Management Accounting for Big Bear Confectionery

This assignment requires you to analyze the management accounting practices of Big Bear Confectionery. You will examine their cost analysis techniques, identify how they implement lean manufacturing principles, and assess their approach to sustainability reporting within their financial statements. The goal is to evaluate the effectiveness of their chosen methods and provide recommendations for improvement.

STUDENT NAME:
STUDENT ID:
SUBJECT CODE:
ASSIGNMENT TITLE: MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
P1: Explaining management accounting and demonstrating the requirements of various types of
management system.........................................................................................................................3
P2: Different methods for preparing management accounting report.............................................5
Task 2...............................................................................................................................................7
P3: Calculation of costs...................................................................................................................7
Task 3.............................................................................................................................................11
P4: Advantages and limitations of the ‘planning tools’ with respect to the scenario under
consideration..................................................................................................................................11
Task 4.............................................................................................................................................13
P5: Comparison of the accounting system implemented in companies to tackle the financial
problems........................................................................................................................................13
Conclusion and Recommendation.................................................................................................13
Reference list.................................................................................................................................15
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Introduction
Management accounting refer to the method in which organisation store financial data for
systematic planning of business and it also helps management body of an organisation to take
financial and non-financial decision relating to the firm. The process measures, identify,
interpret and communicate information throughout the business environment to achieve goals of
organisation. Alternatively, the role accounting plays to supply information, which will assist
management in planning economical structure, controlling cost, decision making, and to increase
profitability of business is termed as Management accounting. The user of accounting
information who will be benefited from management accounting can be divided into two groups.
The groups are internal manager and external parties. Internal managers group are divided into
two part again one who makes short-run planning and another who make decisions to formulate
policies. External parties refer to shareholders, investors, associate partners and others. Here in
the study a manufacturing organisation Big Bear (Food Company) has been selected to interpret
management accounting system of the company which will give clear concept of fundamental of
Management accounting.
Overview of company
Big bear Limited supply foods, it is situated at Leicester, London and owned brands of different
company such as XXX mints, Sugar Puffs and others. The company was established in 2011 by
Raisio Group and specialised the brands which is unknown or have household names. The
company operate small-size business by producing different food products.
Task 1
P1: Explaining management accounting and demonstrating the requirements of various
types of management system
Management accounting focuses areas of accounting which help management in financial
planning and they prepared principles by interpreting financial data available in business sectors.
Management accounting gives information to management body which will assist them to take
decisions and fulfil objectives of business (Kaplan and Atkinson, 2015, p.47). The basic
objective of management accounting are discussed below-
● formulate policy related to financial management
● plan for future events to cooperate with internal and external changes of business
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● monitoring performance to use resources efficiently and control daily activities of firm
● comparing between alternative scenarios of business to assess growth and implement new
methods to improve quality of product
● solving financial problems and achieving business targets
● Considering behavioural factors that can affect business activities
An accounting system always provide various ways to collect, arrange and communicate
information related to financial activities of firm to organise different elements of firm
systematically (Zimmerman and Yahya-Zadeh, 2011, p.258). Management accounting is
different from actual accounting system, it basically focused on collecting information about
product or cost of specific operation at detail level which will help higher authority to take
decision especially financial decision. The work of management accounting involves around
identifying different types of resolution management will need to carry on business activities
(Ward, 2012, p.36). The decisions which are concerned with management accounting are of two
types, output decision and input decision. Output decision relates with quantity, quality and price
of goods or product supplied by company and Input decision deals with production elements
such as labour, raw materials, capital investments and equipments.
Both the decision discussed above are interconnected thus, for management accounting
managerial planning is necessary which involves seven stages. These stages are also appropriate
for small enterprises as selected above Big Bear (Food Company) for efficient management
accounting system in their manufacturing company. Management accounting has responsibility,
which includes:
● Planning: By planning, the accounting manager gets ready for application of the
structured process as per the raised budget of the overall business.
● Implementation: After planning the activities the factors essential for implementation
are performed on the workforce is done as an activity as per the raised situation.
● Controlling: The workforce of the concerned firm is controlled in order to stabilize the
increasing budget of the firm.
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● Monitoring performance: The performance of the employees is then monitored in order
to avoid flaws that may be faced in the long run of the firm.
