Comprehensive Analysis of Management Accounting for 4com: A Report

This report provides a detailed analysis of management accounting practices, focusing on their application within the context of 4com. It begins by exploring the use of management accounting systems, including cost accounting, standard costing, and inventory management, and their role in planning and decision-making. The report then examines various methods of management accounting reporting, such as variance analysis and performance reports, emphasizing their importance in monitoring and evaluating organizational performance. A key section delves into the use of marginal and absorption costing, comparing their approaches and highlighting their impact on income statements. The report also covers planning tools for budgetary control, along with their advantages and disadvantages, and discusses how management accounting systems are employed to address financial problems. Overall, the report provides a comprehensive overview of management accounting principles and their practical application in a business environment, focusing on the methods and systems used for internal reporting and decision-making.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
P1. Use of management accounting systems..........................................................................3
P2. Methods used for management accounting reporting......................................................6
M1. Benefits of management accounting systems.................................................................7
D1. Way in which reporting and systems of management accounting are integrated within
organisational processes.........................................................................................................7
P3. Use of marginal and absorption costing to prepare an income statement........................7
M2. Financial reporting and use of management accounting techniques..............................9
D2. Data for complex business activities...............................................................................9
SECTION 2....................................................................................................................................10
P4. Various tools of planning for budgetary control and their advantages and disadvantages10
M3. Application of planning tools........................................................................................13
D3. Solving of problems by using planning tools................................................................14
P5. Using management accounting systems to deal with financial problems......................14
M4. Response to problems...................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
In any organisation, there are various reports which are required to be prepared by
managers as with the help of them, important decisions will be taken in business. For this, there
will be requirement of relevant data which will be collected with the help of significant tools
which are covered under management accounting (Granlund, 2011). By using all the planning
tools, financial problems in business will be resolved. All these aspects will be discussed in this
report in relation to 4com. Also, different systems which are used in the process of management
accounting will be included here.
SECTION 1
P1. Use of management accounting systems
In order to gather the information for internal use, there will be various reports which will
be prepared. Complete information collected will be identified, analysed and recorded with the
help of management accounting (Fullerton, Kennedy and Widener, 2013). In order to increase
the productivity, it will be required that efficient utilisation of resources shall be carried out and
by the same, company will be able to earn more profits. In this, various systems are present and
they are described in detail as below:
 Cost accounting systems: With the help of this system, it will be made possible to
ascertain the total cost which has been incurred in the process of production. By the
identification of this, all of the cost will be controlled and for that evaluation will be done

of the material and other expenses. The main parts in which this system is divided are
process and job order costing.
 Standard costing: It refer a techniques which are used to compare standard cost of each
product with actual cost in order to find out the efficiency of the operations.
Types of standard costing:
Ideal standards: Cost fixed those are based on ideal conditions. It is representative for long term
goals with maximum efficiency.
Attainable standards: It is related with company condition that what can be attained through
the present conditions.
Current standards: These are short term in nature and mostly used for control purpose. It is
mostly related with that state which business is presently working or tying to achieve.
Advantages:
 Standards are set in order to provided standard against which actual costs are related to
ascertain actual performance.
 It help to analyse variances that are assist to an individual out inefficiency and relocated
those persons those are accountable for adverse variances.
Disadvantage:
 In case of small concern it can not be applicable because it require high degree of skills.
Types of variances:
 Direct material variance: It is the relation among actual cost of material at actual units
and standard cost of material of standard units. It is sum of material price and material
quantity.
 Labour variance: It is related with the cost of labour. It is differences among standard
costing of labour for the actual human action and the actual cost incurred on labour.
 Overhead variances: It is related with all indirect cost.
 Sales variance: It is the type of sales product which are related with actual sales and
standard.
 Actual costing: It is said to be recording of product cost those are based on factors like
material, labour and overhead during reporting period.

Illustration 1: Actual cost, 2017
 Job costing: In the process which is undertaken, it will be needed that cost of particular
job shall be ascertained that will be done with the use of this. As all jobs are done on the
basis of specifications provided to company, it will be required that they shall be properly
managed and for that all the cost will be considered.
 Inventory management system: It is required that complete stock which is used by
company shall be managed and for that, supervision will be needed so that available
stock can be allocated to different departments according to their needs and requirements.
Also, manner in which inventory will be obtained from the suppliers will also be
considered under this system.
 Price optimisation system: In this system, the price that company will have to charge
from the customers will be decided and for that, firstly, the cost will be required to be
identified (Otley and Emmanuel, 2013). If the price will be set at the affordable level then
company will be able to earn more profits as sales will get increased by the same. By this,
the response of customers with respect to different prices will be determined.
With the help of these systems, various requirements will be achieved that are as follows:
 Planning: In order to achieve the objectives which are prescribed, it will be needed that
proper planning shall be done by which managers will be able to control the cost that will
help in taking effective decisions.
 Decision making: In the business, there are many decisions which will have to be made
and for that, all the systems will prove to be beneficial. The decision will be taken in such
a manner that profits can be maximised by reducing irrelevant costs.

