Management Accounting Report

This report examines the role of management accounting in BCM Construction Ltd., a medium-scale construction company. It analyzes various costing methods, planning tools, and financial indicators used to improve financial performance and achieve sustainable success. The report also includes a comparison with Anglo American PLC, highlighting the importance of benchmarking for achieving competitive advantage.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management Accounting meaning and its requirements......................................................1
P 2. Types of Accounting reporting methods .............................................................................3
M1. Benefits of Management Accounting system .....................................................................5
D1. Evaluation of Accounting system integration and Reporting method ................................5
TASK 2............................................................................................................................................6
Several Costing methods used for calculating the Net profits ...................................................6
M2 Types of accounting tools and techniques used in MA........................................................8
D2 Analysis of Data Collected from income statement..............................................................8
TASK 3............................................................................................................................................8
P4: Advantages and Disadvantages of using planning tools used in budgetary control.............8
M3 Analysis of various Planning tool and its application for forecasting..................................9
D3 Evaluation of planning tools for responding to financial issues.........................................10
TASK4...........................................................................................................................................10
P5 Comparison With Other organisation Financial Issues.......................................................10
M4 Management accounting leads organizations to achieve sustainable success....................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management Accounting means the process of managerial accounting on the basis of
which the management decisions are taken. The management decisions pertains the decisions
like devising planning, performance management systems, providing expertise in financial
accounting and reporting these all tasks consists in management accounting which helps in
assisting control in formulation and implementation of an organisational strategies and plan
(Wickramasinghe and Alawattage, 2012). BCM construction company that is a medium scale
construction providing company.
This study pertains information about management accounting process and as well as
tasks pertains in it. Not only this, several patterns or method of costing, calculation of net profit
and types of planning tools for the budgetary control process and their advantages and
disadvantages are comprises in study. Also an example to describe briefly, a comparison chart of
two organisation is also presented in it.
TASK 1
P1: Management Accounting meaning and its requirements
Management accounting or managerial accounting is the set of activities like the
preparation of devising planning, providing financial information in form of statements and
providing the reporting of financial data to its internal and external users, useful for them to
make business decisions. It provides the crucial information regarding the financial data in form
of final statements in order to to provide them to the management of high level authority of
company, so that on the basis of past and present financial information they can make future
decisions regarding the operations of business. Presentation of financial information pertains the
needful information regarding the revenues or income and expenses incurred during the financial
period and provide information regarding the Net profit of Net loss, information regarding the
cash flows and overall position of the business. this all information helps the management in
ascertainment of profit by making effective and efficient utilisation of financial and other useful
sources. Although in order to make daily decisions regarding the business operations it is
necessary to have the effective management system and management accounting system for
proper or accurate evaluation and analysation of managerial activities. Overall management
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accounting is essential part or branch of accounting which required in order to make
ascertainment and growth of the business(Van der Stede, 2011)
Definition: Management Accounting is also known as cost accounting and managerial
accounting. It is the process which comprises with preparation of internal financial report by
analysing business costs and operations in order to make the reporting of financial information
for making useful business decisions for achieving desired future goals.
Importance of Management Accounting in business
 Helpful in decision making: under management accounting the proper analysation of
financial information and business operations are made and provided in form of
statements to internal users(Board of directors, managers etc.) of information. so that the
management of BCM constructions can make useful business decision quickly on the
basis of past and present business performance report.
 Helpful in planning: One of most important factor important for business growth that is
proper planning and making of proper planning is based on the past and present business
performance data prepared under management accounting.
 Helpful in determining future aim: By presenting the past and present year details
regarding the overall business operations, in form of proper format it is needful and
becomes easy to set the targets or goals for future growth.
Types of Management accounting system are :
 Cost Accounting system: Cost accounting is the branch of management accounting
which pertains the BCM constructions Ltd. cost of production by assessing the input
costs incurred in each task of production along with the fixed costs. Cost accounting first
evaluate or measure the costs separately after that compares the input results to output or
actual results to aid company management in measuring financial performance.
