Detailed Management Accounting Report and Analysis: Network Rail

This report delves into the realm of management accounting, focusing on its application within Network Rail Limited. It begins by defining management accounting and outlining its fundamental requirements, including various systems like cost accounting, inventory management, job costing, and price optimization. The report then examines different types of management accounting reports, such as accounts receivable, budget, inventory management, and performance reports, detailing their generation and purpose within the organization. It further elucidates the benefits of these accounting systems, emphasizing their role in cost control, inventory management, and informed decision-making. A critical evaluation of the integration of these systems and reports within organizational processes is also provided. The report concludes by offering insights into the preparation of income statements and balance sheets, providing a comprehensive overview of the company's financial position.

Management
Accounting

Table of Contents

INTRODUCTION
Managerial accounting is consider as the procedure of defining, analysing, monitoring
and controlling the overall presentation of an entity during a financial year. It is helpful to the
internal stakeholders in order to measure the actual financial status of an organisation so they can
improve the effectiveness of the firm easily (Dai and et. al.,2017). To better understand of the
report selected engineering company, Network Rail Limited. The company was established in
London, United kingdom and founded in 2002. The company mainly dealing into public
transport and civil, structural engineering, logistics transport and supply chain.
This report discusses about different topics such as system of management account and
its necessary requirement. To prepare report for company apply different methods which is
related to various departments and shows their position. Apart from the report, define benefits of
accounting system and analysis integration of accounting system and accounting reports within
organisational processes. Furthermore, set a range of management accounting techniques to
develop financial reports. Additionally, define about the merit and demerit of the planning tools
and compare effectiveness of an organisation to dealing with financial problem.
ACTIVITY 1
PART A
Management accounting and their fundamental requirement
Management accounting: It is a process that describes as detailed investigation of the
management performance in order to control the business activities so profit can be higher in the
long term. Network Rail that is rail infrastructure and assets management company that uses
management accounting for the business services in order to perform in certain manner. Business
management of the company formulate the strategies to handle the different situation for
betterment of the organisation.
Management accounting system: Management accounting systems refers to systematic
utilisation of accounting information and records in order to achieve targeted objects as per
organisational policies and regulation (Qian and Schaltegger, 2017) . There are different kind of
management accounting systems which works to handle the overall managerial processes and
also use to framework of business policy making. Some of them are discussed below:
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INTRODUCTION
Managerial accounting is consider as the procedure of defining, analysing, monitoring
and controlling the overall presentation of an entity during a financial year. It is helpful to the
internal stakeholders in order to measure the actual financial status of an organisation so they can
improve the effectiveness of the firm easily (Dai and et. al.,2017). To better understand of the
report selected engineering company, Network Rail Limited. The company was established in
London, United kingdom and founded in 2002. The company mainly dealing into public
transport and civil, structural engineering, logistics transport and supply chain.
This report discusses about different topics such as system of management account and
its necessary requirement. To prepare report for company apply different methods that is
connected with several sections and shows their position. Apart from the report, define benefits
of accounting system and analysis integration of accounting system and accounting reports
within organisational processes. Furthermore, set a range of management accounting techniques
to develop financial reports. Additionally, define advantage and disadvantage of the preparation
tools and analyse effectiveness of an organisation to dealing with business issues.
ACTIVITY 1
PART A
Management accounting and their fundamental requirement
Management accounting: It is a procedure that describes as detailed investigation of the
establishment presentation in order to control the enterprise activities so profit can be higher in
the long term. Network Rail that is rail infrastructure and assets management company that uses
management accounting for the business services in order to perform in certain manner. Business
management of the company formulate the strategies to handle the different situation for
betterment of the organisation.
Management accounting system: This systems refers to organized utilisation of
accounting information and records in respect to achieve targeted objects as per organisational
policies and regulation (Qian and Schaltegger, 2017) . There are different kind of management
accounting systems which works to handle the overall managerial processes and also use to
framework of business policy making. There are discussed below:
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Cost accounting system: It is elaborate structure which is utilised in organisation to find
the total cost of rendered services for valuation of the stocked material, cost controlling and
profitability of the manufacturing unit. This model applied by the Network rail to evaluate real
price of production in order to determine the profit as well as different level of production.