P2. Methods used for management accounting reporting
The data about organisation id required to be recorded in a way that it can be utilised by
the management in future also. The reports will be used by internal authorities so that
performance of company can be monitored (Hiebl, 2014). They can be prepared for any interval
of time as there is no limit time prescribed in this context. All the operations which are
performed by 4com are evaluated as in this, observation is made for all. In order to maintain the
stability and achieve further growth, it will be required that many decisions shall be taken and for
this, all the figures and facts will be obtained from the reports prepared.
In this, there are various reports which will be formulated and utilised so that targets and
objectives of company can be attained and for that, proper understanding of them will be
required which is provided as below:
1. Variance analysis report: This report is prepared with an aim to determine the
difference between budgeted and actual figures. The identification is very important as
then only the reasons in relation to them will be identified and measures will be taken to
overcome them. By this, the performance of company will be improved and they are of
many types such as material, labour and sales variance.
2. Performance report: In this report, findings about the performance will be reported. All
activities which are performed in business will be measured with the use of this report.
Main factors which are used in them so that performance can be evaluated are ratios or
the key performance indicators.
3. Inventory control report: In this, the position of company in relation to stock will be
controlled. The extent is identified to which stock is available and how much more will
have to be acquired so that proper balance shall be maintained (Baldvinsdottir, Mitchell
and Nørreklit, 2010). For this, various methods that can be used are FIFO and LIFO by
which the value of stock will be determined.
4. Job costing report: In order to control the cost that will incurred in relation to a
particular job, it will be required that all costs shall be identified and then recorded in this
report. By this, the cost which is related to the job will be allocated to it. Plans will be
made so that the cost can be reduced by which company would earn higher profits in
business.

M1. Benefits of management accounting systems
The accounting systems used prove to be beneficial as by that the performance of 4com
can be analysed as all the costs and income will be evaluated through the same. Also, the profits
will be maximised due to controlling of cost and by using the policies which are formulated in
this regard. By this, the overall efficiency will be increased and also, proper decision making will
be possible.
D1. Way in which reporting and systems of management accounting are integrated within
organisational processes
The main motive behind using systems and reports of management accounting is to
eliminate the excess expenditures and waste that is made by company in the process of
production. All the financial as well as non-financial aspects will be included in this by which
performance of 4com is examined and also, the deviations with the set standards are identified. .
P3. Use of marginal and absorption costing to prepare an income statement
In the process of providing customers with products, there are various costs that incur and
borne by 4com. so they will be required to be identified and then proper measures will have to be
taken to control them. For this purpose, there are two methods which are the best and can be used
by company as well as same is described as below:
 Marginal costing: In this method, fixed cost is not used in the process of determination
of contribution (Bodie, 2013). It is deducted at last from the contribution without making
any allocation in relation to it. This is known as marginal costing as in this, variable
aspects are considered and the profits get directly affected and this will be per unit effect.
The main benefit of this is that variance in relation to cost per unit is eliminated and by
that, maximisation in revenue is achieved.
 Absorption costing: In this method, both fixed as well as variable cost will be
considered and used in the process of valuation. In this, fixed cost will have to be
distributed among the total units and due to this, there will be difference in actual amount
of expenses and the value budgeted. It is determined and considered in the process of
calculation of net profits. By this the profits that will be calculated that will be most
appropriate as in this whole cost has been taken into consideration.

There are various differences which exist in between the marginal and absorption costing
and same has been described below with the help of comparison table for better understanding.
Marginal costing Absorption costing
In this, cost charged will only be the variable
overheads.Both; variable and fixed cost are
considered while calculating the total cost of
product.
In this, measure which will be used to
determine the profitability is profit volume
ratio.
Fixed cost will be the factor that will be
affecting the profits in this method.
Cost of unit will not be affected by the
deviation which is present in between opening
and closing stock.
In this, there will be the impact of difference in
opening and closing stock on per unit cost.
The final results that will be used to draw
conclusion is contribution.Here, decisions will
be based on the net profits.
They can be classified in two categories which
are fixed and variable.The expenses will be
distributed as production, distribution and
administration.
Using absorption costing Quarter 1 Quarter 2
UNITS £/UNITS £ £ UNITS £/ UNITS £ £
SALES 66000 1 66000 74000 1 74000
Cost of goods sold
Opening inventory 0 0.85 0 12000 0.85 10200
Production 78000 0.85 66300 66000 0.85 56100
Less closing inventory -12000 0.85 -10200 -56100 -4000 0.85 -3400 -

