Managing Accounting of Nero Ltd Assignment

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1 (LO1 & LO2).............................................................................................................1
P1: Management accounting and essential requirement for different type of management
accounting systems.................................................................................................................1
P2: Different methods for management accounting reporting...............................................2
Benefits of management accounting system..........................................................................2
Management accounting system and reporting integrated with each other...........................3
P3: Use of marginal and absorption costing method for different calculation.......................3
SECTION 2 (LO3 & LO4)..............................................................................................................8
PART(A)..........................................................................................................................................8
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.8
Use of different planning tools and their application for preparing and forecasting the budget
..............................................................................................................................................10
PART (B).......................................................................................................................................10
P5: Comparison of organization to solve the financial problem with the help of management
accounting system................................................................................................................10
Management accounting system can lead to the sustainable success in relation to solving the
financial issues......................................................................................................................12
Planning tools for accounting respond accurately to solve the financial issues that leads to the
sustainable success...............................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting performs several roles and responsibilities such as identifying,
summarising and analysing the financial statements prepared by the financial management on
annual basis. Financial statement includes income statement, balance sheet, cash flow statement
etc. It represents the actual financial position of an organisation which directs the manager to
make corrective actions in order to achieve stability and profitability. The present study is based
on Nero Ltd. which is engaged in manufacturing sector operated in United Kingdom. The report
includes the definition of management accounting and benefits of its systems in the context of an
organisation. The report also discusses management reporting system, costing methods with
calculation of net profitability, budgets and its tools to control budget, application of
management accounting system to resolve financial issues faced by an organisation.
SECTION 1 (LO1 & LO2)
P1: Management accounting and essential requirement for different type of management
accounting systems
Each and every organisation need to record financial and non-financial transaction to
monitor the income and expenses of the organisation. For this management accounting is
necessary for the organisation that relates with the function of internal management which
determines that financial decision of an organisation are crucial part of management. In context
of Nero Ltd. management accounting help organisation in order to implement different activities
and functions which are as follow:
Price optimisation system- The price optimisation accounting system helps an
organisation to develop a framework that helps an organisation to determine the price of their
products and services. With implement of these system in the organisation both parties will be
benefited either they are customers or organisation. Like in the context of Nero this helps an
organisation to assign the affordable price to its customer (Bebbington, Unerman and O'Dwyer,
2014).
Cost accounting system- The cost accounting system plays an essential role in
organisation as it helps them to complete to determine the total cost of the organisation that they
invest to perform different activities. It helps an organisation to evaluate the cost about each
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individual activity which determines company analysis actual profitability for the organisation
(Cost accounting systems, 2013).
Inventory management system- This type of accounting system helps an organisation to
maintain their inventory which includes raw material, finished goods stock etc. Like in context of
Nero it is beneficial for them to track the records of their inventory due to which it is easy for
them to track the supply and demand of the inventories. Along with this it also helps them to
make decision effectively.
P2: Different methods for management accounting reporting
Management accounting reports helps an organisation to record their actual performance
some of them is given below:
Budget report- the Budgets helps an organisation to make the control the prices of
different activities that is predicted or estimated by the management of organisation. In case of
Nero it helps an organisation to match their actual performance with expected performance.
Along with these it also helps an organisation to control the unnecessary expenses that increase
cost of company (Bromwich and Scapens, 2016).
Inventory report- This report contain the all the necessary information in detailed about
the stock that is currently present in organisation. In Nero Ltd. this helps the management to
analysis the cost which is related with the quantity and price of raw material. This document
helps the organisation to maintain current level of inventory that helps to achieve their targets.
Moreover this helps an organisation to order required stock to its suppliers.
Cost accounting reports- This type of accounting reports helps an organisation to
estimate the overall cost that is implemented by them to manufacture or product their cost. Like
Nero Ltd. execute this activity in order to attain their goals that increase the information about
cost. Along with this it helps an organisation to enhance their activities within minimum time
period (David, 2011).
Benefits of management accounting system
Management accounting system Benefits
Price optimisation system This accounting system helps an organisation to
determine the price of products and services.
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In context of Nero price optimisation system
help to assign products effectively.