Network Rail usage this price model to verify the specific cost of the particular rendered services
together with cost of goods at production unit. This system service industry determine signal
value of direct material, labour and overhead at every level of the goods production.
Inventory management system: This system applied by company in order to understand
inventory records in detail manner. Network rail apply this system to understand the flow of
different types of stock in different level of manufacturing. Inventory management reports is
accompanying with inflow and outflow of the inventory in certain period of time Moreover, it
also helps in determinant the future order requirements in advance and predetermines the
requirement of material that helps in smooth flow of work processes as well as better
management of material. There are various method to evaluating the goods price like LIFO,
FIFO and weighted average method.
Job costing system: The particular system apply to gathering information of cost that
associated with particular service or goods. It defines as allocating total production price in the
specific portion of production. It is costing accountancy method acting which connected with
the production unit where production is normally reckoning finished projects and services. Job
costing helps in assessing the total production in organized manner. Network rail uses this
techniques to handle the various expenditure that are assigned for every services and it enables to
track the business expenses at different locations. The particular technique help to determine
total task and completed within particular period of time (Dayanandan and et. al., 2016).
Price optimisation system: The price optimization describers as mathematical
approaches through an organisation determine that how consumers will react to different costs
of its services as well as goods by certain channels. It is helping to analyse customers respond at
different pricing levels of the particular services. So it is essential for determine right price of
different products. Such as in the Network Rail company, implemented this accounting system
for the purpose of allocating right price of various services.
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Management accounting reports
Management accounting reporting: The procedure involves collection of financial
data and statistical collection through business manager make daily functional business
determination. The reports are including various kind of business concern judgement understood
by departmental head and provides the portion to business carry off. Network Rail managers uses
the different types of report to make business decision and future plan. Following are the reports
that are generated by the management of Network rail are as follows:
Account receivable reports: These type of report are created by those companies that
trade in credit with its customers. It is a report that is associated with providing the information
to management of a firm related to overpayment of the customer. They are paying their credit
amount in the particular time of period. Network Rail is generated this report by the managers to
track the business record of the outstanding money with clients. The main aim of this report that
the organisation in collection of outstanding amount from its debtors.
Budget report: This report is company that generated by the management to compare
estimated budget information with real execution of firm. The inside document primarily utilized
through the management evaluate the enterprise is capable to attain with strategies goal or not.
Business manager of the company can evaluate that difference between financial data and
budgeted estimates. In the Network Rail, internal stakeholder of the company analyses the
specific reports to determines variances in the actual performance and budgeted projected data.
By analyzing the different aspects of budget they can make appropriate business decision for the
betterment of the firm (Kerpershoek, Groenleer and de Bruijn, 2016) .
Inventory management report: This kind of report are made by manufacturing unit in
terms of track the record of stock. Inventory reports are related to providing data about raw
material and finished stock available in the stores of a company. So the companies can aware
about how much stock is available at stores and how many quantities they can purchase as new
material to production of the goods. Network Rail prepare of this report for the detail planning of
stock required to manufacture the goods and services. Furthermore, this report is also useful to
analyze the actual status of stock whether it is in transit or at stores and it also provide
information about variable and fix overhead in the processing inventory. It is very important to
yield this type of reports because it can help to operate the business in appropriate and
effectively.
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Performance report: In most of the firms this report is used to evaluate the overall
performance of organization as well as the people who are working in the organization. It is a
report that lead the organization performance in a systematic way. In this report, manager target
financial goals that needed to be accomplish after the end of the financial year. Performance
reports compare the actual performance with standards budget. Network Rail created this report
in order to measure the efforts that are made by the worker in order to execute all the allotted
tasks within the given time period. Management of the firm prepares this type of report to
evaluate the efficiency of employees and their business process. So that they can take further
decisions as per requirement of the business. This report is also used by the mangers to provide
incentives to the workers who work beyond the capabilities and performance. Company can
asses the Market status and recognition with the help of this report. It beneficial for the firm as it
can guide to the managers to examine that business entity is performing well or not in the
market (Agrawal, 2018).
