Management Accounting and Reporting: A Comprehensive Guide

This document provides a comprehensive guide on management accounting and reporting. It covers the role of management accounting, different accounting reporting methods, and the benefits of management accounting system. It also discusses the formulation of income statement using marginal and absorption costing, and the application of management accounting techniques with different accounting reports. Additionally, it explores the advantages and disadvantages of different planning tools used in budgetary control.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
Role of Management accounting and their system and requirements....................................3
Management accounting reporting methods..........................................................................4
Benefits related to Management accounting system with its application in the organisation5
Integration of management reporting system with management accounting system.............6
LO 2.................................................................................................................................................6
Formulation of income statement using marginal and absorption costing.............................6
Application of management accounting techniques with different accounting reports.........8
LO 3.................................................................................................................................................8
Advantages and disadvantages of different types of planning tools used in budgetary control. 8
Analysis of different planning tools and its application to prepare and forecast a budget...11
LO 4...............................................................................................................................................11
Organisation are adapting management accounting system for respond towards financial
problems...............................................................................................................................11
Analysis of financial problems to lead with organisational success....................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................15

INTRODUCTION
Accounting is used as a tool in analysis of different business activities for a organisation.
Accounting information is presented in various ways that helps to analysis information from all
departments of organisation. Management accounting refers to present various business activities
to internal management for make effective decisions in organisation. It is used by the internal
department for completing their work with more efficiency and effectiveness. Present Report is
based on the organisation Unilever which is a transnational consumer goods company producing
food and beverages and having its headquarter in London, UK. This report focus on management
accounting and its system. Along with this different method of management accounting reporting
and calculation of cost through marginal as well as absorption costing will also be discuss in this
report. At last advantage and dis-advantage of different types of planning tools and adoption of
management accounting system will also be discuss in this report (Ahmad and Mohamed Zabri,
2015).
LO 1
Role of Management accounting and their system and requirements
Management accounting is basically used to present different information related to
accounting that ensures to have effective policies of organisation. Due to this act it is easy for the
company to represent day to day activities. In context of different foods and beverage
management accounting assist them to perform their function with more efficiency and also with
more effectiveness. Implementation of the management accounting used by organisation to
describe or explain effective methods, system and techniques for organisation which leads them
to achieve more profits in the market. The professional knowledge and skills which is
implemented by organisation leads them to control and complete their operation's in effective
manner.
Types of management accounting system
Cost accounting system- Costing system of a business refers to formulate a framework
applied by the corporation for identify the approximate cost of their respective products. This
refers to inventory valuation, profitability analysis and cost control. There are two methods are
used by Unilever which is costing system and traditional costing system. This both methods
helps the business to identify cost of production by undertaking all steps through which products

are developed by production department. Costing method is beneficial for to measure and record
cost of its inputs through measuring their financial performance.
Inventory management- This methods refers to controlling and also storage of different
components that are applied by organisation in production of their goods. Inventory margin
system is a combination of various application such as barcode scanner, desktop software,
mobile devices etc. This helps the organisation to estimate cost of all goods which is applied by
Unilever to formulate a product effectively (Armitage, Webb and Glynn, 2016). Along with this
it refers to practice of controlling and overseeing quantities of goods in order to sale them in
market. The major role of this management of inventory is to present them accurately for all
levels of organisation. This practice refers to controlling and overseeing of quantities that is sale
by Unilever in market.
Job costing system- Job costing refers to a system which is used to determine price of its
on individual as well as unit basis. This system generally have different practices related to
accumulation of data on cost related to particular services and production job. This information
is needed by Unilever for submitting cost towards consumer for getting effective returns from
them. Also, information related to accounts is useful for determining accuracy upcoming projects
that is performed by organisation to complete their work. Further it is beneficial for the company
as it includes all types of cost related with labour, overhead and resources to perform a task
effectively.
Price optimisation system- This system refers to a process of increasing prices of their
products through which they are able to earn high profits in organisation. For Unilever, it refers
to determine that how consumer react towards prices of product. Due to this act organisation is
able to accomplish their goals by increasing their profits (Ball, Grubnic and Birchall, 2014). It
results effectively for management of Unilever because it leads them to minimize the aspect of
its undesired work.
Management accounting reporting methods
Management accounting is having its major focus on the information that is received by
internal department of organisation. It is applied for controlling, decision-making and planning
of completing a work through making effective decisions for organisation. Management
accounting depends on balance sheet, cash and fund flow statement. Moreover they are