● Motivating employee: The employees must be motivated in order to gain quality goods
and services for their customers. Therefore, the concerned organization makes effort to
motivate their employees in terms of satisfactory salary and rewarding them as per their
capabilities and performances.
● Communicating information: The communication process is again well maintained in
order to keep both the organization and their employees connected to their target
audiences.
Different types of management accounting
Management accountings are of different types such as Activity-Based costing, Resource
consumption accounting, Throughput accounting, Transfer pricing and Lean accounting. Here
two types of management accounting related with manufacturing industries are discussed below
briefly to understand the concept of management accounting.
Activity based costing (ABC)
The concept of Activity based costing was explained clearly by Robert S. Kalpan and W. Bruns
in 1987. This method identifies the activities to be followed by an organisation to produce goods
or service and then the cost of each activity are allocated according to cost of production
(Needles et al. 2013, p.27). Activity-Based costing focus on two common aspects of
manufacturing activities, firstly it set up production machine to run batches of product and
secondly it focuses on actual production levels.
Transfer pricing
Transfer pricing deals with the fundamental concept of assigning value to the produced product
by specifying functions and also attribute revenue to different business units, in another way it
can be said the price at which departments of an organisation transacts within organization is
termed as transfer pricing, the departments may be labour and supplier or others. It often
involves transfer of intangible and tangible assets. In addition to above, the cost accounting
system has been marked as a framework that is utilized by the companies in order to acquire an
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estimated cost price for the product. Moreover, buy acquiring the estimate costs, the concerned
origanisation would be able to analyse the profitability, inventory along with cost measurable for
the raised situations. Therefore, by application of the cost accounting system, the overall cist
price of the served products and services are estimated more evenly by the job order costing
along with the process costing.
P2: Different methods for preparing management accounting report
Management accounting reports assist management body and owners of small enterprises to
assess the performance of company. It is prepared frequently in the accounting period as required
depending on the activities of business (Weil, et al. 2013, p.38). There are specifically four types
of methods for preparing management accounting report such as Budget report, Accounts
Receivable Aging, Job Cost reports and Inventory & manufacturing report. These methods are
described below-
Budget report
Budget report is type of internal report which is utilized by management to compare growth of
business with actual performance and estimate cost of production. If organisations are big then
different department of organisation prepare budget report to evaluate their performance. Again
if organisation is small the budget of whole organisation is considered to measure performance
of business. Manager can use budget report to provide incentive and bonus to staff if they
analysed that their performance is enhancing the growth of business. The steps to prepare budget
report are as follows-
Update assumption
Evaluate the capacity of firm to generate sales
Allocate funds required for activities
Step costing points
Create and issue budget package
Obtain department budgets and their request for capital budget
Prepare budget model
Review and issue the budget
Accounts Receivable Aging Report
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This method of management accounting is used to manage cash flow of an organisation which
will assist management to make decision that if they can extend their credit period to customers.
This report reveal that how long a consumer have been allowed credit period and it basically
include specific columns for invoices in which shows separate customers according to credit
periods such as 30 days late, 60 days late or 90 days late (Weygandt et al. 2015, p.23). This
report is used by managers to analyse if company is facing any problem in collecting fund and
how to overcome those problems by incorporating tighten credit policies.
Job Cost reports
This report shows the expenses incurred for particular project. Before preparing job cost report
estimate value are compared with job’s profitability. It also helps to estimate the expenses an
organisation incurred when the job is in progress level which help managers to evade from cost
wastage. In order to prepare job cost report few practices are to be considered such as refining
estimates, identifying needs of information, reporting during job and put forth the effort.
Inventory & manufacturing report
Organisations, which deal with inventory, can use inventory and manufacturing management
accounting reports to make efficient their manufacturing process. This report includes hourly
labour cost, inventory cost, inventory waste, overhead cost per unit and other items related to
inventories. This report also helps management to take decision if they can provide bonus to
employee or not after comparing different assembly line present in an organisation.
