Management Accounting Report: Analysis of Palmer and Harvey's Finances

This report presents a detailed analysis of management accounting within the context of Palmer and Harvey, a major UK wholesale and retail organization. It begins with an introduction to management accounting, outlining its role in providing financial and non-financial information to aid decision-making, and then explores various management accounting systems, including lean, traditional, throughput, and transfer pricing. The report emphasizes the importance of management accounting in enhancing cash flow, financial decisions, and organizational performance. Different methods used for management accounting reporting are then examined, such as financial planning, analysis of financial statements, standard costing, budgetary control, marginal costing, and cash flow statements, with the aim of providing insights into cost control, financial planning and performance improvement. The report concludes by highlighting the practical application of these concepts within the chosen organization.

University
MANAGEMENT ACCOUNTING
Name

Table of Contents
Introduction:....................................................................................................................................3
Task 1...............................................................................................................................................3
Task 2.............................................................................................................................................10
Task 3.............................................................................................................................................14
Conclusion:....................................................................................................................................16
References......................................................................................................................................16
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Introduction:
In this assignment, a report shall be presented to the general manager regarding various aspects
of the functioning of management accounting in the organization. The various aspects of
management accounting in the organization shall be analyzed and a detailed report shall be
presented to the manager that is general manager. For the convenience of the study, the
organization, Palmer and Harvey has been chosen for the study. The study further shall relate to
management accounting and management accounting system together with different costing
techniques and reporting to enable the organization implement them and get positive desired
results. The organization has been the fifth largest privately owned business organization the
land of UK and it is mainly related to the business of wholesale marketing, distribution and retail
marketing. The company was first established as a confectionary and tobacco supplying
company and later it, extended all of its business activities over the whole of United Kingdom’s.
Task 1
Explanation of management accounting and giving the essential requirements of different
types of management accounting systems to the chosen scenario:
Management accounting is a tool by which the firm can obtain several accounting activities and
financial tasks during the accounting year. The management accounting acts as a tool, which
provides several information regarding to the organisational activities during the year to the
managers and accountants of the firm. Thus, it can be stated that the firm v can obtain several
aspects regarding to the enhancement of the accounting activities of the form. The management
accounting also demonstrates the methods by which the firm may obtain the accounting records
during the financial year. The organisational loopholes, financial issues, marketing drawbacks
are the primary aspects that are being observed by the management department of the firm
(Zimmerman and Yahya-Zadeh, 2011). The financial and nonfinancial information are analysed
and observed by the management accounting during the accounting year and the firm obtains
several marketing decisions and strategies in order to enhance the financial strengths of the firm.
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The management accounting system mainly consists of several accounting systems, which are to
be identified and explained for the proper performances of the firm's financial activities during
the accounting year (Herbert and Seal, 2012).
 Lean accounting system:
The Lean accounting system is mainly obtained by the lean organisations in the
international market. The accounting method is mainly beneficial for the reconstruction
of the financial structures of the firm during the accounting year. It is also to be
mentioned that the accounting methods as provides support to the organisational
authorities during the year in order to overcome the tough financial conditions. The
aggregate capacity and abilities of the firm can be developed by the accounting system.
The marketing issues and financial obstruction can be dealt with the help of the
accounting system. It is also to be mentioned that the firm can obtain the accounting
systems and techniques in order to enhance the revenues and flexibility to firm's
accounting methods and practices (Macintosh and Quattrone, 2010).
 Traditional accounting system:
The accounting system is known to be the oldest accounting method in the management
accounting history. It is to be stated that the accounting system is also the mostly
accepted among the organisations in the international market. As the accounting system
does not consists of many complications and multiple adjustment of accounts it is
commonly accepted by the organisations among the year. The accounting methods are
mostly accustomed among the accounting organizations and thus it can be stated that the
accounting organisations may obtain several other advanced accounting system, however
traditional accounting system will also be the primary base to start of the accounting
activities (Pipan and Czarniawska, 2010).
 Throughput accounting:
The accounting system is developed from the basics of the cost accounting system. The
accounting system can be utilised in different aspects of the firm and the benefits can be
obtained by the firm from the accomplishment of accounting tasks done by the help of
the accounting system. It is also to be stated that the accounting system can generate
several accounting and organisational information by which the fi5rm can obtain several
accounting decisions that will be beneficial for the firm's accounting and financial
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activities (Garrison et al. 2010). The accounting system mainly focuses on the basic
principles and accumulations of the accounting methods. It is also to mention that the
accounting system can be beneficial to overcome cost related accounting issues and
loopholes and organisational drawbacks.