implemented in organisation for evaluating information related to monetary transaction. It
undertakes several budgets such as cost report, performance report and product report.
Cost report- The main role of management accounting is to calculate cost of different
functions that is performed by them to complete their work effectively. To successfully
formulate a cost report Unilever undertakes all aspects such as raw material, overhead cost,
labour charges and price of raw-materials (Barbu and et. al., 2014). This sums are divided by
organisation later into amount of goods which is produced by management. The major benefits
of cost report as it helps to analyse difference between cost and sale of goods in order to identify
profits for organisation.
Performance report- This is essential for each organisation to complete their task within
formulate budgets. Financial department of Unilver make effective budgets for all departments
due to which actual revenue and expenditure for completing a project is analysed by
organisation. Performance report are computed by financial officer particularly for each year
while some corporation also formulate budget on monthly or half yearly basis.
Budgets- One of major key elements of management accounting is to prepare effective
budgets for organisation. Budgets are developed by applying various list of a completing a work
through undertaking all essential aspects that leads to earn more revenue and sources. This
determines Unilver increase their profits through minimising unnecessary activities of
organisation. The major benefit for formulating budget is achieve their objectives and goals
within a systematic manner with in a minimum cost.
Account receivable report- Account receivable report leads the organisation to manage
their debtors this represent it is mandatory for organisation to collect the payment. For
implementing this it is essential for them to provide effective information in order gather funds
within shorter time period (Bromwich and Scapens, 2016). Their are large number of
organisation are managing and performing their work that leads them to collect sufficient funds
for completing a work. The major benefit to complete this work is to ensure turnover of
monetary transaction with more efficiency and effectiveness.
Benefits related to Management accounting system with its application in the organisation

Management Accounting
System
Benefits
Inventory management system Inventory management system relates with managing and
controlling the supply of raw-materials. This is useful for them
because it leads them to complete their work without wasting
resources. Like production department order necessary goods to
finish a product effectively.
Job costing system Benefits of job costing system is that they provide actual cost
of job in order to complete it effectively. Unilever is benefited
because job costing helps them to identify actual cost of its
employee's in order to calculating profits through managing all
of its work.
Cost accounting system Cost accounting system helps them to gather all information
related to cost of organisation. In context of Unilever, cost
accounting system assist them to predict actual cost of their
work. To use it effectively management eliminate waste that
increase on their cost.
Integration of management reporting system with management accounting system
In present scenario all corporation are competing with each other at global level.
Therefore, to compete with them it is mandatory for Unilever to integrate them in business
operation's (Chenhall and Moers, 2015). So financial department of corporation inter-relate
inventory management with inventory related operation's in order to collect correct information
with inventories. Further cost accounting system helps them to calculate cost of their products
which is produced by organisation. Likewise, such organisation is also integrated in business
operation's to perform their operation's in an appropriate manner.

LO 2
Formulation of income statement using marginal and absorption costing
An organisation prepares different income statements by two methods which is
absorption costing and marginal costing. The in-depth information about both costing system is
mention as follow:-
Absorption costing- It is a managerial costing method that capture all cost method to
capture all cost which are associated with the manufacturing of a product. Majority of
organisation uses this method because it works on certain principles that produce effective
results for external reporting (Endenich, 2014). Absorption costing refers to fix cost particularly
for unit of organisation so at sale time it is easy to record profits margin through analysing their
cost. Absorption costing somehow differs from variable costing as it is used to allocate fixed
overhead cost. It allocates the fixed overheads in such manner that it does not have any impact
whether the product is sold in that period or not. As more expenses are included in the ending
inventory, the respective expenses on income statement are quite lower. It is beneficial in terms
of tracking the profits more accurately and its can also screw the profit and loss in an effective
manner. This usually accounts for all production cost and easily records the profit margins.
However, it does not help in improving operational efficiency and is not helping for making
comparison of product lines.
Marginal costing- Marginal costing is basically the increase or decrease in production
cost at time of making additional unit. This is computed in those situations where demand of
goods is more than its break even point. In simple words marginal costing is ascertainment of
fixed as well as variable cost of organisation. Variable cost per unit remains constant with the
help of marginal costing and the total cost of output get changed with change in production. The
break even analysis is an integral part of this costing and it is having direct impact on the volume
of production and output. The selling prices is usually the sum of variable cost with profit to
contribution. The marginal cost is also the base with respect to the stock of finished products and
also the respective work that is in progress.
As per the data given in income statement that is mentioned in the appendix:-
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms

Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Application of management accounting techniques with different accounting reports
Management accounting and reporting both are interconnected with each other like
inventory management and budget. Due to this there are several functions are performed with
making a effective combination that ensures profitability of organisation will be enhanced to
complete their work effectively. On other perspective cost accounting and reporting are also
performing their work at similar level it results this is easy for organisation to identify actual cost
of their work (Hyndman, 2016). This results management is able to earn estimate amount of
profits that is earned through sale of products in market.
Interpretation:-
By implementing the method of LIFO closing units of organisation are valued at a price
of 3.75 whereas by implementation of AVCO value of their stock is value at 3.45 this enable
manager Unilever to make successful decisions. For successful decision making organisation is
able to calculate actual cost that is incurred during their operation. Management need to focus on
AVCO as it is cost effective than LIFO.
LO 3
Advantages and disadvantages of different types of planning tools used in budgetary control
Budget- It is defined as an estimation of expenses and revenues for a specified period.
Usually this is complied and evaluated on various basis moreover budget it developed by
individual or teams. An effective budget is developed for family, corporation, government and so
on. Moreover, budget works as a internal tool that is used by management to complete their work
effectively.