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Task 2
LO 2: Application of a range of management accounting techniques
From the given scenario it has been identified that the organisation chosen for the report ‘Big
Bear’ produces and sells a single product for which the exercise of determining the appropriate
cost structure of the product has been undertaken. Further two important techniques of cost
analysis namely, ‘Absorption costing’ and ‘Marginal costing’ have been undertaken in order to
prepare an income statement. ‘Absorption costing’ has been identified as the method by which
various costs associated with a particular process of production is accumulated and apportioned
to individuals unit of the product. Through absorption costing the exercise of valuing the
inventory is undertaken (Kaplan and Atkinson, 2015, p.60). On the other hand, ‘marginal
costing’ has been identified as the method which is used in order to derive the impact or value of
variable cost on the overall output or the entire production volume. Through the marginal costing
method the variable costs incurred on producing a particular product is charged against
individual cost units whereas the costs incurred in the form of fixed costs for the particular
period is written off against the value of contribution.
P3: Calculation of costs
1. Fix production overhead per unit 3.00
Annual production cost 2000.00
Producing cost 3*700 2100.00
Overabsorption (2100-2000) 100.00
2. Marginal cost per unit
Direct material 6.00
Direct labor 5.00
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Variable production overhead 2.00
Variable cost per unit 13.00
3. Absorption cost per unit
Direct material 6.00
Direct labor 5.00
Variable production overhead 2.00
Fix production overhead 3.00
Variable cost per unit 16.00
Income Statement using Managerial
Costing
Sales 600*35 21000.00
Variable production cost 13*700 9100.00
Closing stock 1300.00 7800.00
Contribution 13200.00
Less
Variable selling over head 600*1 600.00
Fix over head 2000.00
Administration overhead 700.00
Selling cost 600.00 3900.00
Net profit per marginal 9300.00
Income Statement is Absorption
Costing
Sales 600*35 21000
Variable production cost 16*700 11200.00
Closing stock 16*100 1600.00 9600.00
Gross profit 11400.00
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Net absorption cost 9600.00
Net marginal cost 9300.00
Different 300.00
From the above analysis, the marginal cost per unit is £13.00 whereas, the absorption cost
per unit £16.00, the above is the result of the calculation done ion terms of £3.00 fix cost over
head being managed in it. However, there are 100 units left as a closing stock, thus the acquired
net absorption cost is calculated by including the fix cost of the items (£3*100=£300). Thus from
the above discussion, the differentiation of net marginal cost and net absorption cost is justified.
● Explanation on the difference between Absorption Costing and Marginal Costing
techniques
Absorption costing and marginal costing have been identified as two significant methods of
management accounting that plays a crucial role in decision making and performing the
functions of controlling. Further, the above mentioned methods of management accounting have
also been identified as two prominent approaches for valuing the inventory of an organization.
However, the two approaches have significant differences between them, which has been
discussed hereafter. Primarily, marginal costing method have been chosen as the best decision
making tool over absorption costing.
➢ Marginal costing is a technique for undertaking significant decisions in order to ascertain
the total or overall cost involved in production process whereas absorption costing
undertakes the processes of apportioning the total cost incurred over the cost centres for
the purpose of determining the total or actual cost involved in production (Zimmerman
and Yahya-Zadeh, 2011, p.258). Under the technique of marginal costing the product cost
is identified to be the ‘variable cost’ while the fixed cost involved in producing a product
is considered as the ‘period cost’. On the other hand, under the absorption costing
technique, the ‘product cost’ is calculated considering both the costs namely, fixed cost
and variable cost.
➢ The overheads of marginal costing method has been identified as fixed overheads and
variable overheads while the overheads of absorption costing technique have been
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classified as, production overhead, selling and distribution overhead and administration
overhead.
➢ Through marginal costing data is presented in a manner which helps in highlighting the
contribution made from each product along with the total contribution (Syverson, 2011,
p.135). On the other hand, in absorption costing the data of the cost structure is presented
in such a manner that follows a conventional mechanism or pattern.
➢ As marginal costing technique do not consider the fixed costs therefore the cost attributed
to per unit of production does not appear to be affected due to any kind of difference
arising in the value of opening inventory and closing inventory (Zimmerman and Yahya-
Zadeh, 2011, p.258). In comparison, the per unit cost of production determined using the
absorption costing method is expected to be affected due to the impact created by the
fixed overheads as a result of the difference in its value of opening and closing inventory.
➢ In the method of ‘absorption costing’ for the purpose of valuing the inventory both fixed
and variable costs incurred during the production process are undertaken. Whereas, for
the purpose of valuing the inventory under marginal costing only the costs incurred in the
form of variable costs are considered.
