Management Accounting Systems - Nero Ltd Assignment

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
P1: Different types of accounting system and their essential utilisation....................................3
P2: Various accounting system used in reporting.......................................................................5
P3: Different costing methods and preparation of income statement.........................................7
SECTION 2....................................................................................................................................10
PART A.........................................................................................................................................10
P4: Merits and demerits of using planning tools in budgetary control.....................................10
PART B..........................................................................................................................................12
P5: Various financial issues and measure to resolve it.............................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is more useful to identify, measure, analysis and preparation of
financial accounts and reports which helps in making an effective decision and suitable plans for
the betterment of an organisation. For this, accounting managers are liable to record all financial
as well as non-financial transactions happened on daily basis operations which help in
identifying the profitable areas where the company get profitable outcomes. Financial reports
should required to be made by company on annual basis so as to present company's financial
position towards their stakeholders. The present assignment report is based on Nero Ltd. With
the context of which all other aspects are explained under this report. The project report covers
various accounting systems and reporting which facilitate management to make an effective
decision and plans to achieve growth and success. Different planning tools used to control
budgetary process has been also discussed under this report (Ahadiat, 2013).
SECTION 1
P1: Different types of accounting system and their essential utilisation
There are lots of transactions made on daily basis business operations which must required
to be recorded and maintain financial reports such as profit & loss accounts, balance sheet, cash
flow statement etc. Such reports are prepared with an objective of identifying the actual
financial position of company due to which the management are more capable to make further
actions to resolve errors or deviations if any found in financial accounts. This forces
management to adopt various accounting systems which includes cost accounting systems,
inventory management systems, price optimisation system etc. Before adopt such accounting
systems within an organisation it is essential for managers to first identify their important which
are discussed under the below:
Increase in efficiency: It will help in finding out the efficiency level of business
activities through resolving errors or deviations which may restrict employees to perform in best
possible way (Albu and Albu, 2012).
Measurement of performance: Different accounting systems helps in analysing the
performance of employees through comparing their actual with standard performance. This will
help in finding out the deviation if any, due to which the mangers are in position to resolve as
quickly as possible.

Effective management control: Through using management accounting systems, the
performance of employees are easily managed and monitored due to which the company can
easily achieve best possible outcomes.
Comparison between financial and management accounting
Basis Financial accounting Management accounting
Meaning It is an effective accounting
system which mainly focuses
on preparing financial
accounts in order to provide
financial condition of
company towards interest
parties.
It is also an accounting system which
gives valuable information to the
management about financial as well as
non-financial transactions with the help
of which the management are able to
make an effective decision and suitable
planning.
Users It includes external parties
which make financial
decisions and plans.
Internal management are the users.
Time focus Historical perspectives Future perspectives
Rules Required to follow
GAAP/IFRS and prescribed
formats
Not restricted by GAP/IFRS
Requirement It is compulsorily required to
prepare financial reports to
outside parties.
Not compulsorily required.
Verifiability
versus relevance
It emphasis of objectivity and
verifiability.
It emphasis on relevance
Types of accounting system:
Price optimisation: This is an effective accounting system which determines the cost of
products and services which maximise the satisfaction level of customer. For this, accounting
manager of Nero Ltd. need to hire researcher who conduct research for them and hep them in
finding out the actual perception of customers towards the price charged by company on their
products and services. The details used in price optimisation include operating cost, stock and

historical value. Thus, after identifying the current satisfaction level of customers the manager
of Nero are able to set an optimum prices which increases buying behaviour of customers as well
as increases profit of company as well (Alleyne and Weekes-Marshall, 2011).
Cost accounting system: Such accounting system is useful to adopt in order to determine
the total cost or expenses incurred in production process so as to manufacture quality products
due to which the company set their margin on each products. For this, the manager of Nero Ltd.
should aim to focus on reducing cost through educating their employees to work on modern
technology which help them in producing quality products at minimum cost due to which
profitability of company may increases.
Inventory management system: It is an accounting system which determines and monitor
the non-capital assets and inventory products. It is an affective to use such system which help
company in knowing what amount of stock available with company at present times. This will
provide an opportunity to manager of Nero Ltd. to place order to inventory from suppliers in
order to achieve optimum level of inventory at warehouses so that the production process are not
interrupted in any case and meet demands of customers within shorter period of time.
Job costing system: Such system of accounting is more helpful for manager of Nero Ltd.
to allocate cost to produce specific product or bunch of products in optimum quality. This will
motive client to think how to reduce cost of operations and find the areas where the cost should
required to invent more. This will help manager in fixation of budget for reach job activity on the
basis of their time of manufacturing and profitable outcomes received in future (Bodie, 2013).
P2: Various accounting system used in reporting
In order to make an effective decisions and suitable planning, the accounting manager
need to have important information about the financial position of company ans the resources the
company have at present so that future business activities can be executed in more effective way.
Therefore, it must required for every business organisation such as Nero Ltd. to prepare different
reports on continuous basis so as to get information whenever required. The crucial information
the manager can get is from profit & loss accounts, balance sheet, cash flow statements etc. Such
reports help in identifying the potentiality of company that whether firm are able to deal with
short as well as long term debts in future or not. All the future decision take by manager should
required to consider the information available through such reports so that influencing aspects
which affects the performance of company will be easily identified (Gond and et. al., 2012).