Budgetary control- This system refers that how managers utilize their budgets to monitor
and control their cost in a financial year. In simple words it is process to decide organisational
goals within specific budgets. This works effective for organisation through comparing its actual
results with expected performance. For this it helps organisation to overcome from loopholes
when it is needed by them.
Types of planning tools
Cash budget- A cash budget refers to estimate of cash flow within organisational
departments for a particular financial year. This budget helps Unilever to assess whether
company has sufficient cash to operate or not. Cash budget is beneficial for company for
completing their work efficiently (Hyndman and et. al., 2014). If an organisation will have more
liquidity then it is easy for them to finish the respective work in a effective manner. Some
advantage and dis-advantage is mention as follow:
Advantage
 Organisation which are liquid towards cash are able to complete their work as there is
less probability to face debts in organisation.
 A cash budget emphasis an organisation to manage and control their expenses through
managing cash with more efficiency and effectiveness.
 Another advantage of cash budget is that it avoids debt and the organisation is forced to
have better budget in hand.
 It also becomes easy to identify the potential deficits in the organisation.
 The communication of the respective financial position also get more effective with cash
budget.
Dis-advantage
 Due to implement of cash budget it is difficult for organisation to allocate budget in order
to purchase different items.
 Budgets are developed to manage and control future expenses while in context of cash
budget they are developed on base of previous years (Lavia López and Hiebl, 2014).
Therefore it is difficult to formulate an effective cash budget.
 As cash is the easiest things that one can steal, so it creates danger of theft for the
organisation.

 The spending power of the organisation also get limited and its also limits the way an
organisation can spend its money.
 Cash budgets usually limits to build the credit profile and eliminates different rewards.
Master budget- Master budget are formulated by Unilever in order to manage their all
operation's. Their act as a summary for organisation in order to maintain their functional budget
which are approved and executed by all departments. Majority of the organisation make
functional budget on basis of profit & loss account and balance sheet that ensures budget are
accepted by management.
Advantages
 Master budget undertakes all functional budget that leads an organisation to earn huge
amount of profits. This act as a control and monitor of all budget at a single place.
 Master budget are developed by analysing balance sheet and profit & loss account. Due
to this act financial department of Unilever is able to forecast future profits effectively.
 Master budget also gives an overview of company's budget and it oversees the overall
earnings and spendings of the company. It identifies whether the business is going
positively or negatively.
Dis-advantage
 It is difficult for master budget to specify a single department to analysis their budgets.
As they include earning and expenses of all departments so it is difficult to formulate a
single budget (Lukka and Vinnari, 2014).
 Another dis-advantage of master budget is that they are difficult to update and monitor. It
is because there are many categories as well as numbers are included to make an effective
budget. Lack of speciality is also seen that is a major disadvantage of master budget.
Flexible budget- This type of budget is formulated and adjusted with respect to changes
in volume and activity. This type of budget is more beneficial for Unilever as compared with rest
because it modifies themselves as per need of customers, market and industry. Moreover, this
type of budget are flex due to which it is easy for them to develop on short term basis.
Advantages

 Flexible budget are able to react quickly on different basis it governs that they are able to
control cost of organisation. This leads them to complete their work according to present
market conditions.
 Flexible budget involves all types of cost whether fixed or variable due to which flexible
budget are more effective to take effective decision for Unilever.
 It is useful to adjust large purchases and is basically used for seasonal expenses. Irregular
payouts are incorporated and it is generally leads to less stress and passes an opportunity
for saving money.
Dis-advantage
 They are regular changes in market due to which it is challenging for management to
make constant positive outcomes from flexible budget.
 Most of the times flexible budget are developed and based on assumption because of
this they are totally different from actual results.
 There is less discipline seen with respect to flexible budget and it makes the complicated
by adding different rules.
Analysis of different planning tools and its application to prepare and forecast a budget
According to present market conditions most of organisation are competing with each
other at global level (Tappura and et. al., 2015). Therefore, it is mandatory to evaluate and their
planning tools for making effective results. Management of Unilever is focused on utilising
master budget, cash budget and flexible budget. In context of innocent budget they put more
emphasis on master budget in order to manage and expand their small sized business at global
level. Further execution of flexible budget leads organisation to increase their profitability and
productivity.
LO 4
Organisation are adapting management accounting system for respond towards financial
problems
In present scenario there are various financial issue are faced by business while
performing their day to day operation's. In order to resolve their issue it is mandatory for
organisation to solve them through adopting various financial issue so that organisation is able to

