Management Accounting and Cost Analysis for Connect Catering

This document provides an overview of management accounting and the essential requirements of different types of management accounting systems. It explains the different methods used for management accounting reporting and provides a step-by-step guide on how to calculate cost using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costing. It also discusses the advantages and disadvantages of different types of planning tools used for budgetary control. The content is relevant to the subject of Management and Accounting.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
P.1. Explain management accounting and give the essential requirements of different types of
management accounting system? ...............................................................................................3
P.2. Explain different methods used for management accounting reporting?............................4
P.3. Calculate cost using appropriate techniques of cost analysis to prepare an income
statement using marginal & absorption costing?........................................................................5
P.4. Explain the advantage and disadvantage of different types of planning tools used for
Budgetary control?......................................................................................................................9
P.5. Compare how organisations are adapting management accounting system to respond to
financial problems?...................................................................................................................10
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is a type of profession which involves partnering in different
activities in management like decision making, performance management, devising planning,
and tends to control assist management in formulation & implementation of various organisation
strategy. The company which is selected in this project is connect catering. Connect is family
owned & operated company which was founded by John herring I the year 1989. Connect
employ around 500 staff members who are well trained and highly motivated as well as having
great experience in delivering excellent services related to catering. In it each dish is made by
using raw ingredient and tends to create balanced nutritious meals which are so delicious & tasty.
There are various topics which are included in this project are definition of management
accounting and explain different type of management accounting system along with their
essential requirements. Different methods used for management accounting reporting. Calculate
cost with the help of appropriate techniques to prepare an income statement by using absorption
and marginal costing, the report also include topic related to advantage & disadvantage of
planning tools that are used for budgetary control. To respond financial issues, compare how
company use management accounting system.
MAIN BODY
P.1. Explain management accounting and give the essential requirements of different types of
management accounting system?
Management Accounting: It is the process of providing financial information as well as
financial resources to the top management so that it become possible for them to do effective
decision making which help organisation to achieve goals and targets. In this various financial
reports such as vouchers, invoices, bank statements, balance sheet, P&L , cash flow statement
etc. are shared by finance department with management team so that they also understand the
actual financial position of the company and on the basis of that planning for investment is done.
The another name of management accounting is cost accounting but it is totally different from
financial accounting.

Definition of systems of Management Accounting: These are internal based
confidential report which supports management team or to managers to perform effective
decision making.
Different examples of various type of management accounting system.
 Cost accounting system- As this system is adopt by organisation to make estimation
regarding their product value with regards to analysis of profitability, cost control, for
valuation of inventory etc. Accurate estimation for cost to product is so important to
company mostly when it is need to ascertain profit. With the help of this system semi
finished product cost, raw material cost as well as cost of finished product can easily be
estimated. These respective costing help smart managers or top management to prepare
financial statements or Budget. The essential requirement of this system in connect
catering is to ascertain the cost as well as to do allocation in appropriate and effective
manner.
Advantages
1. It helps to eliminate abnormal losses as well as normal losses, inefficiencies, waste etc. It
also help managers or cost accountant to identify the reason of profit or loss.
2. It also supports to ascertain cost and do cost control to that the ratio of profit margin is
tends to increase which leads to business growth and survival.
Disadvantages
1. As cost data are not highly useful; because in this data of past are recorded and it is not
necessary that same cost is incurred to manufacture in the upcoming years so it is
difficult to calculate cost for future.
2. On full utilisation capacity it is to be ascertain , the cost is not accurate if capacity utilises
by company is partly.
 Inventory management- It is a system which is totally based to computer as with the
help of it inventory, sales, deliveries and orders can be track easily. Many company in
food and hospitality industry adopt this system to solve the problem of over or under
stocking in stores. For inventory management purpose connect catering use HIFO method
to clear stock. It also add value to the company to maintain stock as per requirement. The
need of this system in connect catering is that it helps to avoid problems of obsolence. If
inventory is over than it tends to create difficulty to manage and to place such extra stock.

