Managerial Accounting and Reporting

This assignment delves into the realm of managerial accounting, focusing on the crucial role of reports in shaping business strategies. It examines various accounting systems like cost accounting, inventory management, and job costing, highlighting their advantages and disadvantages. The analysis emphasizes how these reports empower managers to make informed decisions, ultimately driving revenue growth and organizational success.

MANAGEMENT ACCOUNTING

INTRODUCTION
Management accounting also known as managerial accounting is a system which helps to
analyze the business costs and helps in preparing financial reports for achieving the target for the
company. It gives accurate and timely financial reports of the company. These reports generally
shows the budget of the company, revenue generated from the products raw material stock,
outstanding debts, etc. This report will focus on the management accounting system of Tech
(UK) Limited, like they are producing charger for mobile telephone and other carry-on gadgets
for the retail outlets in UK. In this report we will discuss about the management accounting of
the company, and why there is an essential requirement of management accounting system. This
report will also be discuss different types of management accounting, difference between
management and financial accounting, types of systems like cost accounting, inventory
management and job costing system and types of managerial accounting.
TASK 1
P1.
A) Explaining management accounting of management accounting system:
1) Distinguishing Management Accounting and Financial Accounting: Key difference
between management accounting and financial accounting are:
Points Management Accounting Financial Accounting
Definition Used by the managers of the
company to evaluate the
companies operations to plan
strategies and make relevant
decisions.
The company is concerned
with the stockholders and other
company outside the
organization.
Objective To manage the company by
giving new ideas for planning.
Providing Financial
information
User Within the company i.e.
internal (Hilton and Platt,
2013)
Both internal and external
parties.
Regulatory Requirements Non-mandatory Mandatory

Rules Does not have to follow any
rule
Have to follow GAAP
( Generally Accepted
Accounting Principles)
rule
Reports These generally focuses on the
detailed analysis of company's
profile.
They make reports on the
company's financial position
(Ward, 2012).
b. Importance of management accounting information as a decision making tool:
Process of preparing reports on the accounts and management of the company giving the
information regarding financial and statistical status is known as management accounting. It
plays a very important role in taking long-term decisions for the company. It helps managers
with decision making. It uses varies tools and plans in strategic decision making. It helps the
department managers in many ways, such as:
 Preparing future plans: Before applying any plan to action the manager should
understand the present and future scenario of the company. Management accounting
helps to answer the questions which arise during the planning and forecasting the
future trends in business.
 Increase Efficiency of the business: Having planned strategies will have the
management to increase its efficiency in the business (Parker, 2012).
 Understanding Performance Variances: It is defined as variances between what is
planned and what actually achieved. Management accounting helps to build positive
variances using analytical techniques.
 Helping in Forecasting Cash Flow: Management accounting helps in designing of
budgets and trend charts for the company which the manager can use to plan how the
company's money and resources are going to be used to generate good revenue
growth of the company.
c) Cost accounting systems:
A cost accounting systems is a system in which the company estimates the cost of their
products by checking the profitability by evaluating cost control of the company. The company
should have the knowledge of which product is profitable for them (Salvo, 2015). Cost

accounting systems works by summing up the total labor, material and overhead costs to the
company. Different types of cost accounting systems are there, such as:
Actual Costing: In actual costing system, they use actual costs for the labor and material
components. Any budgeted amounts or standards amount is not included in it. This is the simple
cost method available in the cost accounting system, which does not require any pre-planning.
Standard Costing: Standard costing system is the process of substituting the expected
cost of an actual cost in the accounting system and occasionally checks the variances by showing
difference between expected and actual costs.
Normal Costing: It includes actual direct cost of the product and standard overhead rate.
It is basically used to derive the cost of any product. It is design to generate product cost by using
long-term estimated overhead rate.
Advantages Disadvantages
 Helps in setting prices.
 Helps to eliminate losses and
inefficiencies.
 Helps in cost reduction and cost
control.
 It helps in identifying profit or loss
percentage.
 Helps to give advice on make or buy
decision for the company.
 Helps in price fixation of the company.
 Helps in marginal analysis of cost and
in preparing financial reports.
 Cost is ascertained.
 Only past performances are available in
the costing system.
 It requires high maintenance for
installation of cost accounting system.
 It does not include financial expenses .
d) Inventory Management Systems:
It is the software system which involves monitoring and maintenance of stocked products
in the company. This system ensures the floe of products from manufactures to warehouses to
their customers. They have to keep a detailed record of all the products which are going out of
the company's warehouse (Wickramasinghe and Alawattage, 2012). They check that whether