Benefits of management accounting system
Various types of system Benefits
Cost accounting system  This system beneficial because it provides proper record of
several costs.
 Network Rail Ltd, use this system to determining of
profitability as well as controlling of cost.
 It is helpful to calculate cost of direct and indirect cost.
Inventory management
system
 It is considering as main system of any company because it
provide different techniques which is better for company.
 It provides detail information to Network Rail Ltd about the
Inventory.
 Through this system reduce wastages and better utilisation
of resources.
Job costing system  This system is connected to specific job role and aim of the
system to analysing the cost of different business activities.
 It can provide accurate cost of direct labour, material and
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overhead.
Price optimization system  Through this system analysing the views of clients in
reference to several commodities.
 Network Rail Ltd get advantage by this system regarding to
price of their products.
Critically evaluation of management accounting reports and systems
The management accounting system as well as reports related with the organizational
process because performance report help to analysis performance of staff member due to this
procedure smoothly run because they can take effective decision (Zgarni, Hlioui and Zehri,
2016). To arrange every activity in effective manner firstly apply management accounting
system then prepares different types of report which is related to different departments. Without
system an accountant can not prepare accounting reports. As a result it influence to decision
making process. The company has applied different systems like cost accounting, job costing,
inventory management and price optimization system are integrated with different reports like
account receivable, inventory and performance report.
PART B
Prepare an income statement
Cost: It is an amount that has to be paid in given period of time and get something. Cost
is defined as the cash amount given up for an asset. In the accounting terms, cost is the monetary
value of expenditures for services, supplies and materials. This amount recorded as an expenses
in the books of company.
Absorption costing - It is a method of costing under which all costs which are incidental
to the production process are accumulated and adjusted to the particular products. It is required
mainly for external reporting requirements adhering to international accounting standards and
income tax reporting. It accumulates direct material, direct labor, variable and fixed
manufacturing overheads in the cost of final goods. It is often addressed as 'Full costing'.
Marginal Costing - It is the cost of an additional unit of output. It is the costing method
in variable costs are charged to units of cost and fixed costs for specific periods are totally
written off against the contribution. It covers direct material, direct labor, direct expenses and
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variable overheads as the total sum to marginal costing. In marginal costing method, costs are
delineated as fixed cost and variable cost on the basis of variance and are bifurcated as such.
Income statement by marginal costing method: (Annexure Q2)
Income statement by absorption costing method(1st quarter)
Working note:
1.
2.
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Interpretation: As per the above calculation it has been analysed that from absorption and
marginal costing method to calculate net profit of the company. After calculation it gets that fro
marginal costing method get profit about 150750 and through absorption costing method get
amount of 157550.
Income statement by absorption costing method(2nd quarter)
Working notes:
1.
2.
(a) Labour hour: The particular term related to number of hours of labours and it will be define
about the productive effort. If one person due to manufacturing of goods & services provide their
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time that time they can calculate of their hour rate through dividing by total overheads to hours
worked (Halaoua, Hamdi and Mejri, 2017) .
(b) Using ABC approach:
Overhead using ABC approach: -
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ACTIVITY 2
PART A
Advantage and Disadvantage of planning tools
Budget – A document of budget represent a financial plan for definite period of time. It
is based on the estimation revenues and expenses of each department in the company for
particular accounting period of time. It reflects on company's future and their financial condition
to provide help to accomplish of financial goals and objectives. The budget statement of
Network Rail Ltd allocate an amount of money for specific purpose and meet the requirement of
assigned budget.
Budgetary Control – It is a procedure where a manager set financial and performance
goals with the help of budget. There are controlling the cost and follow the budget process
(Drake, Roulstone and Thornock, 2016). After that compare result with performance and control
as per the requirement.
There are defined various types of planning tools that will use by Network rail Ltd in
order to budgetary control -
Master Budget
It is a one year budget planning statement for the business extensive all other budgets.
The master budget is the sum total of all the sectional budgets that is prepared by all the
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