➢ In order to derive the profitability structure under absorption costing two components are
considered namely, revenue generated from sales and the total cost incurred. The
decisions made by the management depending on the absorption data is based on the
difference derived from the figures with respect to sales and total cost (Weygandt et al.
2015, p.112). On the other hand, the decisions of the management depending on the data
of marginal costing are based on the figures derived with respect to ‘contribution’.
‘Contribution’ is a term that is used to denote the excess value of revenue generated in
the form of sales over the marginal cost.
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Task 3
LO 3: Explanation on the ‘planning tools’ used in the field of Management Accounting
P4: Advantages and limitations of the ‘planning tools’ with respect to the scenario under
consideration
● Advantages of the ‘planning tools’ implemented in the chosen scenario
Management accounting encompasses various accounting techniques and planning tools that
help the organizations in performing efficient decision-making exercises. The process of
budgeting and the functions performed by the techniques of budgetary control helps in
increasing the efficiency of an organization. Various other tools of management accounting
namely, variance analysis and performance indicators helps in undertaking effective decision
making strategies within an organization. Through the techniques of budgetary control, the
estimations are made on the financial needs of an organization to be incorporated in the
future. The planning tool incorporated in the method of budgetary control helps in controlling
the financial performance of an organization and helps the entity in achieving the desired
results (Hiebl et al. 2013, p.122). Since the budget of an organization is perceived to be an
instrument of control therefore it helps in controlling and measuring the deviations attained
while performing various activities in the organization with respect to planning production
and sales. Various advantages of budgetary control as a planning technique have been
perceived which is enumerated hereafter. Preparation and presentation of the of budgets
which is one of the important planning tools as a part of the budgetary control mechanism
helps the financial manager or the budget coordinator of the organization in coordinating the
resources appropriately ensuring optimum utilization of the resources. Further, the budget
helps in defining the benchmarks or the standards required across different controlling
systems implemented within the organization.
The planning tools incorporated in a budgetary control system provide effective and
transparent guidelines for the departmental heads regarding the presence and utilization of
the resources. In addition, it helps in forming necessary expectations for the future of the
organization. The tools of planning incorporated through the budgetary control mechanism
helps in assessing the performance of the managers or the head of a particular unit. Through
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this mechanism, it becomes easier to understand and analyze the shortfalls in the
performance of the units and its managers on individual basis. Organizations often employ
different types of budget namely, financial budget, operating budget and non-monetary
budget (B Douglas Clinton, 2012, p.37). Due to the segregation of budgets, this is another
important part of the budgetary control function, helps in allocation of the overall budget of
the organization effectively. In addition, the planning tools used as a part of the budgetary
control function helps in maintaining effective control over the various processes functioning
within an entity. ‘Communication’, which has been identified as one of the significant
planning tools in the budgetary control system, ensures coordination among the different
departments within an entity and effective allocation of the budget. As a part of the planning
tools in budgetary control another important function has been identified which appears to be
an advantage for the organization is the method of record keeping (DRURY, 2013, p.198).
Through budgetary control function, organizations simultaneously carry out the process of
record keeping in order to analyze the gaps between the budgeted cost and the actual cost
attained.
● Limitations of the ‘planning tools’ implemented in the chosen scenario
The planning tool such as estimation as a part of the budgetary control method appears to be
a limitation for the organization become assumptions based on which future estimations are
formulated may or may not actually take place in the current or prevailing scenario. In
addition, the rigid nature of the planning tools implemented in a budgetary control system
often poses a threat towards the performance of the daily operations of an organization
(Kerzner, 2013, p. 156). It has been observed that planning tools provide a certain set of
budgetary controls whereas in the actual scenario it becomes very difficult for the
organization to perform according to the budgetary standards due to certain changes taking
place in the economy or in the actual market place. Further, another disadvantage that is
posed by the planning tools implemented in the budgetary control is in the form of
communication gap.