Cost accounting system Cost accounting system helps an organisation
to calculating overall cost of activities. In case
of Nero it is beneficial for them to decide the
cost as it is presented with whole detail.
Inventory management system This is useful for company as it helps to
analysis the cost of all inventories that is
present in the organisation. In context of Nero
it helps to make effective decisions.
Management accounting system and reporting integrated with each other
The management accounting system includes several system of accounts such as
inventory management, cost accounting system and price optimisation system. It governs that it
is related with accounting reports that helps to make effective decisions for the organisation.
Like Nero financial department develops different cost effective way to complete their work by
reducing unessential cost.
P3: Use of marginal and absorption costing method for different calculation
Cost:- It is the value of money that has to be paid up in order to get something. For a
manufacturer company cost refers to that amount which is incurred by creating a product or
providing a service. Cost is an important element for a company because others elements of the
production depends on it. It is the first stage of production because before starting a business a
company should consider cost of their production then they should start their production
procedure. While doing production various costs are occurred such as direct material, direct
labour, manufacturing overhead, and many others (Linoff and Berry, 2011).
Marginal costing method :- The marginal cost is occurred when there is any change in
total cost that comes from producing one additional item. In this case variable costs constantly
changes with the production but fixed cost always remain unchanged. In the case of Nero Ltd., if
they are adopting marginal costing method in their production then they will save their product
cost because in this method fixed cost is always unchanged.
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Absorption costing method :- It is the traditional method for cost ascertainment, where
all the production costs are constantly change with the changes in production. If Nero Ltd.,
produce the products by adopting this method then their both fixed and variable cost will be
affected. If they increase their production then both of these costs will be increase with the
production and vies versa, it will decrease. In this method the cost of per unit will be increased
because the both cost will be change (Goetsch and Davis, 2014).
Nero Ltd. is SME due to which they should adopt marginal costing method. By using this
method they can save their per unit cost as compare to absorption coasting method. They also
can increment their profitability and the goodwill of the company in the market. It will also help
investors to take interest in the company because using this method they can produce more and
can get higher profit.
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
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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
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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
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units
Budgeted fixed cost 0.2
Variable cost per units 0.65
(b): Reason for analysing variations in profit
From the above calculation, it has been seen that both costing method are presenting
valuable differences in net profit. The main aspects which is vital to be taken into accounts is
related with the fixed overhead expense because of that these difference are arises. 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)
(c): 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
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Under absorption= (1200)
SECTION 2 (LO3 & LO4)
PART(A)
P4: Advantages and disadvantages of different kind of planning tools of budgetary control.
Budget :- A budget is a formal statement of approximation of incomes and expenses
which is based on future plans and objectives. Budget should be maintain by every company
because it shows how much money an organisation will receive and how much they will need to
spend on operational activities. By maintaining the budget, Nero Ltd. able to know that how
much money they should spend on their production so they can increase their profitability. It will
help them to recognize all the expense, income, revenue which will occurred in the future.
Budgetary control:- It is that process by which budgets are prepared for the future
period and are compared with the actual results for finding the variation, if any. In context of
Nero Ltd., it will help them to find the differences between the estimate and actual results. The
comparison of budgeted figures with actual figures will help the company to find out differences
and take corrective actions without any delay (Maas, Schaltegger and Crutzen, 2016).
Master budget & its merits and demerits:- A master budget collects all the divisional
budgets for the firm to show all the activities at an one place. It is an one year budget which
helps to summarised all the small budgets. Nero Ltd. create master budget to maintaining all the
financial and operating activities in one budget. This budget have some advantage and
disadvantage also which are detailed below:-
Merits :-
 Bird's eye view on the business – From this merit Nero Ltd. can reveals that how much
company is earning and spending in a whole year, and shows whether business is in
positively operating or not. Master budget equals master planning – It helps Nero Ltd. to recognize their problems so
they can plan for business according to all the activities. Example master budget shows
the expenses of one department is higher than expectations so with the help of master
budget you can easily find which department is occurs higher expense (Nørreklit, 2017).
