Management Accounting Report: 4com PLC Financial Performance

This report provides a comprehensive overview of management accounting, focusing on its application within 4com PLC. It begins with an introduction to management accounting, highlighting its role in making businesses sustainable and compatible, and emphasizes the use of management reports for financial and cost-related information. The report then explores various management accounting systems, including inventory management, price optimization, job costing, and cost accounting systems (including job costing, process costing, standard costing). It also details the essentials of management accounting, such as decision-making, planning, and efficiency enhancement, along with the importance of producing profit/loss or income statements. The report includes details of the 4com PLC’s financial reporting through various reports, such as budget reports, variance analysis reports, performance reports, job costing reports, and inventory control reports, discussing their significance. Challenges in management reporting are also considered. Overall, the report provides insights into how management accounting supports financial stability, performance evaluation, and strategic decision-making within 4com PLC.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1............................................................................................................................................1
P2............................................................................................................................................3
M1: ........................................................................................................................................5
D1:..........................................................................................................................................5
P3............................................................................................................................................5
M2: ........................................................................................................................................1
D2: .........................................................................................................................................1
P4............................................................................................................................................1
P5............................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is the broad managerial aspect which is needed to be prepared
by the management of the company in order to, make the business sustainable and compatible.
This assist the firm to make the business prosperous and developed (Baldvinsdottir, Mitchell and
Nørreklit, 2010). With the help of management report, anyone can know about the financial and
other cost related information about the company. Normally, financial statement of Next plc is
used for the individuals' who are directly or indirectly concerned with the operations of the
company. But, management accounting system is used by the cited firm's internal management
for effective management. Management accounting is used by the management. Management
accounting comprises of cash details, sales revenue generated, debtors, creditors, stock, raw
material and additional covers trends charts.
In management report, information of 4com company is provided and planning tools of
management are discussed in details for stabilization of financial position of the cited firm.
Management accounting also helps the firm to solve the financial problems so that the firm could
easily obtain its objectives.
PART A
P1
This is totally related to making reports which is concerned to the internal management.
This is the process of determining, assessing and recording and summarizing information (Bodie,
2013). To frame the decisions, there is a strong requirement of the 4com company to know the
management accounting reports so that the resources can be efficiently utilized. This system
helps in managing entire cost of the cited company and enhancing productivity and revenues of
the firm. It additionally controls day to day affairs of the cited firm. Management accounting
assist in making the business grow. There are so many kinds of management accounting systems. Inventory management system: This system is implemented for monitoring of inventory
or stock items. Under this management system, whole inventory of a company can be
managed and this would lead to provide a smooth functioning of the firm. With the help
of this system, 4com can use its raw material in an optimum manner. This will also assist
in monitoring the flow of inventory from the manufacturer to the retailers.
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 Price optimization system: Under this system, the price of the company is determined
after considering total cost which are covered while producing goods. Prices are needed
to be decided in such a manner that could lead to produce higher profits and that could
also be affordable by the consumers. Under this, an analysis is framed to identify about
the responses from consumers on various prices of the products. The main objective of
this concept is to reach at price which is most favourable to the cited organisation. Job costing: This costing method is used for examining cost covered in any specified job
which is being performed in certain production process of certain special products. Job
costing is used to determine the cost involved in any particular work specified by
customers. This method of costing is used by such organisations where every job is
particularly different and being done with specifications given by clients.
 Cost accounting system: This is being used by a company to ascertain total cost incurred
in different activities for producing goods of organisation. This analysis is being used for
profitability analysis of an organisation and it helps in controlling cost of company. After
analysing cost of all the activities it can be evaluated that which items of cost are vital
and which are of no use and increasing cost unnecessarily. Cost accounting system is
utilised in ascertaining value of raw material, work in progress and final product. This all
information collected by using this system are utilised in preparing financial accounts of
a company (Burritt, and et. al, 2011). Cost accounting system is further divided into 2
parts. These are job costing and process costing. Process costing is being used in such
organisations where manufacturing of a product is done by different processes.
