Management Accounting: Explanation, Reporting, and Planning

This document provides an overview of management accounting, including its definition and essential requirements. It explains different reporting used in management accounting and discusses the calculation of costs using various techniques. Additionally, it explores different planning tools and their advantages and disadvantages. The document is based on the case study of Creams Ltd.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P.1 Explanation of MA and essential requirements of numerous type of MAS....................3
P2 Explanation of Different reporting used in management accounting...............................5
M1 Benefits of adopting management accounting system.....................................................6
D1 Integration of management report and accounting system...............................................6
TASK 2............................................................................................................................................7
P3 Calculation of costs with various techniques to draw income statement..........................7
Marginal Costing Method: Income Statement.................................................................................7
M2 Apply a range of management accounting techniques....................................................9
D2 Analysis of data by financial report..................................................................................9
TASK 3............................................................................................................................................9
P4. Different planning tools with its advantages and disadvantages.....................................9
M3 Importance of planning tools for budgeting and forecasting process............................12
TASK 4..........................................................................................................................................13
P5 Comparison of organisations on the basis of use of management accounting to respond
financial issues......................................................................................................................13
M4 Respond to financial problems, MA lead to sustainable development..........................14
D3 Evaluation of planning tools to overcome financial problems.......................................15
CONCLUSION..............................................................................................................................15
REEFRENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a wider and much more complex term or idea which state that all
management workers ought to understand they need of MA to boost the productivity of the
organization (Cooper, Ezzamel and Qu, 2017). It is a technique that allows the internal manager
to decide whether the enterprise functions successfully or not. This is important for
every organization to guarantee that they give attention to while managing internal operation and
framework which support to achieve all of the defined objectives and goals. In order to fully
understand, the importance of MA and the application of its various reports, system, planning
tool etc. Creams Ltd have been selected.
In this report, the MA system and report with their essential requirement are discussed,
several cost techniques are used to prepare income statement. In addition, various planning tool
for controlling budgets and use of MAS in order to detect and resolve financial problems is also
elaborated.
TASK 1
P.1 Explanation of MA and essential requirements of numerous type of MAS.
Managerial accounting is a system that seeks to interpret reporting data in order to devise
financial strategies to achieve company organization's potential targets (Hopper and Bui, 2016).
Within Cream Limited, MA is used to support the executive department within determining the
real progress of the company. Cream Ltd administration pays heed to various aspects of them,
such as cost accounting system, price control, inventory tracking system and costing of job
orders. Through the help of both, management produces internal assessments that determine the
overall success of organisations. All these are defined in detailed in the sense of Cream Limited,
as follows:
Price Optimising System: This MAS is used to discuss different forms of pricing structures
which an company could use to market its goods. Managers will determine on certain retail
pricing based on the demands of their companies and the costs accrued throughout the whole
procedure of turning raw material into finished goods. Companies can use price retraction,
product skimming, and competitive prices, discounting demand tactics as per the analyses
of their rival markets, external variables and institution's potential target.
Essential requirement:

Price Optimization program in Creams Ltd. demands that it enables the boss to determine
the most acceptable rates to maximize revenue. This also promotes the recruitment to additional
consumers who boost the company's well-being positively and thereby gain economic benefits.
This program is incorporate by manager of Creams Ltd, to get the benefit of the most favourable
market policy inside the business and retain an acceptable profit margin. This therefore enables
the correct costs of products to be raised to maximize the loyal consumer base. Price
management is a technique that helps Creams Ltd to achieve a level of operation in specified
productivity by discovering how responsive its current consumers are to commodity price
adjustments. In case if a market volume wants to be connected to income and particularly if it
needs to increase profitability while maintaining the same consumer rates, optimum prices are
required.
Cost Accounting system: This is a mechanism that offers various forms of methodology
for which company can effectively determine costs incurred throughout the production cycle. By
the applications of this system manager may analyse operations that generated high cost levels.
This method covers work costing, operation costing, marginal and normal costing. With the
support of this system, respective company detect the total cost incurred on producing and
managing various operations within specific time frame.
Essential requirement:
The cost accounting system for various operational and non-operational activities is
primarily permitted for Creams Ltd to recognise their overall cost and determine the non-rentable
activities. Good experience of operating managers through profit-making will spend too much
and raise the income for the period being. This also makes developments in emerging operating
strategies that are theoretically profitable for Creams Ltd. This system is advantageous for
company in different ways such as enables management to determine the main selling products
of the business and also benefit to precise price of the goods to be calculated by presenting the
correct cost information. Management of Creams Ltd will have confidence throughout the
costing method and therefore lead to its outcomes and motivation within its operation that
support to increase the overall efficiency of company. By using the analysis method for the
structure implementation, a carefully-phased framework should be implemented.
Inventory management system: Management implement this system to maintain detailed
information about the raw materials level or Stocks Company hold to manufacture items that are