It leads to increase expenses related to carrying cost which indirectly makes negative
impact on profitability of connect catering so their requirement is must in business to
eliminate unnecessary expenses
Advantages
1. It helps the purchase department to do planning and perform forcasting regarding the
need of inventory in the next month. It helps to avoid the problem of under stocking as
well as over stocking.
2. It also help to save the time also. Because if sufficient stock are available than customers
not to wait for the product.
Disadvantages
1. It is tends to develop threat of obsolence and also it is attracts heavy carrying and
ordering cost which tends to increase the expenses of the company.
2. It is time consuming because it takes lots of time to control and manage stock properly.
 Prise optimisation- It is the practice of using data from consumers as well as from
market so that markets can easily find effective price point for services or product which
will tends to maximise profitability and sales. Its is the price where organisation best
meet their goals, whether it means to increase customer growth or profit margin. This
technique is required in connect catering to determine how customer respond to different
prices of food items and services. As it is require to add value to company and also to
analyse that whether customers expectations satisfy or not. The organisation connect
catering use this system because it help executives to set most suitable prices for their
product & services to serve the purpose of selling the product to customers. It also help to
identify that cost which is fixed for services or items are capable to satisfy clients
expectations or not. Due to this reason it is essentially needed in any type of organisation
Advantages
1. Immediate financial benefits are easily get with the help of using this system in the
organisation.
2. Price optimisation system if used in the organisation than it help executives of company
to make decisions quickly which indirectly help to save time.

Disadvantages
1. Usability and complexity is the major drawback of this system.
2. Crawling and overlapping of prices with competitors offerings are also great
disadvantage.
P.2. Explain different methods used for management accounting reporting?
Management Accounting reporting: It is a process where various reports are generate to
management accounting that includes performance related information. To generate these type of
information various methods used by connect catering company so they can achieve easily true
information.
Few examples of management accounting reporting are explain in below mention bullet
points as these are as follows-
 Inventory management report- the main reason behind preparation of this report is to
maintain inventory record by connect catering. It is important as well as beneficial for
organisation to time to time check inventory status whether it exist in warehouse or
delivered to customer.
 Performance report- It is valuable tool to business because it provides an overview ,
how the business is perform. In this report business operation performance is to be
recorded. Connect catering managers prepare this report so that employees performance
can easily be evaluated and according to that rewards are given by employer to their
employees for their efforts which they put achieve target effectively and efficiently.
Many smart strategies are formulate by company with support of this performance report.
price optimisation system use by connect catering to fix reasonable prices for the dishes they
serve so that large number of people try their food and they capture large market.
 Accounts receivable reports- It is an aging report which shows balance of unpaid
invoice along with mentioning time period for it tends to belong and have been
outstanding. To identify average receivables age and to identify losses from clients ,
connect catering prepare such report regularly. As it tends to allow them to collect money
in exchange of bills.

 Budget report-Connect catering manager use this report to perform comparison actual
performance with standard ones. This budget report helps organisation to determine
whether it is possible for them to meet the projections which were made by them
previously.
As the company connect catering use performance report so that they can easily analyse the
performance of employees by doing comparison between actual to standard one. And the if any
deviation is there then the reason behind it can easily be find out. Thus to serve the purpose
various smart strategies are prepare by company.
P.3. Calculate cost using appropriate techniques of cost analysis to prepare an income statement
using marginal & absorption costing?
Fixed cost: Cost which does not affect in relation to volume of production. example rent,
depreciation, advertising, insurance etc.
Variable cost: It is such type of cost which make favourable impact as due to increase in
the product volume cost of product can also tends to be increase and vice versa. For ex direct
material, direct labour.
Semi variable cost: It is a combination of both fixed as well as variable cost. It tends to
remain constant up to certain level and after that varies. Telephone charges are the example of
such type of cost.
Marginal costing: In this total cost is tends to be effected if one additional unit is tends to
be manufactured. The formula of marginal cost is change in cost divided by change in quantity
Absorption Costing: It refers to a method of costing to account for all the costs of
manufacturing. to absorb the costs incurred on a product, management adopt this method. The
costs include indirect costs as well as direct cost . materials, labour which is used in production
are part of direct cost.