 Inventory Management system: Inventory management system engaged with the
activities regarding the Management of stock or inventory. All transactions regarding the
inventory or stocks of company like BCM constructions and may be of any other kind
and for recording and analysing the inventory transactions, three methods are used for the
inventory valuation. That is LIFO(last in first out), FIFO(first in first out) and Weighted
average cost inventory method. The inventory valuation is related to the production
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sector in order to create the effective work order, bill of goods and other manufacturing
related invoices(Lavia López, and Hiebl, M.2014)
 Price Optimisation system: The price optimisation means the pricing of different types
of products according to their worth and criteria of company may be BCM constructions
Ltd. of U.K. Under the price optimisation task the numeric evaluation done by the
company to know the per product production costs and Tax (on sale of per product) and
the profit margin of the company per product, on the basis of these evaluation the selling
price of per product is decided by the company, it is also known as pricing strategy of
company. Analysis of prices is main purpose of this accounting system. It is beneficial
for company to predict the expected amount of sale units and expected incomes.
 Job costing method: It is most important task to determine the costs incurred in a
particular business operation no matter, whether it is related to the production or
promotion or selling. It is required to determine the costs incurred in performing the
business jobs and operation. As this term is widely used in matter of construction
companies like BCM construction Ltd. There are various stages under the job costing
such as, batch costing, standard costing, product or process costing.
P 2. Types of Accounting reporting methods
In present times it is essential to have proper system of accounting and its reporting, to
face the advanced competition prevailing in market. In order to ascertain the business operations
and growth it is essential to ascertain the profit and revenues of the business. The ascertainment
can only be possible when there is appropriate recording and reporting system of managerial as
well as financial information is available. So that the information is analysed in proper format
and the possible factors that influences the business can be find out(Banerjee,2012)
Reporting is one of the crucial function of management in order to make the useful
decisions regarding the business operations. Reporting information may be of financial and non
financial character. Reporting performs the major function of transferring the useful information
about the company's performance to its internal and external users. Internal users includes the
management and high level authority(Board of directors, equity owners etc. CEO's) and the
external users include the potential investors, government authorities and tax authorities etc. the
internal uses needs the information for the business operations and growth and the external users
like potential investors need the information for making the investment decisions and the tax
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authorities need the information to quantify the amount of tax payable by the particular
company. Both the types of users needs the information regarding the company's performance
and profitability, so by reporting system channels it becomes easy to get the information
regarding any company online by websites and google, the effective and efficient reporting
system of present times makes it so simple for its users. Overall, reporting system plays the
eminent role in prevailing business environment.
There are various types of accounting reporting method used to record and report the
necessary information about the company.
 Performance report:It is one of the important steps which is related to the company's
overall performance and situation and with project communication management. It
comprises with the collection and dissemination of several techniques or schemes, data ,
effective and efficient utilisation of resources and ascertaining the growth and for
effective planning. Performance report presents the last year one or two year's data along
with the present year's data on the basis of which decision are made by comparison of
data on the basis of past records (Bouten and Hoozée, 2013). Worker's performance
report also maintain by the organisations as in case of BCM constructions the workers
performance report is maintain in order to make the accurate data record and for
performance appraisal. Hence performance report is essential for recording and analysing
the data.
 Inventory Management report: Inventory management report is essential in order to
maintain a proper record of the transactions regarding the inventory or stock. An up to
date recording of stock transactions helps in quantifying the produced, sold and
remaining amount of inventory held with the organisation. The inventory system pertains
the appropriate methods of evaluating and analysing the stock transactions, the methods
used for this are LIFO(last in first out), FIFO(first in first out), Weighted average cost
method for the proper analysation.
 Account Receivable report: Account receivable report is prepare to quantify the number
of unpaid invoices collect during the specified period or to find out the number of debtors
of the company as in case of BCM constructions(UK) the periodic report is prepared in
order to find out the number of unpaid invoices or debtors of the company. This report
helps in making the correct balance sheet as it shows the debtors amount which is to be
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shown in balance sheet as assets, hence, it is helpful in find out the proper BCM
construction Ltd.'s overall performance.
 Job cost report: Job cost report is prepared in order to find out the income generate and
cost incurred while completing the business operations and for analysing in to quantify
the profitability in performing the particular job. As in case of BCM constructions(UK)
job cost report is prepare in a manner like, basically it is based on the format of income
statement that it comprises two side one is of income generated and second is of expenses
and after deducting the expense from income the result is profit generated from a
particular job (Maas, Schaltegger, and Crutzen, 2016).