If making some modifications according to the fluctuations in market conditions,
preparation of such reports are more useful. On the other hand, such reports cannot be made
without having support from the different departments. Therefore, adequate support from them is
must which enable company to known the requirements of each department in execution of
particular business activities. Thus, for this the manages must required to use various reporting
system that help them in reporting their financial transactions. This will help in identifying the
true and fair financial position of company. Such reporting system includes:
Performance report: Such reports maintained by company with an objective of analysing
the performance of employees as well as an organisation which help them in finding out the
issues and deviations which may comes in the process of executing business activities in more
effective manner. Such reports includes the information related with utilisation of resources,
future opportunities to achieve growth for outside parties. This will help in determining the
current situation of organisation and accordingly put maximum efforts in maximising their
performance through removing all barriers and deviations (Christ and Burritt, 2013).
Account receivable ageing report: It contains the details of unpaid debtors of company
which directs the management to implement some actions and plans to recover the same along
with the interest. It help company in making an effective policies regarding the eliminating of
such situation in near future. Thus, essential to make such reports which provides the accounting
details that are related with credit payment options.
Inventory management report: It is much difficult for inventory management to control
stock at maximum level which can be resolved through using an appropriate stock tool that will
help in analysing the inventory level of an organisation. Such tools includes EOQ, ABC costing
and inventory management ratios etc. Thus, such reports provided the adequate information
about the current level of inventory which directs the managers to make decision whether to
place order to suppliers or not (Kotas, 2014).
Job cost report: Such reports is helpful for manager to track total expenses incurred in
production process so that invested cost of producing each product can be easily identified. This
will help manager in setting up prices of products after making properly analysis of expenditures
and its profitable outcomes. It is more helpful in allocating cost to project activity in order to deal
with financial efficiency and productivity during the time (Cinquini and Tenucci, 2010).

P3: Different costing methods and preparation of income statement
Cost: It refers to value of amount which is invested in the process of executing different
business activities so as to achieve profitable outcomes in ear future. Such activities includes
marketing activities, production activities etc. For example, cost incurred in executing production
activities includes labour cost, raw material cost and overhead expanses.
Therefore, it is essential for the management of Nero Ltd. to use different costing methods in
order to setting up the prices for their products and services which maximises the satisfaction
level of customers as well as increase profitability of company. There are come costing methods
which help in overcoming the extra cost of company. Such costing methods includes:
Marginal costing: It refers to the cost invested in producing an additional unit of output
so as to meet customer’s needs and requirements. It is also more effective to use in stock
valuation due to considering variable cost the inventory value is undervalued. Therefore, such
costing methods doesn't include fixed cost and consider only variable cost (Endenich, Brandau,
and Hoffjan, 2011).
Absorption costing: Such costing methods includes all expenses incurred in
manufacturing process which means fixed as well as variable cost are required to consider at the
time of valuation of products and services. It incudes every thing which is directly impact the
products. Such cost includes Labour cost, material cost, overhead expenses.
Comparison between Marginal and Absorption costing
Marginal costing Absorption costing
It only determines the variable cost and
ignore fined cost at the time of valuation of
products and services.
It adds both fixed and variable cost at the
time of valuation.
Using such method, the profitability appears
more due to gathering profits from each
individual sales.
Under this method, the profitability appear at
minimum.
Such method is useful for making an short
decisions in an organisation.
Such method is useful for making long-term
decisions.