Connect Catering Services
Table 1.1 Accounting figures for cakes
Cakes April May
Units Produced 2500 3000
Units Sold 2000 2000
Opening Stock Nil 500
Closing Stock 500 1000
Selling Price per Unit £8 £8
Variable Manufacturing cost per unit £4 £4
Fixed Non ManufacturingNon-Manufacturing
Cost
£4000 £4000
Fixed Manufacturing Overhead £15,000 £15,000
Connect Catering Servicesare looking to expand their markets to the retail sector and are looking to
sell a range of vegetarian/vegan/non-vegetarian home-made pizzas to superstores. They have the
following cost information.
Direct material costs per Pizza: £3.50
Direct labour costs per Pizza: £1.50
Direct overhead costs per Pizza: £0.50
Other Expenses:
Manager’s Salary: £5,000
Rent: £5,000
Insurance: £500
Advertising: £1,000
Utilities: £500
Initially, they are not too sure of the market and hence want to only sell 9’ Pizza at £9.50 per Pizza.

SOLUTION-

P.4. Explain the advantage and disadvantage of different types of planning tools used for
Budgetary control?
Budget is quantitative plan that is formulate for the reason of using various resources
over specific period of time. It is forecasting tool which is followed by organisation to make
estimation of revenues and expenses at particular period of time. As per requirements various
budgets are prepare. In budgetary control procedure it is also used where organisation set targets
for long term in context to increase performance. Connect catering with preparing various
budgets can tends to make comparison between their actual figures with standards and if any
difference is their in results than reasons behind it should be find out and if needed strategies also
be framed by managers so that they can easily solve problems.
Examples of various types of budget are- in every organisation , manager tends to
prepare different type of budget so it become possible for business to run smoothly. There are
few example of budget which are prepare by connect catering as these are sales budget, flexible
budget, fixed budget, cash budget, master budget etc. all the budgets have some advantage and
disadvantage . Some of them are explain in following paragraphs as these are as follows-
Operating Budget: It covers all important information with regards to expenditures and
revenues that are generated with regular organisation functions. With the help of such respective
budget Connect catering managers tends to analyse, whether monetary resources use by
company in effective manner or not.
Advantage-
 operating budget help owner to make sure that relevant financial resources are used by
employer in correct manner or not.
 With the help of this budget, past as well as current expenses can easily be calculate and
analyse.
Disadvantage-
 This budget tends to overstate revenues and figures in financial statements of firms or
company.

 Manipulation of figures can observe mostly in this budget.
Capital Budget: In this type of budget, information related to those activities are
recorded which include large capital investment. Managers of connect catering team prepare
master budget and with the support of this budget they can do financial planning for future.
Advantage-
 This budget reflect fair position of company to their creditors, guarantors, merchant
bankers, underwriters, stakeholders so that these people known the actual position of the
company and according to that give security or make investment.
Disadvantage-
 lack of specificity feature are included in it because from various department it gathers
the information.
 It is complicated budget so it creates difficulty in understanding as it covers so many
information from various budgets.
Cash Budget- It is prepare to make record of cash receipt and payments during a specific
period of time so that actual income or loss is calculated. By subtracting total amount of cash
payment from cash receipts position of cash is easily find out . It reflects true and fair position of
cash.
Advantage –
 With preparing this, smart managers can easily identify potential deficits . Also finance
team make arrangement of funds which is necessary to meet the requirement of working
capital.
 Actual financial position in context to money is also ascertain with the help of this
budget.
Disadvantage-
 It tends to limits the ability to develop and maintain a credit profile. It also restricted the
spending power or to make investment in costly projects.
 There is always a threat of theft face by organisation even they maintain the stock in safe
custody.

Overhead Budget- In this records of all cost rather that labour and raw material is done
in it. In this all the cost is calculated and recorded which is related to production but other than
material and labour cost.
Advantage-
 The production overheads are concern to tax deductible in nature as well it tends to save
very good amount for business.
 As it is always fixed in nature so it is ascertain in advance by manufacturer.
Disadvantage-
 Many time estimation of budget is not accurate which tends to increase manufacturing
overheads.
 Higher cost to products results as to shrinking in demand.
P.5. Compare how organisations are adapting management accounting system to respond to
financial problems?
Financial issues represents the situations that exist due to lack of monetary resource.
What are reasons behind these monetary deficiencies are necessary to find out. After observing
the cause of these problems , to overcome with the situation many smart strategies mist be
prepare by managers. Organisation connect catering face many challenges some of these are
explain in below paras.
 Arising the situation suddenly which leads to high expenses. : With the reason of
lacking of effective planning so many financial issues takes place in catering service
industry. In this unplanned expenses occurs many times and managers of industry
involves huge funds to deal with the situation that leads to results as problems money
lacking for performing business operations.
 Food waste: It is the most common problem that is observe in hospitality and food
industry. For caterers it can be extremely challenging to plan the amount of food you
must need to event. The step you should take to decrease food waste is to find a program