Demerits:-
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 Lack of specificity – Master budget sometimes may be create some problem for Nero
Ltd.. As it is contains all of the departments' income and expenses it may be create some
problems for the company. In this situation Nero Ltd. is not able to determine specific
amount spend by a specific department.
 Difficult to read and update – In this budget there is so many categories, number, charts,
and description which create difficulties to read and update for others.
Cash budget & its merits and demerits:- Cash budget is a budget which is prepared to
estimate the cash inflows and outflows during a specific period of time. By preparing the cash
budget Nero Ltd. can know that where they should spend cash in the future so they can increase
their productivity (Rikhardsson and Yigitbasioglu, 2018). They can also estimate that in the lack
of cash from where they can arrange the cash. This budget have some merits and demerits which
detailed given below:-
Merits:-
 Self evaluation – Cash budget allows organisations to compare between estimated and
actual factors and inspire them to improve their differences. By helping of Nero Ltd. can
also improve their operational activities if they find some difference between actual and
estimated factors.
 Able to communicate with financial position – By help of cash budget they can feel much
easier to communicate the current financial situation of the company.
Demerits:-
 Use of estimates – In making the budgets mangers of are using estimated factors which
are different from actual factors. While preparing the cash budget Nero Ltd. is using
estimated factors which is related to future sales and future incomes that may be different
from actual results.
 Lack of flexibility – Cash budget prepared on the basis of estimated numbers which can
not be change if once they are published (Senftlechner and Hiebl, 2015).
Operating budget & its merits and demerits:- A operating budget is a detailed
statement which is showing all the estimated income and expenses for a particular period of time.
This statement is help Nero Ltd. to estimate all the operating incomes and operating expenses in
the detailed form. Operating expenses and operating income are directly related to the
production. This budget have some merits which detailed given below:-
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Merits:-
 Tracking - A benefit of an operating budget is help to business to work on a right track.
By checking the operational budget Nero Ltd. can check their business activities are
going according to estimated factors or not. If they find some difference between
estimated and actual factor they will try to resolve which are the reasons behind this
difference.
 Preparation – It helps managers to conduct their activities according to the prepared
budget. By help of this budget Nero Ltd. can operate their activities according to the
estimated budget. They can also save their time and money by preparing this budget
(Shipman, Swanquist and Whited, 2016).
Use of different planning tools and their application for preparing and forecasting the budget
Budgetary control planning tools help management in making efforts in reducing irrelevant
cost incurred in execution of business activities so as to increase financial position of company
for longer period of time. There are different tools such as flexible budget, cash budget etc.
which provides framework for preparation of budget. For example, flexible budget helps in
overcoming the future contingent situation by making pre-determined changes in the existing
budget so that no barrier can be stop company to achieve its desired goals and objectives.
PART (B)
P5: Comparison of organization to solve the financial problem with the help of management
accounting system
Financial issues:
Financial issue or financial problem is something that arises when the company are not
able to meet their bills on time or afford basic necessities. Financial issues can be lack of saving,
low wages rates , debts are higher than earning, high cost of living , inflation etc.
In context of Nero Ltd. company : Every business deals with financial problems at
some point of time ,as it is not possible for a business to stand out in this competitive
market .company like Nero Ltd. were also facing some financial problems like fraud, unexpected
damages of furniture , failure in paying credit bills, money management, no access to funding for
growth (Uyar, 2010).
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Causes/reasons behind arising financial issue: Financial issues that were faced by Nero
Ltd. are -
 Lack of funding available for the growth of the company as Nero Ltd. has more
expenditure towards purchasing of raw materials and equipment.
 The debt of the company were so high that company could not pay.
 High inflation rates which has made a rise in general prices level of the materials which
were required for manufacturing of products and services.
 Missed payments on credit cards which has lead to decrease in companies financial
positions.
 Unexpected frauds in the company.
Tools to resolve financial issues: To resolve this problems of finance a company must
adopt these tools -
KPI : Key performance indicators are the key indicators of the business which are used
for evaluating the success of the organisation or a particular project, programmes. This would
help Nero Ltd. in analysing what are their objectives and what they should do to attain the
standard of their performance with their actual performance so that they can keep reviewing their
financial status and work on that. Key performance indicators will help company in increasing
their productivity and profitability which can be beneficial in maintaining the stable growth
(Yeshmin and Hossan, 2011).