company has enough amounts of raw material and suppliers or finished products that are ready
to be sent to consumers.
e) Job costing systems:
To assigning the manufacturing costs of individual product or group of products, job
costing system is used. It involves material, labor, and overhead costs for a specific job. This can
be an excellent approach for tracking specific costs of the individual jobs.
P2 Financial information
Tracking of the financial activities and position of a business, person, or other entity of
the company is done by making Financial report or statement of company.
a.Types of managerial accounting reports:
The main aim of the management accounting reports is to help the company in planning,
monitoring and in decisions-making. There are basically 4 types of managerial accounting
reports which can help in decision making tool for department managers.
1. Budget Report: Budget report is the most fundamental report. It plays a great role in
understanding and controlling costs across the company (Fullerton, Kennedy and
Widener, 2014). They are created from the previous years' data available to calculate the
future outcomes of the company. It helps the owner of small business to evaluate their
performance.
2. Job Cost Report: This report helps in analyzing the total cost which has been arisen
from a single project as compared to the expected revenue from that project. This helps
the manager to evaluate the profit percentage of the specific jobs type and focusing on the
jobs which are more profitable for the company.
3. Accounts Receivable Aging: This is important for any company which is giving credit
to their customers as these reports help the managers to check the customers credit
balances and how long they have been using it. It is crucial for managing cash flow of the
company. Most of the account receivable aging report has separate columns for items
such as 30 days, 60 days and 90 days late or more. Checking the accounts periodically
will help the company to find problems with the company's collections process.
4. Inventory and Manufacturing: To centralize data on costs, labor, and other overhead
involved in the processing, optimizing assembly, providing raw material or machining,

inventory and manufacturing report helps a lot. It is useful for small business to maintain
a physical inventory or producing products.
b. Importance of the managerial report
It is most important for a company to present its report in such a manner which is
understandable to all. It has to be related to the given topic in which it is described in detail. The
report should be very precise so that the related person to that report will understand its faster
and better way (Renz and Herman, 2016). If the report is having too irrelevant matter in it, it will
definitely make problems. As these reports plays an important part for the company because by
analyzing these report, the management system of the company will make future plans and take
decisions according to it.
TASK 2
P3 Preparing income statements according to marginal and absorption costing method:
 Absorption Costing Methods: All the costs of manufacturing of a product including
both of its fixed and variable costs which includes direct costs like material costs, labor
costs and indirect costs like overhead costs comes under absorption costing method. It is
also known as 'Full Costing' method. This is the oldest and widely used technique of
ascertaining cost. It helps to give more precise and accurate view of how much cost us
required to produce the inventory (Soin and Collier, 2013). This method also helps to
make sure that all the invested costs is recovered from the selling of the product or
services. This system helps to calculate the overall profit and separate net profit of the
company.
 Marginal Costing Methods: Marginal costing is a process in which marginal cost is
charged to units of cost, wherein the fixed cost for that period has been written off against
the contribution. In this system, cost is divided into two parts which is fixed and variable
costs. Variable costs in marginal costs involves material and labor costs, some estimated
fixed costs like overhead administration and selling expenses. Marginal costing is based
on the behavior of costs which is varying with volume of the output of the company. It
uses gross margin (includes applied overhead) to measure the profit of the company.

Absorption Costing Methods:
Interpretation: As it considers both fixed and variable expenses, so Tech Ltd should opt for
Absorption Costing method while assessing manufacturing cost because it generates more net
profit for the organization. This method will help them to provide more precise and accurate
knowledge of how much cost is required to produce the inventory by the company. This will
enable the manager to calculate the overall cost of the Tech Ltd company. Absorption costing
method will help to correct or understand profit situation for the company as compared to
variable costing method. Thus, by using this costing system method, manager of Tech Ltd would
able to assess suitable cost and profit margin for the organization.
M2 and D2 : In absorption costing method, income statement of Tech Ltd. Company, it is
gaining a net profit of 15,625 which in comparison, is higher than the marginal costing

techniques in which it is only 13,625. Based on both the techniques it will be beneficial for the
company to choose absorption costing method as it is giving them more net profit. Absorption
costing method will help them to make all the invested costs recovered from the selling of the
product or services of the company. It will also help them to calculate their overall profit and
separate net profit of the company. From this it will be easier for the Tech Ltd to understand their
financial budget.
TASK 3
A. Presenting different types of budgets with their advantages and disadvantages:
 Cash budget: Estimation of the cash inflows and cash outflows for the business over the
specific period is known as Cash Budget. It has many advantages and disadvantages such
as :
Advantages Disadvantages
It helps to maximization profit and minimizes
the cost
Its success is only depends on the operation of
the staff
It helps to improving communication and
better understanding (Christ and Burritt, 2013)
It may lower the morale of a company if it does
not achieve the target.
It creates harmonious relations between the
staff and management team.
It may take longer time to achieve the goals.
Its necessary to identify whether the cash is
sufficient to fulfill the objectives of the
company or not.
Cash budget flow cash during a year but it doe
snot know whether the cash level will flow
same during next year
 Master budget: All the lower level budget produced by a company's various functional
areas, which also include budgeted financial statements, cash forecast and financial
planning, all comes in master budget. It has many advantages and disadvantages such as :
Advantages Disadvantages
All the reports are present in this budget only Its not easy to modify the master budget

