Management Accounting.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its types of management accounting system..........................1
P2: Different methods used for management accounting reporting............................................3
M1: Evaluate the benefits of management accounting system and its applications...................4
D1: Management accounting system and its reporting integrated within organisational process
.....................................................................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculation of cost using an appropriate techniques..............................................................5
M2: Various types of accounting techniques and financial reporting documents......................7
D2: Data interpretation................................................................................................................7
TASK 3............................................................................................................................................7
P4: Budgetary control and planning tools its advantages and disadvantages.............................7
M3: Uses and applications of planning tools for preparing and forecasting budgets.................9
TASK 4............................................................................................................................................9
P5: Responses of management accounting system to deal with financial problems..................9
M4: Management accounting to sustainable success in responding to financial problems......11
D3: Planning tools respond appropriately to resolve financial problems.................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the process associated with managerial accounting or cost
accounting which is used for analysing, presenting and interpreting of accounting information. It
use to assist management in the process of decision making, creation of policy related to
operation of companies. Swain & Jones is a retail auto-mobile company. The company markets
and sell new pre owned auto-mobile. Company also sell various accessories and spare part and
offer maintenance and repair services. The company also provide various a wide range of finance
scheme for vehicle purchase.
In this report various type of management accounting system are discussed along with
reporting method that benefits its working. Management use cost method and accounting
information for determining healthy cost for its product. Swains & Jones applies different
planning tool to properly resolve various financial issue which are addressed in this project. Its
management took several accounting system to resolve company's financial problem for
achieving target (Ward, 2012).
TASK 1
P1: Management accounting and its types of management accounting system
Management accounting is based on cost accounting methods. It is useful for
organisation in measuring performance of employee as well as company efficiency. The main
benefits of this concepts are better decision making and help an organisation in achievement of
organisation goal. Swain & Jones is a small size enterprises so it is very important for their
management to produce financial statement. Identify future risk and compare employee's
performance by adopting various management accounting system. It will result in attracting
more customers towards company products and will increase its profitability.
Swain & Jones uses the main management accounting system for creating impressive
plan for doing more sale and make decision that help them to succeed its business objectives.
Various accounting system are cost accounting, price optimisation, inventory management,and
job costing which are explained below:
Cost accounting systems: A system (also called product costing system) that contain a
framework used by firms to estimate the cost of their product for calculating and measuring
profit, inventory valuation and control additional cost. Swain & Jones use this system for
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estimating accurate cost of product that is critical for profitable operation (Wickramasinghe and
Alawattage, 2012). It is dealing in auto-mobile industry so it is very important for their
management to know which cars are more profitable and which one are not , this can only be
happen when management has estimated the correct cost of its product. This system also help
swain & Jones in computing the closing stock of various accessories, estimating quantity of
product that are work in progress and finished good that are ready for sale. It all help company
management in preparation of financial statements.
Price optimisation systems: It gives a clear picture that how demand for a product
varies at different price level and then combine that data with information on cost and inventory
level to recommand price that will improve profit. In Swain & Jones management use this
system of management accounting to set a decent price for its product so more number of
customer pay for their product that increase the profitability of business. The management of
Swains & Jones consider all factor to allocate appropriate price tot their product.
Inventory management system: This system is useful in tracking all raw material, work
in progress and finished goods involve in its business operation. Swain & Jones uses this system
to track everything form its production to retail, warehousing to shipping and any other
movement of stock and parts use in its operation. Basically ,this system help management to see
all the small moving parts of its operation and allows them to make better decision in
investments. (Inventory management, 2017). It help them to manage their stock on a daily basis
as company place new order for product and ship order out to customer. Small business firms
like Swain & Jones are usually more interested in ordering a product and making sales, so
company create an effective inventory management system.This process assist in minimising the
risk involved in inventory management and help to control stock related affairs of an
organisation.
Job costing systems: This system refer to assigning of manufacturing costs to an
independent product or a group of product. It is used only when manufactured product are
identical or nearly different from each other. Swain & Jones use this approach to record specific
cost to individual jobs and measure them to see if the costs can be reduced in later jobs. It also
help management to see that if any additional cost incurred may be billed to its customer that
help management to generate revenue in future. Process, standard and contract costing are
example of job costing system that help management to calculate cost of material, labour and
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overhead involved in a specific job. Like, Swains and Jones uses this system to determine cost
engaged in their every job and operation.By ascertaining costs, organisation can be benefited as
they can ascertain in what job high costs are involved and what are its problem areas.