M1. Benefits of Management Accounting system
There are several merits and demerits of using the management accounting system, as it
is important for sooth functioning, proper recording and analysation of data and overall crucial
for business growth. The BCM construction Ltd. (UK) also follow the management accounting
system and its technique in order to present systematic business report and ascertain it properly.
There are the benefits of Accounting system and its types.
Types of Accounting
system
Benefits of Accounting system
Cost accounting system This system helps in proper maintaining record of cost incurred
and helpful in quantifying and ascertaining the profit of the
business.
Inventory management
system
It maintain the accurate record of inventory or stock so, helpful in
determining opening and closing stock.
Price optimisation It helps in determining the price of the product and used to analyse
the perception of customers.
Job costing system It helps in determining the the cost incurred and income generated
by the particular job, and determines the profit from that job or
operation.
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D1. Evaluation of Accounting system integration and Reporting method
It is true that the accounting system and reporting both are useful for recording and
transferring the business operational information. The company like BCM constructions Ltd.
Used these two tasks of management accounting combined in order to reduce the gap between
the preparation, integration and transferring of business performance information. The task of
management accounting pertains both the functions and is used to provide standard process for
recording and reporting the information about business activities. There are several types of
reporting methods used to report the business operational information according to their nature.
One of the type of reporting system is performance report which is helpful in presenting the
performance of business operations as well as performance of employees working in
organisation in a direction of desired goals. Moreover the, account receivable report is helpful in
reporting the information regarding the unpaid invoices or debtors which is useful to prepare the
balance sheet as major financial statement which shows the overall performance of BCM
constructions Ltd. Or of any other company (Cuganesan, Dunford, and Palmer, 2012).
TASK 2
Several Costing methods used for calculating the Net profits
Cost is the value which is to be paid or incurred in performing the business transactions
and the costing methods are used to identify the profit generated from these business tasks after
paying all costs incurred, the remaining is the profit.
Marginal costing:
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = ( No. of goods sold * selling price = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = ( Marginal cost per unit * Produced units= 16*800) 12800
closing stock = ( Marginal cost per unit * Closing Stock Units = 16
* 200) 3200
Contribution 23400
Fixed cost ( 1200+3200+1500 ) 5900
Net profit 17500
Absorption costing
Computation of net income by using absorption costing method:
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Particulars Amount
Sales = (Price of selling * no. of units sold = 600 * 55) 33000
Cost of goods sold = (total expenses per unit * actual sales = 600*23.375) 14025
Gross profit 18975
Selling & Administrative expenses = ( Selling and administrative cost +
variable sales overhead * actual sales = 600 + 2700*1) 3300
Net profit/ operating income 15675
Break even analysis:
A. Total number of product sold
Sales per unit 40
Variable costs VC = Direct Labor + Direct Material 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = Direct Labor + Direct Material 28
Contribution 12
Fixed costs 6000
Profit volume ratio = 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:
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
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M2 Types of accounting tools and techniques used in MA
Marginal costing tools: This can be implement in manufacturing organisation.
Historical cost: it can be implemented in historical accounting operating organisations.
D2 Analysis of Data Collected from income statement
In respect to deal with several issues that are arises in BCM construction limited in
coming time they need to make use of various costing method. It would be make reliable aspects
to the company which will be necessary for effectual decision making. In respect to use of
marginal costing the company used to make adequate amount of profit with 17500. While in case
they are using absorption costing they are getting a net profit of 15675. All the variation is being
analyse by using total fixed cost consideration.
TASK 3
P4: Advantages and Disadvantages of using planning tools used in budgetary control
A budget is a formal statement of forecasting revenue and expenses supported on future
objectives and plans. In different words, a budget is a document that management makes to
estimate the incomes and expenditure for an upcoming period based on their goals for the
business.
Budgetary control is the procedure of determinant different actual results with budgeted
amounts for the organisation for the future period and standard set then examination the
budgeted figures with the actual performance for conniving variances (Lachmann, Trapp, and
Trapp, 2017).
Scenario tool:
In this planning tool of budgetary control, various situations in distinct set of futures are
examined in BCM construction limited. Intention of this system is to assemble a number of
probable future results that differ from most commonly acknowledged scenario. Thereafter,
BCM construction limited can develop eventuality plans to deal with various sets of future
scenario.
 Advantage - In respect to face various uncertainty that are occur in the department as
prime techniques to make effective decision making in coming period of time.
