the different departments
so that decisions must be taken according to the common goals.
 It improves the performance of the company as the decisions are taken according
to the pre-determined plans.
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M3) There are various planning tools which help the organisation in preparing and forecasting
budget. These planning tools helps the organisation is evaluating their performance. Budget is
the technique to predict the future and determine the standard cost for the particular product. The
organisation measures their performance by analyzing the financial accounts or statements
through planning tools. The results which arise are compared with that of the standard price
which has been pre-determined in the budget and then the variance between the both is
calculated. With the budget preparation the activities of the organization can be managed and
planned and the strategic decisions can be taken. Forecasting which is done related to the cash
flows identifies the inflow and outflow of cash in the organisation. Cash flow analysis is done to
determine the actual cost where the profit can easily be earned. These forecasting of the budget
should be done on timely basis so that the current and the past situation of the financial
statements can be easily measured. The planning tools should be used appropriately in the
organization as it reveals the effectiveness and efficiency of the company in the external market.
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D3) Planning tools in respond to solving financial problems can lead to sustainable success as
companies now a day are using various tools such as benchmarks to solve the financial problems.
These benchmarks set a standard for the organisation to achieve the particular target once this
target is achieved the company can easily attain the sustainable success. In order to attain the
sustainability the organisation must take the decisions considering all the risk factors such as the
factors related to the social, economic and political. Therefore, the company should more focus
on the risk decision making rather than the strategic decision making in order to achieve growth.
Conclusion
It can be stated that there are various kinds of budget which can be used by the organizations to
plan and forecast the future. The company should take the decisions for the future related to the
pre-determined budgets. Preparation of the budget is an important factor as it evaluates the
performance of the employees and the organisation.
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TASK 4
P5: Balance scorecard approach: Balance scorecard method is a measurement matrix which is
used by the management for the better and improved execution of business activities and their
results. It measures the performance of each business operation and provides observations for
corrective action in strategy and planning (Balanced Scorecard Institute, 2017).
Image, Four Legs of Balance scorecard approach
Source: By Author, 2018
In current situation TECH (UK) suffering from a loss of £1.5 million in current year. This
approach is suggested by auditor because it includes the study of business activities and factors
which stops company’s profitability and growth (Balanced Scorecard Institute, 2017). BSA is
suggested by auditor because:
 Helpful in better strategy planning and execution: It includes inspection of each
business activity for performance analysis and remedial action for mistakes (Balanced
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Four legs
of BSA
Development
Business
activities
Economy
customer

Scorecard Institute, 2017). With the help of this performance analysis management can
prepare improved strategy for future and execute plans with efficiency.
 More appropriate operation management: This approach creates relation between
every business operation and target of company. With the help of BSA method
management can identify every wrong step in business process and take curative action.
 Enhanced performance: BSA includes the examination of wrong business operation
and business strategy. With the help of this tool, the management of TECH can prepare a
performance report for planned decision and take corrective action for mistakes
(Balanced Scorecard Institute, 2017).
Six- sigma Method: Six-sigma is a frame work of planned strategies which is used to control
and manage the business process. It ensures the innovation and improvement in business process.
It helps in quality control and defect minimization (Graves, 2012).
For a currently working company six-sigma includes:
 Define
 Measure
 Analysis
 Improvement
 Control
Sainsbury Company is using six-sigma approach for process and operation management. This
approach is used for maintaining the high quality and efficiency in production and business
activities (Graves, 2012). Sainsbury is following this approach which creates customer
satisfaction and good will for company. Effect of this approach shows that the sales of company
increased in 2017 £26224m which is £23506m in 2016.
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M4: how, in responding to financial problems, management accountings can lead
Organizations to sustainable success.
Management accounting tools are very helpful for every business in modern business
organizations. It helps the management in following manner:
 Planning and controlling the strategy: with the help of management accounting tools
manager can prepare organized and budgeted plans for future to ensure the sustainable
growth and profit for organization.
 Better execution of strategies: planning tool helps in better execution of planned polices
for increase the growth of company.
 Competitive advantage on arrivals
 Management accounting is helpful for management in various ways like cost
management, inventory management and better planning and decision making which are
necessary for sustainable success and profit. Efficient operation of business activities,
risk management and fund management are other profits of management accounting.
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D3: How planning tools for accounting respond appropriately to solving financial problems
to lead to sustainable success.
MIS is helpful for business in various ways. They are:
Cost management: with the help of MIS techniques like stammered costing, marginal costing,
variance analysis manager of company can manage the cost effectively and appropriately.
Performance management: with the help of various MIS tools manager can investigate the
performance of each department can take remedial action for shortage.
Integration between process and object: Accounting tool relates the process with the standard
of company. So management can identify the problem and take corrective actions for sustainable
success.
Value chain analysis: with the help of management accounting tools manager can run effective
value chain analysis and investigate the process which is more valuable for business.
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Conclusion
It can be concluded that the organizations considers various factors while making the decisions
related to the future. The tools and techniques are used by the organizations to evaluate the
overall performance of the company. For the ease of understanding the difference between the
management accounting and the financial accounting has also been explained so that the
essentials can be classified. Various cost analysis tools are also explained which helps to solve
the financial problems of the organization. Thus, the solution of the financial problems will
enhance the performance and lead the organization to achieve the sustainable success.
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REFERENCES
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 Sullivan, D., 2018. Types of managerial accounting reports. [Online]. Chron. Available
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