Due to absence of appropriate planning tools with respect to dissemination of budgetary
communication, problems arise within organizations that result in lack of coordination
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among the employees. In addition, various problems pertaining to the responsibility issues
are witnessed. Besides, the organizations planning to incorporate a well-maintained
budgetary control system is required to have huge amount of fund allocated for the budgetary
functions since commencement and incorporation of a budgetary system in organization
appears to be very expensive and time consuming (Bebbington et al. 2014, p.188). As the
planning tools incorporated through the budgetary control system in an entity appears to a
time consuming event therefore the technique is presumed to limit the growth with respect to
innovation, development and change. Though formulation of budgets is a complementary
task to the planning function however, the budgetary control function often hinders the path
towards development due to absence of flexibility in the plans of budget (Strumickas and
Valanciene, 2015, p.98). The planning tools incorporated within the mechanism of budgetary
control is assumed to hinder the process of innovation since after the allocation process of
funds is conducted it appears almost impossible to allocate further or additional funds if any
kind innovative strategies are planned to be implemented. In this manner, the unexpected
business opportunities arising to an organization are often lost.
In addition to above, the application of Cash budget can be made as a planning tool. As
creating budget for a business helped the managers to keep an account of the spending made
for the different activities that are performed in the organization, the concerned budgeting has
certain advantages and disadvantages. The following are the advantages gained from cash
budget:
Setting Price: The market conditions are analyzed before setting a price of a concerned
product or service. Therefore, by maintaining a cash budget, the managers of the firm, get to
limit their spending for saving money along with spending them in an accurate manner.
Forecasting: The cash budget further help the manager to forecast the annual expense in
terms of the spending that keeps taking place within the workforce.
The following are the disadvantages faced from cash budget:
Slack of Budgetary: It further creates contingencies that may rise in an unintentional
management cause by the overestimated costs. It further results in an unethical behavior of
the concerned management.
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Strained Resources: The contingencies faced by the cash budget often requires the business
to be filled with sufficient resources in order to provode a constsant backup plans in cvase oif
pressure hoiurs.
Task 4
LO 4: Comparison of the different ways by which Organizations react to the financial
problems using management accounting
P5: Comparison of the accounting system implemented in companies to tackle the financial
problems
Management accounting techniques performs various roles and functions. For this reason, huge
number of companies or different organizations has chosen to adopt the management accounting
techniques within the framework of their entity. As management accounting helps in tracking the
internal costs involved in the processes of the business entity thus the decision making process
within an organization is enhanced and it helps in optimizing the use of various resources
procured within the organization (Ward, 2012, p.78). A huge number of organizations across the
globe have adopted management accounting techniques in the form of budgetary control, activity
based costing and process costing systems. Through budgetary control systems, organizations
plan to establish an appropriate budget structure that guides the organization in performing its
operational activities and measuring the deviations.
Through activity based costing system the organizations undertake the exercise of identifying
different activities taking place within the entity an assigning respective cost to the activities
(Anderson and Sollenberger, 2011, p.59). This system of costing undertakes the process of
assigning more value to the indirect cost in comparison to the direct cost. It helps the
organizations identifying and eliminating the products and services that appear to be unprofitable
for the entity. The process costing mechanism as a part of the management accounting technique
helps in tracing and accumulating the direct costs attributed to a particular production process. In
addition, through this method the organization undertakes the activity of allocating various
indirect costs incurred in the manufacturing process (Fullerton et al. 2013, p.50). Thus, the
companies across the globe have undertaken the exercise of introducing various management
accounting techniques in order to reduce the costs, optimize profitability and enhance decision-
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making. However, the food company has further identified the KPL used for the concerned
business in tgerms of revenues that is gained. The revenue can further be helpful to manage the
financial barriers that the organization may face in their future aspects.
Conclusion and Recommendation
From the assignment report, it has been inferred that management accounting techniques play a
significant and crucial role in the decision making of an organization. Important management
accounting techniques have been identified with respect to the chosen organization for the study
namely, absorption costing technique and marginal costing technique that helps in forecasting
and measuring the costs involved in manufacturing single units of the products and assessing the
net profit earned with respect to the two different methods of accounting. From the cost analysis
of the organization under consideration it is inferred that marginal costing method indicates a
realistic profit value since it does not consider the fixed costs involved in the process of
production. Absorption costing method is perceived to be a traditional method of cost and
management accounting that undertakes both variable and fixed costs for the assessment of the
total cost involved in preparing a single unit of a product. The organization is recommended to
adopt budgetary control mechanism and marginal costing system as a part of the management
accounting techniques in order to increase the efficiency of the internal processes. Further the
entity is advised to adopt a flexible budgetary system in order to maintain the provision of
allocating additional funds or budget to the new processes implemented in the organization.
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