gain sustainable position in market through analysing various competitors to complete their
work. Moreover, financial problems that raises in front of Unilever is mention as follows:-
Uncertain expenses- Many times' organisation face challenges due to unexpected
expenses that increases burden on budgets. This expenses take place in organisation on sudden
basis so they are not included in budget. Insurance, maintenance, service charges etc. are some
factors which results as uncontrollable expense for organisation (Shields, 2015).
Difficulty to raise funds- This is mandatory for each organisation to raise and manage
funds effectively because every function is completed by management on monetary basis. In
context of Unilever there are several functions are performed by organisation. But due to
ineffective financial department it is decomposable for them to perform effective results.
Analysis of financial data- As the organisation are performing their work at international
level it is important for them to accept several changes. There are various data is gather and
collected by organisation to make effective decisions. Reports are developed by an organisation
at end of financial year. Therefore, for Unilever it is a time consuming and complex process.
Methods to deal with financial problem
KPI- Key performance indicator is defined as a tool which is used to measure and track
the constant performance of business operation's. In accounting terms KPI are explained as ratio
and percentage. For Unilever this method is beneficial because it leads them to perform their
operation's by minimising conflicts among organisation. By the adoption of this tool in
organisation it is easy for Unilever to analyse their key activities and task. Along with this it is
also useful to gain positive results because it helps them to deal with uncertain expenses. For this
it works to delegate activities through which it is analysed that which activity is assign to right
members to perform (Otley, 2016). It is benefiting the organisation in short term and brings
quantifiable results for the organisation. It is having its alignment with respect to common goals
and it provides platform for the organisations for there future strategies. It is helpful in giving
incentives for better performance and the respective information provided by KPI usually
empowers people to improve their personal performance.
Bench-marking- It works as a process to measure the performance of corporation
products, services and process. Bench-marking is used to formulate goods according to the
particular set standard of an industry. The major benefit of bench-marking it emphasis on
Unilever to complete their work through identifying internal opportunity to complete a work in

appropriate manner which is adopted according to particular set standard of society. Moreover,
with this tool the issue of financial data is solved by organisation to complete through deciding
particular targets for each department by reducing unnecessary expenses. The major objective of
implementing bench-marking by Unilever is to accomplish organisational goals and objectives.
Bench-marking usually improves the performance and inspires the creativity of the workplace.
The major focus of bench-marking is that is having its focus on bring change. A deeper
understanding is there that leads to an effective relationship with the respective competitors.
Comparison between two organisation
Unilever Nero limited
Organisation is operating their business at
small scale. So the major issue faced by them
is relates with shortage of funds. Whereas,
the other issue relates with low skilled
workforce.
Nero limited is a large organisation which is
performing their business at global level. So the
major issue faced by them is the division of
work. Due to this it is complex for them to
achieve their goals and objectives.
In order to overcome from the issue of
shortage of funds. KPI and benchmarking is
to used by organisation to motivate their
employee's. This results it is easy for
Unilever to earn high amount of profits
through completing their effectively.
There are large number of employees are
performing and engage in organisational
activities. Therefore, to deal and manage it
effectively management focuses on financial
governance. It leads them to achieve their goals
effectively.
Analysis of financial problems to lead with organisational success
The Unilever implements various tools and techniques to deal with various financial issue
(Melnyk and et. al., 2014). Further use of different tools and techniques in a business helps
manager to deal with various situations in effective way. Example- Unilever uses management
accounting at functional and operational level to complete their work effectively. This helps
them to complete their functions at both level in systematic and sequential manner. On other side
it helps them to build strong financial position in market by executing effective accounting
techniques in organisation.

CONCLUSION
By monitoring all above points it is been seen that management accounting plays an
important role in company for making better decisions. This leads them to manage their financial
information for better decision-making and policies for organisation. There are different
management accounting techniques and reporting methods assist an organisation to achieve more
productivity. Further, budgets also helps an organisation to complete their work through utilising
effective methods which leads them to manage and control expenses of an organisation. Along
with this organisation also calculates their cost through implementing marginal and absorption
costing method. This act helps them to find out cost effective methods to complete their task
effectively. At last the focus of this report is to use accounting tools for completion of work in an
appropriate manner.
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APPENDIX
Preparation of income statement by Absorption costing:-