It gives complete estimated profit of the
company.
Managers of the company do not consider new
opportunities for the growth of the company.
Functional budget can be cross verifies the
information by using master budget.
It takes too much time for the formatting,
adding and altering and deleting a small change
in the entire budget.
Financial budget: Financial Budget is a plan which shows the financial status of the
company and show whether the company faces some loss or not which can be show by the
budgeted balance sheet. It has many advantages and disadvantages such as :-
Advantages Disadvantages
It creates the financial awareness for the
spending and earning of the business.
It takes too long to creates the financial budget
of the business.
Financial budgeting help to gain more
opportunities and help to expand the business.
It concerns only with financial outcomes as its
main work to identify the financial status of the
company.
Financial budgeting help to make financial
planning for the business
This is based on assumption only. But it is not
possible in the business terms (Lambert and
Sponem, 2012).
It presents the annual report and overall
business financial status during the financial
year.
The decision making power of the team is quite
rigid.
B. Tech limited used use required following steps for the preparation of the budget as follows :
1. First step during the preparation of budget is to update our budget assumption.
2. Next is to see whether the fund is available or not.
3. Allot different cost to different departments.
4. Create budget package to sort out the problems of different departments.
5. Issue budget package.

6. Obtain the budget from different departments and check the errors, and comparing the
fund from last year.
7. Meet senior management team to review the budget.
8. Create the bound version of the budget and load it into the software.
C. Importance of budget as a tool for planning and control purposes:
The importance of the budget for Tech limited company allows to create the spending
plan for the money. Once a budget is created, we can keep our finance on tracks and in case of
emergency we can use our save money. To follow the budgeting plan we can keep our self out
of debt. Budgeting ensures us that we do not need to spend the money as we don't have money
to spend. It also helps in our future planning and forecasting too (Wood, 2016).
TASK 4
P5 Use of managerial accounting in respond to financial problems
Tech Limited company faces the financial problem and has a loss of 1.5 million. To
overcome the situation of this they use the balance scorecard approach as suggested by the
auditors:
To keep the track of the staff's activity and to monitor the consequences raise from the action,
balance scorecard strategy is used. The original four perspective are
1) Financial: It keeps the record of the cash flow, sales growth, operating income, return on
equity and identify the financial measures.
2) Customers: Balance scorecard identifies the basic trend of the market which means that it
identifies the basic need of the customer (Balance scorecard, 2018). For example :
Percent of sale from new product, on time deliver, ranking by the important customers.
3) Internal business process: It identifies the main and new product of the market and what
is the particular cycle time for that particular product and introduction of the product.
4) Learning and the Growth: Balance scorecard identify how they can improve their product
and create values and innovate them. They create new ideas for new generation of the
product and the life cycle of the product maturity and last but not the least time to market
versus competition.
Lets us compare the tools with another business firm. So there are three basic tools which
other organization mostly use lets discuss them :

1. Key performance indicator: KPI is the measurable value which shows if the company is
able to achieve its goal effectively. Choosing a right indicator will show on which track
your business is going. Each department chooses different KPI for measuring the success
based on the business goals, and activity.
2. Bench marking: Bench marking is a business comparing tools which compare the
performance from other companies. It also helps in selection, planning and delivery of
the projects. Bench marking is based on specific indicator i.e. cost per unit measure,
productivity per unit measure and defect per unit measure.
3. Financial governance: Financial governance ensure the integrity of the data collection
process with the financial data quality management. To run a company in a better way a
set of rules and guidance issued by the regulators for best financial process (Salvo, 2015).
It emerged out of scandles like Enron, regulatory measures like US's Sarbanes Oxley Act.
CONCLUSION
From the above report, it can be concluded that requirement of management accounting
system is a must for the company. For the company, both the system management and financial
accounting is important as these plays an important role in decision-making for them. This will
give all the financial information required for the company. This report also summarises the
different types of accounting system like cost accounting, inventory management and job costing
system will help the employee to evaluate the overall report of the company. From the different
types of managerial accounting reports, company can get the information regarding different
aspects and can check their advantages and disadvantages from it. The managerial accounting
reports can be used by the company manager which can help the management to take decisions
and increase the rate of revenue in the future for the company. A good management accounting
system will ensure the overall growth of the organization and its success.

REFERENCES
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performance: The incremental contribution of lean management accounting practices. Journal
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Basics/About-the-Balanced-Scorecard>.