offered to end customers. All goods needed by buyers are produced at Creams Ltd by preserving
the materials according to their requirements (Hall, 2016). These are all classified as follows:
• AVCO (Average Cost Method): In this process, the overall cost related to closing stock is
calculated.
• FIFO (First in First Out): Although this assesses the expense of closing stock on the basis of
the principle that first-place products bought are priced first in a given sequence.
• LIFO (Last in First Out): When the closing stock is priced within this strategy according to the
principle that perhaps the latest bought products are sold at the first spot.
Essential requirement:
In Creams Ltd the program is mainly important for the inventory management and ensuring
that the manufactured products are still able to fulfil changing demand requirements. It further
includes maintaining accurate accounts of any commodity in stores, the overall inventory used in
manufacturing, and the real final goods that can be marketed at every point of purchase. The
system help in various organisation process of creams ltd such as support manager to maximize
efficiency and performance of Creams Ltd by maintaining sufficient stocks. The company has
the specific and comprehensive stock level understanding assisted by this process. In addition,
Creams ltd is involved in consumables, thus this system is particularly more important which
help to choose to call back a particular commodity, compliance review to just call back the
impacted goods. The risk involved within to retrieve at all products without any traceability,
whether or not impacted and missing significant sales numbers.
Job order costing system: It is one of the major MA system used in all companies that
operate several forms of operation. This would be specifically meant to document detailed
details about all events and job happening within company during a specific time (Hirsch,
Seubert, & Sohn, 2015).
Essential requirement:
Creams Limited explicitly applies to the basic provision of the Work Costing Framework
as any employee needs to function with absolute productivity that results in consumer loyalty
and an increased client base. The support business achieves the long-term goals, such as
increased client satisfaction, strong income revenue, improved market image and low staff
turnover. Furthermore, there is no better role in contributing to the success of the business this
program helps remove the same and allows it easier to choose the best choice for the ideal task.

It benefits and support manager of creams ltd to maximize efficiency and performance of Creams
Ltd by maintaining sufficient stocks. The company has the specific and comprehensive stock
level understanding assisted by this process.
P2 Explanation of Different reporting used in management accounting.
In the current market situation, in several companies the basic method for generating
internal records and analyses is followed, known as MA reporting. Concentration is necessary to
determine whether the organization performs favourably or adversely in certain time frame
(Šiška, 2016). In Creams Ltd, the managers often take various reports into consideration to
guarantee that all the company's goals are accomplished. Some of these are listed under:
Inventory management report: It is really is important to documenting all the materials
that an enterprise needs to carry out all the operational activities. Manager of Creams
Ltd undertakes this report to assess whether they have sufficient products to market different
goods to customers according to their requirements. It is beneficial for the company, as it can
help supply of goods on time and reduce the possibility of unsatisfied purchasers.
Budget report: It is largely related with plans that businesses have made to allocate
resources to all departments as per their requirements so that administrators can carry out
every operations. Creams Ltd also needs this report to ensure planned activities are held within
the same budget previously decided upon or not. This is beneficial for the organization and with
the assistance of this report; the necessary money will be allocated to the departments to perform
all of their tasks.
Account receivable report: It is mainly related to monitoring these customers' data which
will allow future sales and on credit transactions of goods. In Creams Limited, it is achieved by
management to maintain correct information about the volume owed and, in the meantime, the
customers will recover on a timeline. It is beneficial to the department as it will assist in
determining the actual exception which will be given in the upcoming time.
Performance document: This study is generated in most companies as the total
performance of the whole enterprise and its employees is measured (van Helden and Uddin,
2016). The manager of Creams Ltd often establishes it to determine the company's success as
well as to ascertain whether employees are making adequate objectives to contribute to the
growth of the business. This is really good for the business and therefore will allow the managers
to give bonuses and benefits to the employees because of their performance.