that tends to calculates accurate quantities of food. To solve this problems various
initiative steps is taken by catering companies and should adopts good processes of food
storage.
 Staff turnover: It is great challenge in the hospitality industry. As employees tends to
search the job which tends to pay high amount. If good working environment is not
provided to employees ,than they are not interested to devote their time more in that
organisation. Also if employees not get their salaries on time than also it leads to staff
turnover. To overcome with the problem connect catering should provide healthy
working environment and timely pay the salaries as per minimum wage and payment of
wage/ salary act.
Tools that are used by managers to resolve the above mentioned problems or challenges
that are faced by catering service industry-
Financial governance- It involves the regulations, policies and rules which tends to frame by
management of company for their workforce with expectations to follow at the time of
performing their responsibilities and roles. With the help of this financial problems are to be
eliminated in the company connect catering and also to reduce chances of bad activity in
business.
Management accounting approach- It is most effective technique which is adopted by catering
industry to solve financial problem. In this approach financial data are tends to store at one place
as it reduces chances of loosing data. Respective approach give correct information to managers
of connect catering so it makes ease for them to take effective decision as per their desired
objectives. To resolve issues connect catering use some approaches as these are explain as
follows-
Key performance indicator:-It is most common tool which is generally use by company. as it
provide results which are most beneficial and outcomes in return. Key Performance tool
concentrates on analysing employees performance level by comparing the standard performance
with the actual. It makes easy for managers to identify the hurdles which restricts their workforce
to give their best. KPI tool can be adopted by Connect catering to solve financial problems by
raising productivity as well as performance level of their workforce.

 Benchmarking: This technique is used by connect catering in order to give correct as
well as appropriate guidance to their employees so that desired objectives and goals can
easily be achieved by the person. The management team of connect catering use such
tool by setting pre-determined objectives that must be achieved or fulfilled by their
workers within given deadline. on the basis of rival’s strategies and plans Bench marking
is to be set which tends to motivate the management of Connect catering to make
alteration and update their current plans and policies in order to gain competitive
advantage in different complex business environment. This tool is used by connect
catering in order to identify problem of late payment by clients through comparing their
credit policies with existing competitors and if required making changes in them.
Make Comparison between Current catering Ltd and Elite catering Ltd.
 Basis  Current catering Ltd  Elite catering Ltd.
 Issues  Risk management issue are
major challenge faced by
such company as it failed
their pre-palled decisions and
policies due to the reason
having dynamic business
environment.
 Cash flow problem
becomes most common
issues that is faced by
such respective
company as it provide
restrictions to their
management team to
implement pre-
determined strategies
and plans due to lthe
reason of lack of funds.
 Approach  KPI and Benchmarking tools
are the most appropriate
tools to adopt by the
organisation Connect
catering as it tends to helps
the managers in enhancing
 financial governance
tool is best to adopt by
connect catering as it
tends to assist
management to follow
systematic way at the

the level performance of
workforce through
appropriating them to
perform the activity or task in
appropriate as well as in right
direction and also deal with
challenges that comes due to
the reasons of market
environment complexities.
time of executing
responsibilities and
roles. It will increases
utilisation of funds
which tends to support
help company connect
catering to avoid any
issues related to
shortage of funds.
 Issue and
techniques
adopted to
handle situation.
 Employee turnover is the
problem that face by the
company . And to overcome
with these issues Tool of Key
performance indicator is used
in business.
 Low estimate sales
turnover is the financial
issue face by the
organisation and to
handle this concept of
bench marking is
followed by smart team
of the firm.
CONCLUSION
After through study it is to be conclude that management accounting plays a crucial role
in any business. In this various activities are perform related to analysis, measurement,
controlling to do decision making for future. Various different types of management accounting
system and report are prepare by company so that true status is access by organisation easily. To
prepare budget and perform forecasting various different tools of planning are used. To
overcome various problems which prevails in the business ,different techniques are used by
managers to handle such type of situations. Few of these techniques are bench marking, key
performance indicator etc. after performing deep analysis it is also conclude that catering
industry is very tough industry to work in. but if you face the challenges along with finding
successful solutions , it is very fun sector to work.

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