P2: Different methods used for management accounting reporting
Management accounting reporting refers to those report which help managers to analyse
the performance of their business. It ease the process of decision making for management and
provide a detail information about organisation operation. Swain & Jones make accounting
report which are equivalent to financial statements. These statements includes the following
reports like income statements, balance sheet and cash flow statements. It provide necessary
information about company operation like, cost of different product, performance of employee,
waste product line and those investment that offer them with best financial return. These report
also help to give information about cash availability, sales revenue, account payable and
receivable about company (Wickramasinghe and Alawattage, 2012). Performance report,
account receivable, inventory and manufacturing report and job costing report are important
report which an organisation maintain for developing effective plan and increase profitability of
its business. Various management accounting reporting are :
Performance Reporting: It is a process of collecting and distributing performance
information of employee's working in an organisation like status reporting, progress
measurement and forecasting performance for next project. On the basis of collected
performance information this process generates the report. These report are detailed statement
that measure the result of an activity in term of its success over a period of time. Swain & Jones
prepare performance reports for measuring and examining actual performance of employee with
budgeted performance at every level. It help management to assess the success of product,
increase efficiency of its employee and increase profit of its business (Figge and Hahn, 2013).
Account Receivable Reporting: This reporting includes a list of those customer who
have not paid their invoice and company gets an exact idea related to amount outstanding with
customers. The managements of Swain & Jones use this reporting system to determine the list of
customer who have not paid there instalment and due amount. The ageing report is used for
estimating possible bad debts, that are then used to revise the portion of doubtful accounts. It also
make easy the work of manager in determining the effectiveness in credit and collection process.
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Job costing reporting: this system help to define costs of of various jobs and product
offered in a company. It includes cost of labour, material, equipments, and overheads etc. Swain
& Jones follow job costing reporting because its includes various job in its functioning like
dealer, advisor, and seller etc. So every job start with a perfect job cost estimate. Managers
comes to know about expenses to be incurred on a specific assignment related to present job and
services running in the company.
M1: Evaluate the benefits of management accounting system and its applications
Management accounting system Benefits
Cost accounting system  It help to find production cost of
different product at a specific units.
 It focus on cost controlling to achieve
organisational goal.
Price optimisation system  It helps in setting a decent price of
company product so that it may not
effect customer (Otley and Emmanuel,
2013).
 It help management to receive feedback
from customer if required.
Inventory management system  It improves the inventory maintenance
system of company.
 It provide information about raw
material and finished goods and
improves delivery system also.
Job costing system  It accumulate manufacturing costs of
product.
 This system help to find cost of labour,
material and overhead involved in
production process.
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D1: Management accounting system and its reporting integrated within organisational process
Management accounting system and its reporting help Swain & Jones to achieve
maximum profits by giving several information like performance analysis, inventory data and
market trends etc.(Soin and Collier, 2013). Through inventory management system Swains and
Jones manage their inventories and track record of every inflow and outflows of stock. Company
create best pricing strategy in order to increase product demands by attracting more customer.
Management accounting report display many useful information to manger that help in
determining actual performance and create a positive image in marketplace.
TASK 2
P3 Calculation of cost using an appropriate techniques
Cost: It is a monetary value of a product used in its manufacturing or incurred in running
business operations. It is an amount which is paid by purchaser of product to its dealer. Swain &
Jones set a favourable cost for its auto-mobile, accessories and spare parts in way to attract more
and more customers (Richardson, 2012). Here the term 'favourable' refers to right cost at which
customer that customer ready to pay willingly.
Marginal costing: In this technique cost of additional unit which is included in the
production. Swain & Jones use marginal costing method for getting idea related to cost of extra
units. It also use this technique to evaluate the additional variable cost.
Absorption costing: This technique is used to recover all the costs which incurred in the
production from the sell of similar products. Swain & Jones used this method for identifying
standard cost which includes in manufacturing process.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
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Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: It is a point where total cost is equal to company's income. It aid
the managers of Swain & Jones in identifying no profit or loss situation (DRURY, 2013). This
display that situation where company's cost is recovered but it does not achieve profits.
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
C. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is condition where buyer will buy product when its market value is
less than its internal value. It is calculated by taking difference between actual and standard
sales. It reflect the level of sales quantity that reduce before reaching to break even point.
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D. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2: Various types of accounting techniques and financial reporting documents
Standard, marginal and historical costing are the three accounting techniques used by
Swain & Jones which help in measuring its performance. It also helps in calculating net
operating income and in making decision for the financial year. In standard costing, actual cost
of production is compared with planned and variation is identify. Company use marginal costing
technique for determining the opportunity cost which occur when additional output is produced.
In historical costing, price of asset is based on its historic cost and that amount is display in
balance sheet. Company finds marginal costing is a best technique for matching cost of product
with its revenue which is used to calculate period profit.
