Management Accounting and Reporting Methods

This document provides a detailed analysis of management accounting and its essential requirements. It also covers various reporting methods used in management accounting, calculation of costs using appropriate techniques, and preparation of income statements using absorption and marginal costing methods.

Management
accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
P1. Detailed elaboration of management accounting and essential requirements of different
type of management accounting systems....................................................................................1
P2. Evaluation of the various methods that are used in the reporting of management
accounting....................................................................................................................................3
M1. Detailed identification of the benefits of the system of management accounting...............4
D1. Examination of the integration of management accounting reporting with management
accounting system........................................................................................................................4
TASK 2............................................................................................................................................4
P3. Calculation of different types of costs using techniques that are appropriate and also
preparing an income statement using absorption and marginal costing methods.......................4
M2. Examination of different techniques of management accounting and producing
appropriate documents that are related with financial reporting.................................................8
D2. Analysis of reports that are related with the finances...........................................................9
TASK 3............................................................................................................................................9
P4. Evaluation, analysis, and examination of different planning tools that are used in
budgetary control.........................................................................................................................9
M3. Examination of different planning tools and its uses.........................................................10
P5. Comparison of different organizations and their methods of responding to the financial
problems....................................................................................................................................11
M4. Analysis and examination of the response that organisation gives to financial problems
and how management accounting can help to solve them in an effective and efficient manner
...................................................................................................................................................12
D3. Evaluation of the planning tools.........................................................................................12
CONCLUSION..............................................................................................................................12

REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is one of the most important as well as crucial aspect since it
helps the managers of the company to take appropriate and necessary decisions so that it can add
value to the firm in the long term so that the enterprise can beat the competition and can stand
above from all the rivals that are prevailing in the similar industry (Andarwati, Nirwanto and
Darsono, 2018). In the concept of management accounting efficacy and optimum utilisation of
the available resources is the prime aim and the decisions that are taken in it are also taken
accordingly so that it can carter the needs, requirements, and demands of the organisation so that
the company can grow and prosper in the industry. Connect Catering Services is a firm that is
geographically located in the UK and is operational in the market of providing its services since
a long time period and thus as a result it has captured a larger share in the market too because of
its working. In this report there is a detailed analysis and evaluation of management accounting
and its related aspects that possess a lot of value in the present time and its essential
requirements. Apart from that the report covers different management accounting reporting
methods, different costs that has to be calculated by using appropriate technique like marginal
and absorption costing, advantages and disadvantages of different tools that are used in
budgetary control, and comparison of different firms and the financial problems that they face
while operating in the industry.
TASK 1
P1. Detailed elaboration of management accounting and essential requirements of different type
of management accounting systems
Management accounting is mainly the using of the information that is related with
management so as to make and implement appropriate decisions that can help the company to
take steps which can improve its efficiency in the market in which it is operational. In it
information that is of high importance is identified, analyzed, evaluated, recorded, and
summarized in an accurate and precise manner so that it can help the firm to work in a smooth
manner so as to operate in an effective way in the industry that can help it to improve its
performance in the long run (Brierley, 2017). It is a system that helps the company to grow and
foster in the current market situation that is highly competitive as well as dynamic in nature.

Management accounting system is a system that is of internal in nature which an
enterprise uses to measure the progress of its management so as to implement measures
that can improve its performance if it is not up to the standards that has been expected by
the higher management. While financial management is related with the management of
the finances of the firm so as to allocate the available resources of the company in an
effective and efficient way so that it can helps the company to grow in the market and
differentiation of management and financial accounting is done below in an elaborated
manner-
S. No. Basis of Comparison Management Accounting Financial Accounting
1 Content It is a wide concept and thus
carriers all the information that
is related to financial as well as
non-financial.
It is a narrow concept and thus
only involves financial aspect
of the company.
2 Motive and Uses The main aim of this type of
accounting is to facilitate the
internal management in
decision making so that all the
decisions can be made in an
impactful way.
The motive behind preparation
of this is to provide
information which is related
with finances so that it can
help the stakeholders which are
interested in the working of the
firm.
3 Rules, Regulations
and laws to be
followed
There are no such rules in it to
be followed and it is just
prepared for the sake of
internal management (Daniel,
Persson and Sandorf, 2018).
There are many things that has
to be followed in it and all the
standards of accounting must
also be followed so that it can
help in the smooth functioning
of the company.
There are a number of different management accounting systems that are explained
below-
 Cost Accounting System- It is a system that helps in analysing and evaluating all the
costs that are incurring in the business so that unnecessary expenditures can be reduced