M1 Benefits of adopting management accounting system
System Benefits
Cost accounting system  These system Enables executives in a manner which
helps to evaluate the company's biggest consumer
goods.
 It also allows determining the exact prices for the
products by having the right cost details.
Inventory management
system
 This aid manager to improve Creams Ltd productivity
and profitability by retaining adequate stock.
 Supported by this method, the business has the detail
and accurate knowledge about stock level.
Job costing system  Managers assess the efficiency of a firm's specific work.
 It offers maximum charge details such as wages, content
and other operating costs that are expanded within the
business in various occupations.
Price optimisation system  This system support to implement the most beneficial
pricing strategy within company so that proper profit
margin can be maintained.
 It also enables to fix the suitable prices of goods so that
loyal customer base can be increased.
D1 Integration of management report and accounting system
This is really important for the manager of Creams, to implement different system and
reports within organisation process in order to attain the company goals within specific time
frame. Such as cost accounting system is use to detect the total cost involved in within various
operation and activities and on the other side the cost reporting system to record the total cost
used in these operation. Similarly, budget report records the allocated funds on different
operation and actual cost spend over these activities.

TASK 2
P3 Calculation of costs with various techniques to draw income statement
Marginal costs: It has also been recognized as variable costs has been included in it
approach for measuring benefit only cost of delivery and it can assist to define break even,
marginal safety stage for the company.
Absorption Costing: This method of costing requires in the key expense recovery from
the selling of all finished products. Creams Limited's managers guarantee that their profits bear
all costs suffered in producing multiple goods (Malmi, 2016).

M2 Apply a range of management accounting techniques
Cost-volume profit analysis: Cost volume profit evaluation is really a cost accounting
approach that looks at the effect on net revenue that different rates of cost as well as volume have
in specific time. The CVP model, also widely recognized as break-even model, tries to calculate
the break-even point for various revenue levels and expense structures which can be helpful for
management making short-term economic decisions.

Activity-based costing: Activity-based costing (ABC) is a system of costing related goods
and services which assigns overhead and administration costs. This costly accounting approach
considers the association between prices, operating operations and manufactured goods, applying
indirect costs to goods less objectively than conventional costing approaches.
D2 Analysis of data by financial report
The annual report reflects organisation's income and expenses over a specified period of
time. Creams Ltd manager will use both marginal and absorption costing financial statements to
define product amount and benefit connection with the factor consequence it already have in
specific period. From the above figures it has been determined that labour rate and volume
differences will be 3638(a) and 6428(a) for the company. The client will be paid 900(f) and
2000(f) in terms of manufacturing costs and demand fluctuations.
TASK 3
P4. Different planning tools with its advantages and disadvantages.
Budgetary management is referred to as the mechanism by which companies plan their
budget for upcoming time and equate the same with current results in order to assess any
difference. The managers of a company can quickly spot discrepancies and make necessary
adjustments by comparing the predicted forecasts to the real figures. This mechanism ensures
that management of Creams Ltd recognize the spending limits of different operation within a
time frame. This control is important because excessive spending has an adverse impact towards
corporate revenue.
The main goal of Creams Ltd by using the budgetary control is to evaluate the gap
between the actual and budgeted figures which is vital to the success of the organization. This
contributes to improved efficiency and output of the companies within appropriate time manner.
Budgeting performs a vital role in planning and handling, since it promotes resource distribution
that is distributed for most effective purpose, while retaining market efficiency (Quattrone,
2016). A effective process of budgetary management encourages the planning of different
activities and ensures productive and systematic activity of the company. This also combines
recommendations from rising management levels to prepare the budget as well as encourage
cooperation across divisions. Some of the crucial planning tools are defined underneath in the
context of Creams Ltd:

Cost budget: This is a financial schedule covering defined business expenditures for the
upcoming period. It determines all of the company operations and incidents related costs. That is
the expected possible expense a company will eventually face while operating various operation
in future. This has been the most efficient method for properly controlling Creams
Ltd accumulation and cash flows over different operating and non-operating expenses. The
advantages and disadvantages of cost budgeting are listed below:
Strengths:
 Cost budget provides the manager of Creams Ltd an effective way to handle upcoming
business expenses. Moreover, it also supports to determine the different between the
budgeted cost and actual spending over a specific activity. Thus, this budget eases the
decision making whether to certain operation in next year to make some modification to
reduce cost.
 Implementing this budges through Creams Ltd improves cost awareness, promotes the
appropriate use of resources and enables the worker to work in best manner which helps
to lower cost and increase results (Otley, 2016).
Weaknesses:
1. This budget takes time to calculate the total cost involved within activities thus many
time delay the business activities. Management often expected too much from the budget
and if such conditions were not fulfilled the management would be responsible.
2. The major drawback of this budget is that it depend upon the previous year figures due to
which manager many time make decision to eliminate activities which engage huge cost
but these activities can be profitable in future depending upon the market conditions.
Zero based budgeting: This method of budgeting includes new expenditure cycle will be
clarified for every new period. The cycle begins at a zero level, determining the conditions and
expenses of growing corporate function (Nitzl, 2016). The key aim of this budgeting technique is
to minimize additional expenditures, taking into account circumstances where spending should
be decreased. To handle Creams Ltd it is important to validate every bill until it is incorporate
within the actual budget. Below are some of strengths and drawbacks of zero-based budgeting
for Creams Ltd:
Advantages:

 ZBB is an innovative of budgeting which provides a way to help Creams Ltd in better
managing of resources, as it including new estimation for every activity from 0 and do
not consider any past information. This method to budgeting encourages better
coordination and teamwork across organisations and encourages employees to take
responsibility (Lachmann, Trapp and Trapp, 2017).
 The main advantage of this budget is to eliminate unproductive activities that further
enable to identify cost-effective solutions and maximum use of available capital in
attaining the huge profit.
Disadvantages:
 This budgeting process is extremely time-intensive for creams Ltd and is much harder to
resist a change in the budget for every year. Thus again and again evaluation of all items
of Creams Ltd becomes a challenging task for manager.
 In the planning of ZBB budgets Creams Ltd require professional and skilled member
which increase the overall employee turnover.
Capital budgeting: It is defined as the firm's way of deciding which fixed-resource transactions
they must authorize and minimize (Weetman, 2019). Capital budgeting is used to construct a
realistic structure for evaluating any future fixed asset purchases and to develop a theoretical
viewpoint. It benefits by managing Creams Limited to determine potential major deals or
projects.
Advantages:
 The main benefit of this budget is to help Creams Ltd in assessing the most favorable
return on investment within specific time frame. This further support to make smart
decision of investment which will help to grow capital that can be used to manage
company operation as per desired format.
 This lets managers make sound investment decisions, taking into consideration all
possible alternatives available in the marketplace.
Disadvantages
1. The main drawback of this budget is that it is based on assumption and do not highlight
the losses related with any investment decision so many time leads to bigger loss of
capital of Creams Ltd.

2. Wrong capital budgeting predictions might have an effect on long-term survival of
Creams Ltd and many time it also impact the current business activity as manager waits
for the right investment to be made (Wagenhofer, 2016).
M3 Importance of planning tools for budgeting and forecasting process
The above discussed planning tool enables the management of company to have sufficient
understanding about the company expenses over various operating activities. Thus, it further
support in making effective budgets for the period as manager can easily allocate funds to the
activities which they think will give higher results in future. Thus different planning tool have a
common prospective to make proper arrangement of funds or make effective use of available
resources so that yearly budgets are properly mentioned. These tools also support in making
valuable forecast about future use of resources in a manner that enables to reach the desired
results in specific time. Cost budget and ZBB is an innovator of financial planning tool that
promotes improved coordination as well as teamwork between organizations, and promotes
responsibility for the employees.
TASK 4
P5 Comparison of organisations on the basis of use of management accounting to respond
financial issues
Businesses in the current business period face various increasing financial problems due
to competitive global environment. There are several reasons due to which these problems arise
within company such as late payment from clients, increasing of debts, un-clearance of stock etc.
Some of the big issues that large companies such as Tesla and General Motors faces while
operating business:
Cash flow shortages: Sudden loss, low production performance, excessive investment,
weak profits, sales, decreases in wealth rates, resource depreciation, accumulation of assets etc.
are the causes of the liquidity problems in Tesla which many time leads to delay in processing
activities.
Inventory Mis-Management: Due to unexpected changes happing within the automobile
industry give rise to the problem of mismanaging of inventory in General Motors. The customers
are becoming more competitive leading to increased competition and demand exceptional
services (Messner, 2016).