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 Disadvantage – It is difficult to create sensible occasion that are found to examine several
impressive decision in respect to future growth of the organisation.
Forecasting tool
It is known as technical tool used for estimation of future trends, outcomes of BCM
construction limited by analysis of existent data. In context of budgetary control, companies
apply this planning tool in deciding allocation of budgets for expected expenses of future. At the
last stage of forecasting, after data analysis and determination of assumptions, confirmation is
done. Verification between actual outcomes and forecasted results is done for more accuracy.
 Advantage – This tool provide estimated financial information to company which can be
used for taking decision regarding future and provides flexibility.
 Disadvantage – It is mostly depended on qualitative estimation which could be not relies
on subjective inputs and accounts not taken reliable (Baird, Jia Hu and Reeve, 2011).
Contingency tool
This tool describes those various factors which help in providing accurately and timely
effective areas of humanistic that aids to most critical time those are arising in BMC construction
limited. It is a type of course of action that is planned to help a company to react at different
types of business risks those are moving performance of an organisation. It is advised as Plan B
because it is mostly used in critical situation those are become in the section.
 Advantage - Contingency planning tool an effective designed tool for facing all types
issues to assesses in advance about unpredicted changes in market or business. Thus with
the help of this tool one can formulate strategies to overcome from difficulties that might
happen in future. Along with it BCM construction limited can integrate globalization and
change management into analysis of strategies.
 Disadvantage – Approach of contingency in suggestion is well good but in practical it is
very complex to apply and also in some kind of situations. It is reactive in nature rather
than proactive.
M3 Analysis of various Planning tool and its application for forecasting
According to different methods of controlling budget for BCM construction limited,
manager need to make use of several planning tools. There are specific type of tool like as
contingency tools are taken into account for controlling business risks those are grow in the
division. Forecasting that is used to examine total expenses and costs obtain by the company
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(Busco and Scapens, 2011). There are particular type of equipment that are examined in the
above according to the help of effective budget process. Planning and generated revenue is said
to be important principal for evaluating alteration of income related to difficulty in more certain
manner.
D3 Evaluation of planning tools for responding to financial issues
It has been found that company need to face various inner problem those are develop in
BCM construction limited. In order to control various implications that are connected with
budgets of a company. contingency tool is taken into account as one of the reliable tool which
will be taken into account to control business risks those are moving the overall performance of
the organisation (Wanderley and Cullen, 2013). While Forecasting tools is used to estimate
future issues those are affecting performance of the company can be resolve by using Key
performance indicators. It can be resolve by using financial governance rules those are made for
the intention of moving business in more impressive way.
TASK4
P5 Comparison With Other organisation Financial Issues
In BCM construction limited can be simply found that the managers are having many
problems regarding to management accounting system. It carrier critical situations to manage
financial resources of business. In this system including various kind of financial issues such as
customer satisfaction, increase in coast and decrease in revenue. These issues can resolved by
using following tool are as:
KPI (key Performance Indicator)
It is a measurable amount that present how effectively an organization is reach key
business objectives. Companies use key performance indicators for arrival targets to evaluate
multiple levels of success. KPIs divided in two parts are low level and high level. High level KPI
using for focus on the entire performance of a company. And low level KPI using for direction
on processes or employees in various departments. Financial issues faces relating current ratio,
working capital, operating cash flow and working capital (KPIs-financial and non-finanacial,
2018). BCM construction limited are use this financial tool for high level and low level
performance and measuring or following development of essential field. It also using for
achieving organizations goals and indicates that how to manage team.
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Financial governance
Financial governance is a method of collecting, managing and controlling information of
financial transactions. With the help of financial governance, BCM construction limited can
easily solve financial issues relating to financial transactions such as timely financial closure,
compliance with standards, consolidation of accounts etc.
Financial indicators
These indicators are related to financial statements evaluation which includes cash flow
statements, income statement, statement of change in equity, other comprehensive income
statements (Chenhall, Kallunki and Silvola, 2011). Various ratios helping BCM construction
limited for solving financial issues. In this using ration are liquid ratio, profitability ratio,
efficiency ratio and financial ratios.
Non financial Indicators
BCM construction limited can not depended on financial indicators because they only
using financial indicators for numeric and fundamental values. These are quality based
measurements of the company regarding of good customer service, safe working environment,
market share and innovations.