that can prove beneficial in increasing the level of profitability of the firm which can
further result in improved performance and growth in the long run. It is very beneficial
since it helps in reducing the cost and thus improves the level of profitability
 Inventory Management Accounting System- It is a system that helps in managing the
inventory of the company which is generally regarded as the stock and in it all the efforts
are done in a systematic manner so as to get a summarised view of the available raw
material, finished goods, and work in progress so that necessary order of the inventories
can be given well within time so as to reduce the chances of any type of shortage in the
firm. Its main benefit is that it helps in managing the stock so that the business firm can
operate in a smooth manner.
 Job Costing Accounting System- It is a system in which costs are allocated on the basis
of the job that has to be done so that unnecessary expenditure can be cut down which can
result in increased profitability. Also this system helps in evaluating in detail of the profit
or loss that each job makes so that proper attention is given to the one that needs it the
most. The benefit of this type of costing is that it helps in allocation of appropriate job
according to its nature.
 Price Optimisation Accounting System- It is a system which is basically used to
determine the price of a specific product so that a fixed price can be fixed that can fetch
good amount of profit in the market for the company in the long run scenario (Hsu and
Lin, 2016). Its benefit is that it helps in reducing the unwanted expenditures and thus
improves the overall performance.
P2. Evaluation of the various methods that are used in the reporting of management accounting
Reporting plays a very crucial role in every firm as it help in evaluating a true and fair
picture of the performance of the company so that necessary measures can be taken after seeing
that report which can help the firm to improve its standing in the industry. These reports must be
accurate and precise so that an enterprise can rely on to it and different reports that are used by
different organizations are explained below-
Budget Report- In this type of report a standard is set and the performance is compared on the
basis of the standard that has been set up earlier. The main aim of this type of budget is to
analyze if there is any deviation in the performance so that reasons behind it can be find out that
can help in implementing appropriate rectification measured for it.

Job Cost Report- It is a report that helps in determining the total cost that is incurred on a
particular job or a task so that it can be reduced if it is more than expected.
Inventory and Manufacturing Report- It is a report which is basically a summarized document
of all the inventories that are held by the company so as to increase the level of production by
ordering right quantity of inventories at the right time.
Order Information Report- It is a report that assists the management as it includes all the order
that has been taken by the company and thus making it easier for the mangers to calculate the
profitability of the firm.
Accounts Receivable Aging Report- This report is related with the customers of the company
and the time period on which they clear their dues and it is very useful in identifying the
positioning of the organization in the market (Kadir, 2018).
Performance Report- It is a report that is related with the actual performance of the company
and it shows the true and fair view of the progress of the enterprise and helps in determining that
the firm is operating in an effective manner or not.
M1. Detailed identification of the benefits of the system of management accounting
There are many benefits of management accounting system and the foremost of them is it
helps the manager to take appropriate and accurate decisions that can help in improving the
existing performance of the company. There are different functions of management that are
performed by a manger in order to achieve the goals and objectives of the firm and these
functions are planning, organising, staffing, directing, and controlling and all of them are
followed in this order only and that too in an effective and efficient manner.
D1. Examination of the integration of management accounting reporting with management
accounting system
The above mentioned two aspects are very closely associated with each other and they
possess a lot of value since they are inter-connected and helps a company to grow and prosper in
the current market conditions that are highly competitive as well as dynamic in nature (Kramer,
Maas and Van Rinsum, 2016).

TASK 2
P3. Calculation of different types of costs using techniques that are appropriate and also
preparing an income statement using absorption and marginal costing methods
1. Preparation of income statements:
Cost per unit under absorption costing-
Activity April (£) May (£)
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
Total 10 9
Income statement under absorption costing-
Particulars April (£) May (£)
Sales 16000 16000
Less: Cost of sales 20000 23000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost 10000 12000
Closing stock 5000 9000
Opening stock 0 5000
Gross loss -4000 -7000
Less: Fixed Non Manufacturing Cost -4000 -4000
Net Loss -8000 -11000
Cost per unit under absorption costing-
Activity April (£) May (£)
Variable Manufacturing cost per unit 4 4
Particulars April (£) May (£)
Sales 16000 16000
Less: Marginal cost of sales 8000 10000
Variable Manufacturing cost 10000 12000
Closing stock 2000 4000
Opening stock 0 2000