 Transfer pricing system:
Transfer pricing accounting system mainly requires the information regarding to the
transfer of accounting transactions and taxation amounts. The accounting method takes
place when the two or more organisations have established financial transactions between
them during the accounting year. The accounting system is mainly favourable for the
holding companies, which owns several companies ownership under a single entity or
organisation. Thus, it can be stated that the accounting system is obtained by the
corporate sectors, which have wide range of inter transactions during the accounting year.
The branches of the organization thus follow the accounting system in order to maintain
the required adjustments of the inter transactions during the accounting year.
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Figure 1: Different types of management accounting systems
(Source: Self Developed)
Importance of management Accounting:
 Enhancing the cash flow:
The management accounting systems provides such methods that are required to be obtained
during the accounting year in order to accomplish the accounting and financial activities of the
year. It is also to be mentioned that the forms must obtain several aspects that will cover all the
financial aspects and requirements of the firm. The accounting systems provided in the
organisational structures of the firm can be beneficial for the firm to generate the essential funds
for the accomplishment of the financial activities. The accounting methods and business
strategies of the firm are to be observed and analysed along with the observation of the market
conditions during the time. It is important to mention that the firm must obtain the decisions and
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methods that are provided by the management accounting authorities in order to perform
accurately in the international market. Thus, it can be mentioned that the proper utilisation of the
methods can result in a higher amount of profits at the end d of the accounting year. Thus, the
cash inflow will increase for the time being (Ward, 2012).
 Providing financial decisions:
The management accounting systems provides such methods that are required to be obtained
during the accounting year in order to accomplish the accounting and financial activities of the
year. The financial market and the conditions of the marketing activities are observed by the
management accounting department during the accounting year and thus the department can
provide suitable decisions and strategies for the benefits of the firm it can also be stated that the
firm's can obtain several methods and strategies for their accounting activities during the year.
However, the methods and strategies that are provided by the management accountants of the
firm can be more beneficial for the firm. The organization is required to obtain the financial
decisions that are provided by the management accounting as the decisions are established based
on the market fluctuations and the organisational capabilities. Thus it can be stated that the
management accounting departments are the essence by which the firm can develop the
marketing organisational activities during the accounting year.
 Analysing the organisational performances:
The management accounting systems consists of several aspects that contain the overall
observation of the organisational performances of the firm. The production department,
administration department, sales departments are also performs under the observations of the
management department during the year. The organisational loopholes and the financial
drawbacks have been observed and rectified during the year by the management department. It is
important to mention that the firm must obtain the decisions and methods that are provided by
the management accounting authorities in order to perform accurately in the international market
(Lukka and Modell, 2010). The accounting systems also help in identifying the deviation in the
marketing and financial activities of the firm during the year and are the analysis of the
deviations results in accurate solutions for the firm.
 Reducing and forecasting expenses:
The management accounting systems provides such methods that are required to be obtained
during the accounting year in order to accomplish the accounting and financial activities of the
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year. One of the essential activities of the management accounting is to develop the production
and costing methods of the firm. As it evident that the firm's primary objective is to maximise its
profits during the accounting year. Thus it can be stated that the, management accounting
department of the firm provides such information decisions that will be beneficial for the
accomplishment of such targets. The department also knows that the initial methods to maximise
the profit is to reduce the product and marketing cost of the products and services. Thus the
department provides with such information that will be essential in achieving the profit
maximisation objectives by reducing the financial cost of the firm (Bodie, 2013).
 Enhancing financial returns:
The system obtains the information regarding to the market investment and rate of returns, thus,
it can be observed that the firm's department closely monitors the investments markets in order to
gain the information regarding to their proposed investments. The market conditions
observations benefits the firm by providing the essential l; information regarding to the required
investments that are to be done in the market. The rate of returns and the market conditions are
therefore, monitored in order to obtain the accurate investment policies or strategies during the
financial year. Thus, it can be stated that the management department of the firm also provides
with essential information regarding to the firm's fund generations and investment returns.
Explanation of different methods used for management accounting reporting:
 Financial Planning
The term financial planning can be defined as the thought out process of various financial
decisions are to be taken during the financial year in order to establish the financial strengths of
the firm. Thus, it can be stated that the financial planning contains several financial information
observations, decision making processes in order to achieve the financial goals (Parker, 2011).