Tools for detecting and managing financial problems are:
Benchmarking: This is the mechanism by which company efficiency is measured to a
certain particular level. By using this tool General Motors use to determine the reasons uneven
use of stock and lower production. Moreover with this MA tool manager compare the use of
stock with other rivalry firms by setting a desired benchmark.
KPI's Metrics: This is an additional approach which is using to measures the core success
of company during a period. By using this tool different types of metrics are used to determine
by the Tesla and how consistently they are meeting their targets and priorities is also evaluated.
By implementing, this tool manager of Tesla enables to detect the issue problem in cash flow by
setting metric at different operational activities. Tesla frequently determines main performance
indices (KPIs) to track its output, stock and also in particular to assess whether or not goals is
met in the specified period. In reality, experience and knowledge with the deployment and
management of KPIs for a specific area are not always enormous benefits for potential
management of Tesla Inc.
Financial governance: That is how the organization conducts and publishes accounting
reports. The company uses it to provide valuable statistics on the financial state of the
organization. By implementing this tool manager from both Tesla and General Motors, the
financial issue can be addressed in a given way, which directly support in increasing overall
productivity.
Comparison for the use of management accounting system:
Basis Tesla General Motors
Problems and tool
used to detect.
The respective firm faces the major
financial issue related with cash flow
movement. Thus manager use to
implement KPI to detect the reason of
improper flow of cash within
different operations. With the help of
this tool outcome reported by Tesla is
contrasted by critics against their
predictions, meaning that the
company's assumptions are not at
The company faces issue related
with improper use of stock due
which productivity in decreasing.
General Motors will consider
revenue development and market
position as the key success
metrics in the financial indicators
division of the balance score
sheet. These interventions would
help to establish how the

least important to its success, but
rather to its own failed or exceeded
forecast in the past. Tesla's outcomes
are focused on its own standards.
company continues to generate
greater income, being its primary
objective as a business company.
Implementation of
MAS
By implementing cost accounting
system manager can easily record and
figure out total cost involved on
various activities and make better
allocation of cash resources to
resolve the above identified issue
(Tucker and Schaltegger, 2016).
In order to resolve the above
financial issue manager use to
execute inventory accounting
system so that proper record of
stock at each stage of
manufacture level can be
maintained and available
inventory are fully optimised
(Hall, 2016).
MA Technique With the use of financial governance
company can make effective record
about total cash inflows and outflows
and compare with the previous record
in order to figure overall profitability.
By using tool of financial
governance manager can easily
find out least productivity
activity and remove these
operation which lead to such
huge financial issues.
Ratio analysis: In the context of Creams Ltd company can use ratio analysis for determining the
financial issue for the respective accounting year. This is because proper calculation of different
rations supports to define the total changes arising in different aspect of business. Such as net
profit ratio help to provide the percentage change in profit figures as compared to the previous
year. Therefore any downfall in the proportion help company to determine the reason for such
decrease and proper analysis of those factors enables manager to take important action in order
to reduce the financial issue.
Cash budget: This sort of tool can be used by Creams ltd in order to get resolved the current
financial problem as it enables to properly use the available cash resources and reach the specific
level in the desired time. moreover, this budget also support in making policies for use of cash
only to the activities which are producing huge income and also to introduce the new in order to
reduces the financial issue.

M4 Respond to financial problems, MA lead to sustainable development
Cream Ltd manager use benchmarking for inventory mis-management, it can assist in
motivating the employees to improve revenue and productivity and gain more opportunities and
apply financial regulation laws to operate in an efficient manner and to monitor criminal crime,
and they will also use KPI method for cash flow issue, in which they will collect money within a
specified amount of time and resolve the same. In addition, to attain the sustainable development
the application of MA systems has been studied, too, with a slightly less period. The concerns
listed here could also be solved via the system of cost control and accounting. The Creams ltd
pursues different strategies, such as the allocation of money, structured schedules etc. Within the
analysis of disparities within problem solving all of these targets are important to them.
D3 Evaluation of planning tools to overcome financial problems.
Forecasting of planning methods can solve financial challenges and guide companies to
profitability by using a range of forecasting techniques, expense controls, schedules, pricing
models by which Creams Restricted management can assess rates and track costs to retain their
market share through raising cash flow to solving financial problems.
CONCLUSION
In the end of report, it has been concluded that MA is a systematic way of managing and
controlling internal operation of company that help to increase the overall profitability.
Various system and report are used for better functioning of company operation and reduce
the chances of financial issues. By using cost techniques income statement can be
formulated so that net profit can be figured for the year.

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