Contribution 8000 6000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non Manufacturing Cost 4000 4000
Net Loss -11000 -13000
Reconciliation Statement:
Particulars April (£) May (£)
Net loss under absorption costing -8000 -11000
Less: Closing stock -3000 -2000
Net loss under marginal costing -11000 -13000
2 a.
1. Identify which costs are fixed and which costs are variable.
Fixed costs:
Activity Amount (£)
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£ 12000
Variable cost:
Activity Amount (£)
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£ 5.50
2. Show the Break-even point using a Break-even graph.
BEP (In units): Fixed cost / contribution per unit
Contribution per unit: Selling Price - Variable cost per unit
= 9.50 - 5.50
= 4.00

BEP: 12000 / 4
= 3000 Units
BEP (In revenues): Fixed cost / PV ratio
PV ratio: Contribution / selling price* 100
= 4/ 9.50*100
= 42.10 %
BEP (In revenues) = 12000 / 42.10 %
= £ 28503
3. What would be the Margin of Safety if the organization managed to sell 2500 Pizzas?
Margin of safety = Sales units - BEP in Units
= 2500 - 3000
= - 500 Units
4. If the manager’s salary is increased to £6,000, how will this affect the BEP in units and in
sales value?
If manager’s salary will increase than it will affect to fixed cost and revised fixed cost will be of
£13000.
New BEP (In units): 13000 / 4
= 3250 Units
New BEP (In revenues): 13000 / 42.10 %
= £ 30878
2 b. Preparation of graph:
Activity Amount (£)
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
BEP point 28503

3. Variance Analysis Report:
Actual units sold = 12000
Budgeted units sold = 10000
Budgeted price per unit = 9.50
Sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted price per unit
= (12000 - 10000) * 9.50
= 2000 * 9.50
= 19000 Favourable
Flexible budget
Items Actual (£) Budgeted (£) Variance (£)
Sales price 10 9.50 0.50 Fav.
Sales units 12000 10000 2000 Fav.
Revenues 120000 95000 25000 Fav.
Fixed cost 15000 12000 3000 Adv.
Variable cost 5 5.50 0.50 Fav.
M2. Examination of different techniques of management accounting and producing appropriate
documents that are related with financial reporting
There are a number of different techniques that are related with management accounting as
it helps in analysing the performance of the company so as to take appropriate decisions if
performance is not up to the expectations of higher authorities of management. It becomes much
more important as it helps in determining the loop holes of the business and then rectifies it

accordingly so that it does not hamper the functioning of the company in the long run (Lai, Leoni
and Stacchezzini, 2019).
D2. Analysis of reports that are related with the finances
Financial statement is one of the most important aspect for every firm that is operational in the
market as it helps in evaluating the true positioning of the firm in the profitability terms so that
profit or loss aspect can be studied in detail which can prove beneficial in improving the overall
performance of the enterprise in the long term.
TASK 3
P4. Evaluation, analysis, and examination of different planning tools that are used in budgetary
control
Planning is one of the most essential aspect as it is the first function and all the other
activities and functions depends on it since it bridges the gap between the present situation that is
the present positioning of the company with that of the future prospects at which the firm wants
to be in the near future. There are a number of different planning tools that are used under
budgetary control since it helps in evaluating the performance with the set standards and
planning also does the same thing. There are different types of budget that are used by different
organizations so as to cater the needs, requirements, and demands of the company and all of
them are discussed below in detail with their advantages as well as disadvantages with context to
Connect Catering services-
Cash Budget- It is one of the most crucial type of budget as it is related with the receipts
and expenditure of cash and its related aspects that is inflow and outflow of cash. This budget
helps in determining the allocation of cash so that it can be used in an accurate manner leaving
no scope of error in between which can prove useful from the company’s point of view. Its
advantages and disadvantages are illustrated below- Advantages- It is very easy to formulate and helps in reducing the unnecessary
expenditure at times which results in improved profitability of the company (Miles and
Miles, 2019).
 Disadvantage- It is very rigid and does not leave any scope for innovation and spending
in new areas that can fetch good returns in the near future and also the data can be used
against the company if it gets into the wrong hands.