D2: Data interpretation
In above calculation, Swain & Jones use marginal and absorption costing technique for
determining its net profit. It evaluate a variation of £1825 in profit after calculating from both
absorption and marginal costing technique. Net operating profit under marginal costing is
£17500 whereas £15625 is generated by absorption tool. Company also calculate its break even
point in units and amount. Its total BEP sales is £20000 and 500 is the units sold. Swain & Jones
want to earn minimum profit of £10000 for that it sale 1333.33 units of product. Company
margin of safety is 37.5, when it sell 800 units.
TASK 3
P4: Budgetary control and planning tools its advantages and disadvantages
Budgetary control is a process of evaluating various actual outcomes with budgeted for
the future period. It also set standards then compare the budgeted details with actual performance
for calculating difference if any. Swain & Jones use budgetary-control as a planning tool that
helps in controlling its expenses and planned accordingly for future (Suomala and Lyly-
Yrjänäinen, 2012). Company compare its budgeted income and spending with actual, so that it
analyse whether the plans are properly followed or not. It also identify that plans need any
alteration or not for achieving target.
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Swain & Jones is a auto-mobiles retail. It also sell accessories, spare parts and provide
maintenance and repair services. So that company is using budgetary-control technique for
implementing plans to reaches its objective with maximum number of sales. By this tool
company also forecast sales quantity and measure uncertainties that might be originate in future.
Forecasting, contingency and scenario are the three planning tools that company follow for
controlling budgets. These planning tools are explained below:
Forecasting tools: This is the most important tool, as it aid to forecast future situation of
the company. It also give an idea about future events that how company trends appears in
market. Swain & Jones use this technique for making predictions on the basis of current and last
years information (Quattrone, 2016). Company also estimate its future sales of auto-mobiles,
accessories and form budgets based on that predication. Here are some merits and demerits
related to forecasting tool:
Advantages Disadvantages
Swain & Jones finds this tool as analytical
basis for preparing and measuring plans
effectively.
It help in dealing with insufficient funds by
predicting finance requirement in future.
Company cannot depend on this tool because
forecasting is based on previous years
information which is not going to remain same
in future.
It is a time consuming process as accurate
study of information take more time.
Contingency tools: In this planning tool future risks are evaluated by making plan for the
outcomes of unexpected events. Swain & Jones use contingency tool with a motive to minimise
the loss of uncertain situations that occur in future. Company make plans for running its
operations smoothly also after happening of those events. With the help of this tool company
manage future risk by making proper contingency plan that lead to increase efficiency in
operation (Bovens, Goodin and Schillemans, 2014). Below are merits and demerits of this tool:
Advantages Disadvantages
It assist in identifying uncertain events and use
contingency plan to resolve issues.
It reduces the production and sales loss in
Resources used in making this plan can be
totally wasted if that events doesn't occur.
Plans does not work in all contingencies
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advance. because all crises are not foreseeable.
Scenario tools: It is an inherent part of the strategic planning process. This tool focus on
giving answer to a question i.e. what will be the impact of future events in company's operations.
Swain & Jones use scenario tool for analysing the changes in the business environment that will
impact on its sales. Company make flexible term plan with considering future situations. On the
basis of this tool, management evaluate effective plans and policies that assist in decision making
and achieving sales target on time (Fourie and et. al., 2015).
Advantages Disadvantages
It helps in monitoring progress with better use
of resources.
This tool aid in preparing future irrespective of
what will happen.
It is difficult to follow with rapid changing
market.
It is less related to future crisis.
M3: Uses and applications of planning tools for preparing and forecasting budgets
Swain & Jones finds planning tool like forecasting, contingency and scenario are very
useful in formation of budgets, compares efficiency in performance. It also help in predicting
future risks that might be influence business activities. Company use forecasting tool in
estimating upcoming events like demand of auto-mobiles, accessories and services rendered by
them. In contingency tool, company analyse unwelcome events that impact on future working
and implement contingency planning for reducing the business risk. For monitoring company's
progress and analysing change in market trends company follows scenario planning tool. With
the help of these planning tools company prepare and forecast effective budgets.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problems: Every organisation suffer from financial issues at one time or
another, specially at the time of expansion. High level of debts, less inflow of cash, insufficiency
of funds, bankruptcy, improper money management etc. are various financial issues occur during
business activities (Arjaliès and Mundy, 2013). Swain & Jones is small scale company and want
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to expand its business. Therefore it also suffer from various financial problems that are described
below:
 Inadequacy of funds: This issue occur when company does not have sufficient amount
of capital to fulfil a payment demand. Swain & Jones have lack of funds in order to
expand its business (Ahmad, 2012).
 High level of debts: Continuous credit sales lead to increase in the level of debts. In
order to increase sales, Swain & Jones provide credit facilities to their customers but not
able to recover on time. Because of insufficient funds company also not able to repay
their loans.
