Managerial Accounting

Running Head: Managerial Accounting
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Project Report: Managerial Accounting

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Contents
Part 1.................................................................................................................................3
Introduction...................................................................................................................3
Ratio analysis................................................................................................................3
Budgetary control.........................................................................................................5
Variance analysis..........................................................................................................6
Variable costing............................................................................................................8
Absorption costing......................................................................................................10
Conclusion..................................................................................................................11
Part 2...............................................................................................................................12
2.1...............................................................................................................................12
2.2...............................................................................................................................18
2.3...............................................................................................................................19
2.4...............................................................................................................................19
References.......................................................................................................................21

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Part 1:
Introduction:
Managerial accounting is a broad concept which covers various applications and
method to apply over an organization in order to maintain the performance of the business
and reach over a decision. It is important for a business entity to look over these methods and
identify, evaluate and record all the financial contract into the company’s books to keep a
track over the performance of the company. The main accounting methods are ratio analysis,
budget analysis, variance analysis, variable costing and absorption costing. In the report,
these methods have been studied and applied over the professional life to measure their
impact.
Ratio analysis:
Ratio analysis is an accounting method which is applied over the financial statement
of the business to measure the financial performance of the business. The main aim of ratio
analysis is to summarize the financial statement of the organization and brief about the key
financial aspect of the company. It offers a quick indication about the financial performance
of the company through gathering the data from the financial statement of the company. In
accounting, ratios are categorized into various forms such as liquidity ratios, profitability
ratios, solvency ratios, debt management ratios, market value ratios etc. (Kaplan & Atkinson,
2015).
All of these ratios define about the different financial aspect of the company. Such as
profitability ratios are used in the organization to calculate the overall profitability
performance of the company against the total sales, equity, assets etc of the company.
Further, liquidity ratios are calculated to identify whether the company is able to pay the short

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term debt obligation on the basis of current assets available to the company. More to it,
solvency ratios defines about the capital management process and financial risk of the
business.
Further, market ratios and efficiency ratios are used to identify the market worth and
daily operation management capability of the business. Below is the formula to calculate the
ratios of the company and reach over a conclusion about various financial performance
aspects of the company.
Description Formula
Profitability
Net margin Net profit/revenues
Return on equity Net profit/Equity
Liquidity
Current ratio
Current assets/current
liabilities
Quick Ratio
Current
assets-Inventory/current
liabilities
Efficiency
Receivables collection period Receivables/ Total sales*365
Payables collection period Payables/ Cost of sales*365
Asset turnover ratio Total sales/ Total assets

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Solvency
Debt to Equity Ratio Debt/ Equity
Debt to assets Debt/ Total assets
(Kaplan & Atkinson, 2015)
Budgetary control:
Budgetary control is a procedure used by the managers and the owners of the business
to identify about the future performance if the company. This performance explains how
efficiently and effectively a manager could utilize the budgets to control and monitor over the
operations and cost of the company in a given accounting period. It is a process in which
managers set the performance and financial goal and compare it with the actual result of the
business to identify the scope of improvement in the company.
Budgetary control process evaluates the previous data of the company and studies the
current trend in the market to set up a plan in which future performance of the company is
decided. It explains that how well the business would perform in near future. It evaluates the
total revenue earn by the company and total expenses which would be made by the company
in near future. Such as, in my organization, budgets are planned and prepared to set a
financial goal which is required to be achieved by the organization (Garrison, Noreen,
Brewer & McGowan, 2010). Budgetary reports help the business to evaluate the market and
make better decision about the performance of the company.
In an organization, initially the budget is prepared just to set an aim and objective for
the employee of the company. Secondly, budget reports are prepared and it is required for the
management of the company to compare it with actual data and analyze whether there is any

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scope of improvement in the business. It interprets the actual performance outcome to the
budgeted outcome in order to reach over a conclusion about the performance of the company.
Budgets are of various types and it is basically prepared by the manufacturing
companies to identify the total sales units, total amount generated trough sale, total required
production unit, closing inventory, debtor’s amount, creditor amount, cash budget etc of the
company. Budgets make it simple for the companies to identify the future market and set the
strategy and planning accordingly so that the main aim of the company could be obtained.
Variance analysis:
Variance analysis is an accounting method which is based on the quantitative
methods. It is basically a set of process which is used by the organizations to evaluate the
difference among the actual outcome and budgeted outcome of the company. It is a
quantitative investigation in which the performance of the company is measured and
evaluates by the managers of the company and it is identified why the difference has taken
place among the numbers and whether there is any scope of improvement in the business.
Such as, if the budget of an organization is $ 5000 and the actual sales of the company are $
4000 then there is $ 2000 variance yield which is unfavourable for the business (Moles,
Parrino & Kidwekk, 2011).
The detailed variance analysis allows the business and its management to understand
about calculation which has occurred in the business and recommends the management about
changes which would help the company to improve the overall performance. The most
common used variance analysis is as follows:
 Purchase price variance
 Labour rate variance