Sales Budget- It is a budget that helps in determining the allocation of the available
resources in an appropriate manner so that it can add value to the firm in the long run. It also
gives an estimate of the quantity that is needed for smooth functioning of the company without
any type of interruptions. Its advantages and disadvantages are described below- Advantages- The main advantage of this type of budget is that it helps in meeting the
targets of the firm in an effective and efficient manner rand that too within a limited time
period.
 Disadvantage- This type of budget is highly complicated and includes a lot of hidden
costs at times which makes it not possible for the firm to use it every now and then due to
the various costs that are involved with it (Modell, 2020).
Capital Budget- It is a type of budget that is related with the capital natured aspects like
receipts and its payments. It helps the organization to analyze and evaluate the prospective cost
at which a particular asset can be purchased so that it can prove beneficial for it in the long run.
It also helps in making quantitative view of each aspect so as to do the judgment on a rational
basis. Its advantages and disadvantages are discussed below in an elaborated manner- Advantages- The main advantage of this type of budget is that it helps in taking
decisions that carry a lot of value since they are related with capital nature things that cost
a lot for a business. It also helps in striking a balance in investment so that it is neither
more nor less than needed (O'Dwyer and Unerman, 2016).
 Disadvantage- This type of budget is highly inaccurate and it is very difficult to
determine an exact value of a capital nature asset so it becomes difficult to analyze the
true value of the asset. Also allocation of fund in it becomes critical due to the inaccuracy
that it carriers with it.
M3. Examination of different planning tools and its uses
The tools of planning are very important for every business firm since it helps the company
to sustain and survive in the industry that is highly dynamic and competitive in nature. It also
helps in analysing and evaluating the true environment of the market so that changes can be
implemented in an accordingly manner (Sledgianowski, Gomaa and Tan, 2017).
TASK 4

P5. Comparison of different organizations and their methods of responding to the financial
problems
Financial problems are the ones that occur when a firm does not give much important to
managing its finances and thus it afterwards becomes a barrier in the performance of the
company. There are many techniques that are used by organization to solve financial problems
are the ones that are most used are described below-
 Key Performance Indicators (KPI)
 Financial Governance
 Benchmarking
Basis of Difference Connect Catering Service Salsa Catering Service
Financial Issues The main problem of the
Connect Catering services is
that the earning of the
company is not consistent and
it varies from time to time
which results in decreased
level of profitability (Vardon,
Burnett and Dovers, 2016).
Salsa Catering services is
expanding its level of
operation by opening in many
areas but still the level of sales
is not growing with that extent
which makes it difficult for the
firm to survive in the market
for a longer time period.
Techniques used for issue
identification
The main technique that is
used by Connect Catering
services in order to overcome
all the negative aspects is the
use of budget controlling so
that it can reduce the unwanted
expenditure which can further
result in higher profitability of
the firm.
Salsa catering services mainly
uses the technique of
benchmarking as it sets a
standard for the performance
and then compares the actual
performance so that the reason
for deviation can be identified
and sorted out as soon as
possible that can result in
improved market value of the
company.
Management Accounting The system of management Salsa Catering service mainly

System Used for solving
Issues
accounting that is used to solve
the issues by Connect Catering
services is cost accounting
system as it helps in analysing
and evaluating the profitability
of the company in the long
run.
uses job costing system of
management accounting to
solve its issues since it helps in
allocation of costs according to
a particular job that helps the
company to grow and prosper
in the industry in which it is
operational (Vosselman,
2016).
M4. Analysis and examination of the response that organisation gives to financial problems and
how management accounting can help to solve them in an effective and efficient manner
Every business firm that is operational in the market responds to the financial problems in
an appropriate manner so that it can help them to survive and sustain tin the market environment
that is highly competitive in nature for a much longer time period as compared to its rivals.
D3. Evaluation of the planning tools
The tools of planning helps an organisation and guides them in implementing plans for
the smooth working of the company in the market in which it is operational (Сигидов and
Мороз, 2017).
CONCLUSION
From the above it can be concluded that the aspect of management accounting and is related
topics that is reporting, systems, and costs possess a lot of value in the market and has to be
studied in detailed so that it can prove beneficial from the firm’s point of view. Apart from that it
can be concluded that all the tools of planning is very important for every firm and has to be
evaluated in that manner only so that it can add value to the firm in the long run.

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