Bench marking
It is tool to compare one company with another company for identifying ways to gain
competitive advantage. Key points of BCM construction limited are compared with Anglo
American Plc. Area of underperformance and over performance can be identified with
benchmarking. Different types of benchmarking apply by company such as SWOT, collaborative
bench marking and best practice (Haustein, Luther and Rand Schuste, 2014).
COMPARISON
BCM Construction limited Anglo American PLC
In this organization which is involved in
construction process uses job costing system.
Because it will improve efficiency if cost of
each job or project will be determined and
allocated properly. Also profitable and non-
profitable areas will be identified.
This is an international mining company and
largest producer of platinum in whole world.
Thus it will be beneficial for it, if this company
uses benchmarking to achieve best practices.
As there are many technologies used in this
industry. Anglo American PLC can take help
from other companies and also compare to
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bring effectiveness in working.
Financial indicators will prove better tools to
manage and control cost as in this industry this
can cause serious issues. Because resources are
limited and they need to be put in alternative
uses.
Financial issues such as improper budgeting
can be solved by applying system of budgetary
reports in organization. This will assist in
keeping track record of all expenditures as well
as revenue.
M4 Management accounting leads organizations to achieve sustainable success
Even if an organization is working properly, financial problems can occur due to
uncertainties. But, with the help of management accounting all these problems can be solved as it
establishes a proper working system. In management accounting, there are many systems are
there along with reporting system which helps in continuous evaluation of financial performance.
Here, sustainable success refers to overall growth of all the departments in BCM Constructions
limited. This can be achieved as management accounting is applied in every department whether
finance or human resource (Benchmarking definition, its types and process, 2018). Success is
directly related to proper decision making and in management accounting, reports are prepared to
analyse performance. On the basis of evaluation of performance, decisions are taken.
CONCLUSION
It is concluded that management accounting is one of the effective tool for helping BCM
construction limited to improve their financial condition. various accounting system and
management accounting reports are using by managers for summarises their accounting
transaction. Planning tools such as forecasting, scenario and contingency helping for process to
budgetary control. Techniques of absorption, marginal and standard costing assist in preparation
of income statement and calculation of costs. For increasing overall performance of business
analysed of financial issues and resolve by KPI, benchmarking and non indicator performance.
Comparison between BCM construction limited and Anglo American plc on basis of bench
marking. So management accounting need of organization for improving financial statements.
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REFERENCES
Books and Journals
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
Van der Stede, W. A., 2011. Management accounting research in the wake of the crisis: some
reflections. European Accounting Review. 20(4). pp.605-623.
Lavia López, O. and Hiebl, M. R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research. 27(1). pp.81-119.
Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd..
Bouten, L. and Hoozée, S., 2013. On the interplay between environmental reporting and
management accounting change. Management Accounting Research. 24(4). pp.333-348.
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.
Cuganesan, S., Dunford, R. and Palmer, I., 2012. Strategic management accounting and strategy
practices within a public sector agency. Management Accounting Research. 23(4).
pp.245-260.
Lachmann, M., Trapp, I. and Trapp, R., 2017. Diversity and validity in positivist management
accounting research—A longitudinal perspective over four decades. Management
Accounting Research. 34. pp.42-58.
Baird, K., Jia Hu, K. and Reeve, R., 2011. The relationships between organizational culture, total
quality management practices and operational performance. International Journal of
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Busco, C. and Scapens, R. W., 2011. Management accounting systems and organisational
culture: Interpreting their linkages and processes of change. Qualitative Research in
Accounting & Management. 8(4). pp.320-357.
Wanderley, C. and Cullen, J., 2013. Management accounting change: A review. BASE-Revista
de Administração e Contabilidade da Unisinos. 10(4). pp.294-307.
Chenhall, R. H., Kallunki, J. P. and Silvola, H., 2011. Exploring the relationships between
strategy, innovation, and management control systems: the roles of social networking,
organic innovative culture, and formal controls. Journal of Management Accounting
Research. 23(1). pp.99-128.
Haustein, E., Luther, R. and Schuster, P., 2014. Management control systems in innovation
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Online
Benchmarking definition, its types and process, 2018. [Online] Available through
<https://study.com/academy/lesson/what-is-benchmarking-definition-types-process-
examples.html>.
KPIs-financial and non-finanacial, 2018.[Online] Available through
<https://www.cgma.org/resources/tools/essential-tools/kpis.html>.
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