 Standard costing: It is based on estimations which is related with operational activities,
thus people can develop items effectively under the normal circumstances. Along with
this, it can be utilized on the basis of target and additionally can be created with
assistance of historical information. It is always different from actual price, at each and
every circumstances will be linked with unpredictable elements. There are two methods
of this costing, such as LIFO and FIFO.
 Types of standard costing:
 Ideal standards:Cost settled those depend on perfect conditions. It is illustrative for long
haul objectives with greatest effectiveness.
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 Attainable standards:It is connected with organization condition that what can be
achieved through the current conditions.
 Current standards: These are here and now in nature and for the most part utilized for
control reason. It is for the most part related with that state which business is by and by
working or binds to accomplish.
 Advantages:
 Standard are set keeping in mind the end goal to gave standard against which real
expenses are identified with find out real execution.
 It helps to break down differences that are help to a person out wastefulness and moved
those people those are responsible for antagonistic fluctuations.
 Disadvantages:
 If there should be an occurrence of little concern it can not be pertinent on the grounds
that it require high level of aptitudes.
 Types of variances:
 Direct material variance: It is the connection among real cost of material at real units
and standard cost of material of standard units. It is total of material cost and material
amount.
 Labour variance: It is connected with the cost of work. It is contrasts among standard
costing of work for the real human activity and the genuine cost caused on work.
 Overhead variances: This is the variance which is related to the indirect costs that are
linked with production of the company.
 Sales variance: This is the sales variance that are related to the actual sales and standard
sales.
Following are some of essentials of management accounting systems:
 Decision making: Decisions are made by upper level or strategic level management for
welfare of the whole company. Internal management use these information systems in
taking decisions regarding business activities. These decisions are made to control costs
of organisation and control extra expenses involved in manufacturing process. Make or
buy decisions are also made by using these systems.
 Planning: Effective and appropriate strategies and plans are made by company after
considering these information tools. These strategies are regarding monitoring costs and
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maximising revenues of enterprise. These are used for achieving long term goals of
company.
 Increment in Efficiency: These information systems are used by company to control and
monitor routine activities and enhancing efficiency of the firm. After determining the
cost, efficient decisions are formulated in relation to the managing costs and enhancing
productivity of the organisation and attaining firms’ goals of optimizing revenues and
satisfying consumers. These accounting systems renders information to managers that
reflects financial stability of the cited firm.
P2
Mostly organizations require the management accountant to produce profit/loss or
income statement. One of company is 4com PLC which hold a small business. Accounting
reports shows all kind of information data related to business (Garrison, and et. al, 2010). These
reports are made by 4com PLC company’s accountant or internal management system. A
monthly management account's report not only show income statement but also reveal many
kinds of other information. 4Com PLC company's Reports can be generated monthly, quarterly
or yearly. 4Com PLC Company's revenue can be seen by account manager. These reports consist
different kind of data, reports and figures of organization which help to growth 4com PLC
company's business.
These reports of 4com PLC company also help the manager to see company's
performance and making affective strategies for organization. These can help in controlling cost
and achieving goals as well. Budget reports, variance analysis report, performance reports, job
costing reports, inventory control reports are reports which analyse 4com PLC company's
performance. This work is done by 4com PLC company's manager. following details are in brief:
-
 Budget report: - Budget reports are prepared by 4com PLC company's manager to see
actual performance of company. Manager compares actual performance of 4com PLC
company to the expected target achieved by 4com PLC. Employees achieve incentives
through budget report which is managed by managers of 4com PLC. This help the
manager to see the performance of 4com PLC company and controlling cost. 4com PLC
Company's maximising profit is another target of company's manager.
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 Variance Analysis Report: - This Is different from budget report for 4com PLC.
Company's manager analyse and compare actual sales and budgeted sales of the company
by this report Company's manager compares expected data with actual data and evaluates
it through statistical tools, in this analytical report. It helps in finding fluctuation of
company's growth and reasons for the same so as to remove them. There are many type
of variances like sales mix, sales price variance etc.