Marginal costing for Quarter 1
Particulars
Amount (in
￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock (12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900
Marginal costing for Quarter- 2
Particulars
Amount (in
￡)
Sales 74000
Less: Cost of sales
Opening inventory (12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock (4000*0.65) 2600
48100
Contribution 25900
Less:

Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 4700
Reconciliation
Working note Q1 Q2
Variable costing profit 1900 4700
Opening inventory 0 7800
Closing stock 7800 2600
Absorption costing profit 4300 3100
Opening inventory 0 10200
Closing stock 10200 3400
Absorption costing for Quarter 1:
Particulars
Amount (in
￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300

Absorption costing for Quarter 2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
Working note
Fixed costs 16000
Budgeted cost of production
80000 per
units
Budgeted fixed cost 0.2
Variable cost per units 0.65
Reason for analysing variations in profit
As per the calculation made above, it has been identified that there is vary in net profits
by using marginal and absorption method. This is due to addition of fixed cost. The same is been
presented underneath:
For the first quarter:
Overhead absorbed= (66000*0.20)= 13,200
Fixed overhead costs= 16,000
Under absorption: (2,800)

For Second quarter:
Total absorbed expenses: (74000*0.20)= 14,800
Fixed costs= 16,000
Under absorption= (1200)
Reconciliation Statements:
It needs to be done by taking crucial difference those are arises in a project that can help
in reducing those gaps.
Particular Q1 Q2
Profit from absorption 4700 5900
-2800 -1200
Profits as from marginal 1900 4700
Working notes:
Fixed charges= 16,000
=66000*0.20= 13,200
Under absorption=(2800)
= 74000*0.20= 14,800
Fixed expenditure: 16000
Under absorption= (1200)
SECTION 2
PART A
P4: Merits and demerits of using planning tools in budgetary control
Planning is essential need of every organisation on the basis of which future business
activities are properly executed. The manager of Nero Ltd. are held liable to prepare a suitable
budget for each business activity after analysing the profitable outcomes received in near future.
Budget are prepared to manage and control cost which is going to use in producing quality
products and services. There are various planning tools which are more useful in controlling
budgets which are mentioned under the below:
Forecasting tools: It is considered as an effective tool which is used to determine and
estimating the cost incurred in future project activities after analysing the cost incurred in past. It

is more reliable and accurate as al the data and information are available and gather from internal
and external departments (Morales and Lambert, 2013). Merits: It helps in determining the estimation of cost which are going to incurred in
future project activities that makes company ready with the sufficient resources.
 Demerits: Estimations are not accurate due to which the chances of getting profitable
outcomes in ear future will be low.
Contingency tools: Such tools is useful to deal with contingent situation that may occur in
execution of future business activities. This will help management in identifying the risk which
may influence the profitability of company. To deal with them in more effective manner, suitable
contingency tools are required to prepare for the purpose of analysing risk. Merit: It may not influences even at the time of contingencies which empowered
employees to make an effective decisions in order to cope up with future challenges.
 Demerit: It consumes more time and money which affects the profitability of company.
Scenario planning: It is also an effective tool which is used to adopt in order to deal with
flexible situation at may arise in the process of long term business activities. This, such tools are
adopted by every organisation in order to achieve better possible outcomes from future business
activities (Otley and Emmanuel,2013). Merit: It brings beneficial result to company through analysing the uncertainties and
complexities which may affects profitability.
 Demerit: It is much difficult for management to analyse future contingencies and
flexibilities due to which lots of issues and challenges may arises in the process of future
business activities.
PART B
P5: Various financial issues and measure to resolve it
Every organisation whether small, medium or large wants to maintain their strong
financial position in market which make them more capable to compete with their rivals. But due
to financial issues and problems the sustainability of company even many come in danger thus
must required to resolve such issues as quickly as possible through adopting various financial
tools and technique. Such tools and techniques includes:

Key Performance Indicator (KPI): Such tools is more effective to use as it help in
analysing the performance of company through comparing actual performance with past year
performances. This will help in finding out the deviations if any, which restricts company to
achieve strong financial position. Therefore, the manager need to make an effective polices to
rectify the errors if made in financial accounts and recover from the losses (Management
Accounting, 2016).
Financial governance: It is related with government’s rules and regulations which need
to comply with by organisation so as to run business more smoothly. Non-compliance of such
rules will bring financial issues which affects their sustainability as well.
Nero Ltd. Unicorn Grocery
Using KPI tool brings more beneficial result
to company as it help in comparing the actual
with past year performance and resolve
issues that may arise due to conflicts among
employees.
The financial position of company will be
measure through using Balance scorecard
approach.
Financial governance are also an effective
tool which need to be more effective to
resolve financial issues.
Benchmarking tool becomes more effective
in order to attaining their financial position
and compete with Nero Ltd.
CONCLUSION
It has been concluded from the above project report that management accounting is an
important aspect of an organisation which play an important role in making business more
successfully. There are different accounting systems and reporting which must required to use by
an organisation which help in making an effective decision and plans for the betterment of an
organisation. There are various financial tools as well which need to be considered by Nero Ltd.
In order to resolve all financial issues and attain strong financial position in market.

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