Benchmarking : Benchmarking is setting standard. It is the tool which Nero Ltd. can use
to compare their own performance with the best industry practices. This can help the company in
lowering the cost , improving the quality and resolve the problem of damages.
Financial governance : Financial governance is a tool which a company can use to
monitors , control it financial information. This would help company in analysing their financial
data its accuracy, proper planning for budget, expenditure, and forecasting about future to
manage their debt and credit bills and allow them to increase their savings and reduce
unexpected loss.
Comparisons of two organisations in terms of facing their issues and tools to resolve it.
Nero Ltd Unicorn grocery
Nero Ltd. is facing issues related with errors in
financial statement due to having lack of
Such company is facing issues due to lack of
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knowledge by their employees. knowledge about their rivals strategies.
KPI is best tool to implement as it increases the
performance level of employees by comparing
their actual with past year performance.
Benchmarking is suitable to adopt by such
company as it help in setting target after proper
analysis of rivals strategies and their future
plans to compete with their rivals in
competitive market.
Management accounting system can lead to the sustainable success in relation to solving the
financial issues
There are different tools and techniques that will make easy for the management of Nero
Ltd. In resolving their financial issues. These techniques includes KPI, Benchmarking and
financial governance. Among these, KPI and Benchmarking are considered as an effective tool
which should be adopted by Nero Ltd. As it both help in enhancing the performance level of
employees which results in profit.
Planning tools for accounting respond accurately to solve the financial issues that leads to the
sustainable success
To resolve financial issues, various tools are usable if adopt by Nero Ltd. which includes flexible
budget, cash budget, operating budget etc. These kind of budgets restricts the management to
limit their expenses and spend according to the situations arises during execution of business
activities. For example, flexible budget allows manager to make changes in their spending
according to the situations which reduces unnecessary cost. Thus, it makes positive impact on the
net profitability of company.
CONCLUSION
From the above report, it has been summarised that management accounting plays most
important role in maintaining company’s financial position. Its roles and responsibilities are very
much depend on the roles of financial management who prepare financial statements such as
profit and loss a/c, balance sheet etc. as management analyse these statement to make an
effective decision and suitable plans for the betterment of an organisation. Along with this, using
of management accounting and reporting system will be also beneficial in terms of retaining
loyal customers and employees with company for longer period of time. There are two methods
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to calculate net profitability such as marginal and absorption among which an organisation can
select one according to their mission and objectives. There are several planning tools as well
which need to be used to resolve financial issues that may arises due to spending more than
income, improper cash inflow etc.
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REFERENCES
Books and Journals
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accountability. Routledge.
Bromwich, M. and Scapens, R. W., 2016. Management accounting research: 25 years on.
Management Accounting Research. 31. pp.1-9.
David, F. R., 2011. Strategic management: Concepts and cases. Peaeson/Prentice Hall.Goetsch,
D. L. and Davis, S. B., 2014. Quality management for organizational excellence. Upper
Saddle River, N J: pearson.
Linoff, G. S. and Berry, M.J., 2011. Data mining techniques: for marketing, sales, and customer
relationship management. John Wiley & Sons.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136,
pp.237-248.
Nørreklit, H. ed., 2017. A philosophy of management accounting: A pragmatic constructivist
approach. Taylor & Francis.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: Past accomplishments and future opportunities. Journal of
Accounting & Organizational Change. 11(4). pp.573-606.
Shipman, J. E., Swanquist, Q. T. and Whited, R. L., 2016. Propensity score matching in
accounting research. The Accounting Review. 92(1). pp.213-244.
Uyar, A., 2010. Cost and management accounting practices: a survey of manufacturing
companies. Eurasian Journal of Business and Economics. 3(6). pp.113-125.
Yeshmin, F. and Hossan, M. A., 2011. Significance of management accounting techniques in
decision-making: an empirical study on manufacturing organizations in Bangladesh.
World Journal of Social Sciences. 1(1). pp.148-164.
Online
Cost accounting systems, 2013. [Online]. Available
through<https://accountingexplained.com/managerial/cost-systems/>.
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