 Analysis of Financial statements
The department also enquires the financial statements of the firm's accounting activities
during the year in order to gain the information regarding to the financial activities of the
firm. The financial and marketing decisions are to be based on the reports of the firm.
Thus, the department observes the income statements and balance sheet of the firm of the
year.
 Standard Costing
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 The method obtained by the Palmer and Harvey which is tobacco manufacturing firm can
be beneficial for determination of the actual costs variances from the budgeted costs
during the year. Thus it can be stated that the firm can obtain the strategies and plans to
minimise the deviations in cost in order to maximise their revenues during the year
(Renz, 2016). Budgetary Control
The budgetary control activities are to be mentioned as the activity requires the close
observation of the cash flows. The cash flows that occurs during the year are to be
observed in detail in order to identify the sources from which the additional flows are
generating. Thus the financial costs can be minimised in order to gain the maximum
profits and revenues (Cinquini and Tenucci, 2010).
 Marginal Costing
Marginal costing is mainly used in order to obtain various marketing and financial decisions. The
marketing decisions and the financial activities are verified after its application in the
organisational structure. Thus marginal costing can be beneficial in order to provide the detailed
cost occurrence during the financial year. Break even analysis of the costs is also included in
such calculations.
 Cash flow statement
Cash flow statement are established in order to generate the essential data regarding to the cash
inflows and cash out flows during the year. The cash flow statement determines the net flow of
the cash, which is considered as the surplus or deficit in the financial accounting books. The
availability of liquidity of the firm determines the liability reduction strengths of the firm for the
accounting year.
 Decision making
The accounting system demonstrates the financial conditions and, market valuations of the goods
and services provided by the firm. Thus, it can be stated that the firm must obtain such method
that will be beneficial for the accomplishment of the accurate decision making of the firm. The
decisions are to be obtained in order to gain the essential revenues for the firm's financial
activities.
 Communication of information
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As opined by Nixon and Burns, (2012) communication of information are essential to develop
the organisational activities as whole during the accounting year. Thus it can be stated that the
firm must pass on every details of the information that is gathered from the organisational
activities during the year in order to develop the performance of the firm.
Task 2
Calculation of the net profit using absorption-costing method:
Marginal costing
Year 1
Particulars
Amount
(£) Units
Production 600
Sales volume 500
Sales 17500
Less. Cost of sales 400
Net sales 17100
Opening inventory 0
Direct labour 3000 5
Direct material 3600 6
Less. Closing inventory 9900
Variable Production overhead 1200 2
Variable Sales overhead 500 1
Total variable cost 18200
Contribution -1100
Less. Fixed cost 2200
Administrative expenses 800
Operating profit -4100
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Less. Non-operating expenses
Distribution expenses
Interest expense
Net profit before tax -4100
Less. Tax -1230
Net profit after tax -2870
Calculation of the net profit using marginal costing method:
Absorption costing
Year 1
Particulars Amount (£) Units
Production 600
Sales volume 500
Sales 17500
Less. Cost of sales 400
Net sales 17100
Opening inventory 0
Direct labour 3000
Direct material 3600
Variable expenses 1700
Fixed cost
Administration expenses 800
Manufacturing fixed cost 1800
Less. Closing inventory
Less. Under absorption of fixed
cost 300
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Net profit before interest and tax 6900
Less. Interest expenses
Profit before tax 6900
Less. Tax 2070
Profit after tax 4830
Explanation the difference between the two management accounting techniques:
There are some of the identified and clear points of differences between two of the management
accounting techniques. First, it can be clearly said that there are differences related to the
charging of different costs and expenses in the overall cost heads. These kinds of differences can
be seen between marginal and absorption costing (Scapens and Bromwich, 2010). Under
marginal costing, only the variable expenses incurred by the business organization are
considered. While in case of the absorption costing, the organization can only treat the fixed
costs or the fixed expenses of the organization. Secondly, it can be said that the profit of the
organization can be seen to be reflected in an increased amount under the marginal costing.
While, on the other hand, it is seen that the absorption costing techniques shows a lesser amount
of profits in the organization. This can be seen from the above calculations. Under marginal
costing the profit appeared to be £ 4830. In case of marginal costing, the consideration of profits
is done by using the contribution margin. While in case of absorption technique it can be seen to
be at £ -2870. That is, the absorption costing technique displays a scenario of loss for the
organization. These huge differences can be seen between the figure donated by marginal costing
and absorption technique in order to find for the net profits (Vaivio and Sirén, 2010).
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