62900
Gross profit 9900 11100
Less: other expenses
Selling and administration
costs -5200
-5200
Net profit 4700 5900
under/ over absorption -2800 -1200
Reconcile profit 1900 4700
Quarte
r 1
Quarter
2
Total fixed costs 16000 16000
Fixed costs absorbed
66000*0.2
0 13200
74000*0.2
0 14800
-2800 -1200
Using marginal costing Quarter 1 Quarter 2
UNITS £/UNITS £ £ UNITS £/ UNITS £ £
SALES 66000 1 66000 74000 1 74000
Cost of sales
Opening inventory 0 0.65 0 12000 0.65 7800
Production 78000 0.65 50700 66000 0.65 42900
Less closing inventory -12000 0.65 -7800 -42900 -4000 0.65 -2600 -42800
Contribution 23100 25900
Less: other expenses
Fixed costs -16000
Selling and administration -5200 -5200
Net profit 1900 4700

It can be said from the above calculation that profit that is derived with marginal and
absorption costing is different due to the difference in manner in which fixed cost is treated. In
this,allocation method that is used in absorption is not taken in the marginal and that is main
reason of variation which arise.
M2. Financial reporting and use of management accounting techniques
In 4com, there are various tools and techniques which are used and they are helpful in
achieving the set targets and goals (Burritt and et. al., 2011). Main decision involved in business
is in relation to whether the product shall be purchased or manufactured. The option by which
profitability is improved is the one that will be selected. The findings obtained will have to be
reported so that they can be used for future reference. Another technique that can be used is in
relation to analysis of variances by which reasons for the same will be identified and removed.
D2. Data for complex business activities
Complete information collected is used in the process of report formation in 4com as with
the help of same, various decisions are taken by management of company. Inventory level is
controlled and in that, the main technique that can be used is marginal and absorption costing as
by the same, cost is calculated and then it is controlled so that overall development can take
place.
SECTION 2
P4. Various tools of planning for budgetary control and their advantages and disadvantages
Budget: It is an estimation of future forecasting of company sales, production and profit.
It is generally prepared after collection of various information from different departments.
Budgetary control: It refers that how managers make use of budgets to analyse and
control costs and its operations under a given period of time. It is a process which is set by the
managers to fix financial and growth with budgets.

Advantages:
 It state the goal, plans and other policies which are related with enterprises.
 It insure proper coordination among various administrative departments.
Disadvantage;
 It is more real and difficult to design budgets more accurate under inflationary conditions.
 It consist of heavy expenditures which create more difficulties for small businessIn order
to control the operations of business, it will be required that proper planning shall be
carried out and for the same, various tools are there which will have to be used in this
process. All transactions that done will have to be taken into this so that proper evaluation
can be made (Cardoni, 2012). The best technique used in this is budgeting in which the
statement is made in which the estimates in relation to all incomes and expenses are
mentioned. For this purpose, it is required that information of the past years will have to
be analysed and also, future prospects shall be identified with the help of research that
will be done by company. In them, goals are specified that have to be achieved by
employees and with the help of this, high efficiency is gained. The main reasons for
which budgeting is required to be done in Nero are:
 By budgeting, control system will be managed as in this, standards are set that will have
to be achieved by the business.
 Also, the cost incurred will be reduced which will be helpful in increasing the overall
profits.
 The resources within organisation are limited and so, by using them, they will be utilised
in the most judicious manner.
Advantages of budgetary control:With the help of them, efficiency of business will be
increased and this will be the most important advantage received by it.
 In the process of preparation of budget, there is requirement of lot of data and for that,
proper communication is needed so that this will be beneficial in its establishment.
 As in this, the targets are specified so, employees have to perform accordingly and by
that, company will gain benefits and also, the performance of employees will be
evaluated so that proper discipline can be maintained (Higgins, 2012).
Disadvantages of budgets:Cost and time will be used in the research and that will be a
disadvantage.

 As there are many budgets which are prepared so, it will not be possible to update all of
them on regular basis.
 If the budget will be wrong then company will have to bear its adverse impacts.
Limitation of budgeting:
Problem of rigidity: It is related with the knowledge out to or be power out of shape. The
budgets always get rigid because of improper plan.
Problem of inaccurate estimates: It has been observed that budget are always faced problem of
inaccurate estimation because prior idea can not be applied over the production of products.
Human factor: Under this phase the resources are not fully utilised by the human and lot of
wastage can be done.
Expensive: It is too costly because lot of funds are required to prepare budget for the company.
Financial budget: In this budget, all estimates in relation to financial aspects will be
incorporated. With the help of them, all objectives of business will be achieved on time. In the
preparation of this, there will be requirement to analyse financial statements which will be
including balance sheet, income and cash flow statement (Chen and et. al., 2011). By them, the
position of income and expenses together with the assets and liabilities is maintained.