 Excess of spending over expenses: Swain & Jones spend more on promotional and
unnecessary activities. This also impact on company's income as their spending are more
than their revenues.
Company follows benchmarking, key performance indicators and financial governance tools for
resolving its financial issues. These tools are explained below:
Benchmarking- This tool is used to measure and compare the overall performance of
company with other company in the similar industry (Bromwich and Scapens, 2016). Swain &
Jones use benchmarking tool for resolving its financial issue related to high level of debts.
Company compare its practices and performance with other company in same industry. It
develop credit strategy to recovery debt from customer on time. Standards relevant to credit
policies are significant and followed by its competitors that improve performance and recover
due amounts.
Key performance indicators- This tool is used to measure, examine their employees
performance in a specific period and make a favourable decision. Company use this technique to
compare it finance and business performance. Swain & Jones also measure its performance that
negatively impact on its operations. Then company take appropriate steps to increase employees
efficiency, resolve funding problem, build a good image in the market. Company also solve
financial issue related to excess of spending on expenses. For resolving this issue company use
leading and lagging KPI that are described below:
 Leading KPI: In key performance indicators company estimate future situations and
identify market trends that helps in decision making. Swain & Jones use leading KPI for
measuring its inputs that are hard to measure and easily influenced. Company figure out
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its sudden and inappropriate expenses, reduce these expense by estimating correctly. It
also forecast its sale in order to generate revenues (Cardoni, 2012).
Balance scorecard: In this technique easily measures its outputs but are difficult to
implement. A dynamic scorecard is a management tool intended to transform the goals and
objectives of an entity into some kind of series of performance targets which are, in effect,
calculated, tracked and updated if required to ensure that perhaps the strategic objectives of the
company are achieved.
Budgetary-control: Budgetary management is a method of comparing different actual
effects with such a plan for the possibility. This also establishes rules in order to reconcile the
budgeted information to overall performance of company. In respective firm company use this
techniques to detect the difference arising within expected income figure for a period so that
proper steps are made for further improvement.
Financial governance- This tool is used by company in collecting, managing,
controlling and directing financial information which are helpful in management operations.
Swain & Jones is a small scale company and wants to adopt this tool for responding to financial
problem relevant to inadequacy of funds. Manger properly maintain company's records for
attracting stakeholders (Van der Stede, 2015). When investors go through these financial details
company's problem related to insufficiency of funds resolve. Company also apply for overdraft
facilities for working its operations smoothly. If company's finance problem resolve it will able
to repay loans also that also reduces high level of debts.
Tesco Sainsbury
Company is the leading supermarket chain in
UK that use to sell number of useful daily
consumption product. Recently company is
facing problem of Excess of spending over
expenses.
The respective company faces the measure
financial problem of Inadequacy of funds thus
needed to resolve in proper time to increase
profit margin.
The manager of company uses financial
governance technique in order to detect the
main reasons for extra utilisation of funds on
unproductive activities.
In sainsbury manager uses budgetary-control
technique to detect the issue of lack of funds.
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In order to resolve the problem company uses
key performance indicator and establish
financial indicators to put the amount in proper
activities in order to increase profitability.
To resolve financial problem manager uses
financial governance to make proper plan so
that maximum money is utilised in profit
making business operations.
M4: Management accounting to sustainable success in responding to financial problems
Management accounting plays an important part in Swain & Jones operations in way to
resolve its financial issues. High level of debt, inadequacy of finance, excess of expenses are the
three financial problems that company faces during it working. Company use benchmarking, key
performance indicators and financial governance techniques for responding to these financial
issues. It establish a standard related to credit policies which assist to recovery its dues from
creditors under benchmarking technique. It use financial governance tool for attracting more
investors and customers in order to solve funding issue. Company also identify irrelevant
expenses and reduces the excess of spending by measuring it under key performance indicator.
D3: Planning tools respond appropriately to resolve financial problems
Swain & Jones uses forecasting, contingency and scenario budgetary control planning
tool that helps in identifying and tracking financial problems. Company makes effective rules
and regulations for creating long term plan in way to achieve profits under scenario planning
tool. In contingency, management prepares plan for future uncertain events that impact on
employees and organisation performance which ultimately effect on inflow of cash. Under
forecasting tool, company deals with unpredictable event that might create problem in future
growth. For that, management forecast budgets for effective future performance.
CONCLUSION
In this project report, company use various management accounting systems such as
inventory management, cost accounting, price optimisation and job costing. These systems assist
in identifying its working at various level of company. It also use above methods in order to
make attractive and good reporting for its performance. Company follow three planning tools
such as forecasting, contingency and scenario to overcome with financial issues that it faces like
inadequacy of finance, excess of expenses and high level of debt. Above systems, reporting
methods and tools help in favourable decision making related to profitability and performance.
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