 Performance report: - This report is based on 4com PLC company's performance. These
measures operation and then performance of company. Generally, government body
prepares 4com PLC company's performance reports.
 Job costing report: - 4com PLC company's manager prepare these reports. 4Com PLC
Company's manager controls cost involvement in a particular job in this report. These
reports show cost allocation to every work. Many strategies and plan works to minimise
cost and maximise profits. These reports are used to make strategies to minimise cost of
distributing the products.
 Inventory Control Report: - These reports control stock position of 4com PLC
company. These reports show that how much stock has been sold and how much is
available for 4com PLC company. There are several methods like LIFO, FIFO etc,
methods of stock managements. Management of inventory is considered in this report. So
this very useful report. LIFO, FIFO methods follows Last In First Out and First in First
Out policy respectively. These are best policies are for 4com PLC company.
Financial strategies should be known for 4com PLC's manager. A balance sheet
is a picture of company's asset at a single point oftime (Herzig and et. al, 2012). The growth of
company can be mentioned in balance sheet or in management report. Every company has
different way to work in market. Strategies are also different. Account management reporting
work save more time and keep manage to all the things like budget of company cost, need of
employees, market strategies etc.
There are many challenges during management reporting. Reports can be complex, time
consuming etc. Manual nature of such kind of report is another problem of 4com PLC company.
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M1:
According to the above mentioned accounting system which is more appropriate for the
company to manage and control their business operations. The advantages of this system would
help the cited company's to increase its productive and efficiency.
D1:
From the above accounting systems used by the company in order to maintain its
financial reporting and transaction. The overall financial stability and performance of the
company is depend upon the accounting system they are using in their businesses.
P3
The process of giving the customers some kind of products and then there would be
various cost provisions which will be considered as incurred and will have to be presented by
this company. There is requirement of an identification of proper measures that will have to be
taken into control (Li, X., and et. al, 2012). Those purpose basically consist of two methods
which can be best suited for the different situation that arises every now and then. According to
the company policies and its best possible outcomes certain policies are applied by them which
are described as follows:
Absorption costing: Under this costing method, all the manufacturing costs are to be
considered. Whether it was related to fixed cost that are related to the producing the product. All
costs are apportioned.
Using absorption costing Quarter 1
UNITS £/UNITS £ £
SALES 66000 1 66000
Cost of goods sold
Opening inventory 0 0.85 0
Production 78000 0.85 66300
Less closing inventory -12000 0.85 -10200 -56100
Gross profit 9900
Less: other expenses
6

Selling and administration costs -5200
Net profit 4700
under/ over absorption -2800
Reconcile profit 1900
Quarter 2
UNITS £/ UNITS £ £
74000 1 74000
12000 0.85 10200
66000 0.85 56100
-4000 0.85 -3400 -62900
11100
-5200
5900
-1200
Reconciled
profits 4700
Working notes for calculating under and over absorption:
Quarter 1 Quarter 2
Total fixed costs 16000 16000
Fixed costs absorbed 66000*0.20 13200 74000*0.20 14800
-2800 -1200
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Marginal costing: This is a method which is having a fixed cost and not to be processed of
while determination of the contribution. This is known as marginal shift as it has seen a variable
aspect which are to be considered by the profit that has been made through it. It is directly
affected and causes great change as per unit effect. Main benefits of this type of variance in
connection to cost per unit will be eliminated and maximum profit can be seen in the revenue to
be achieved.
Using marginal costing Quarter 1
UNITS £/UNITS £ £
SALES 66000 1 66000
Cost of sales
Opening inventory 0 0.65 0
Production 78000 0.65 50700
Less closing inventory -12000 0.65 -7800 -42900
Contribution 23100
Less: other expenses
Fixed costs -16000
Selling and administration -5200
Net profit 1900
Quarter 2
UNITS £/ UNITS £ £
74000 1 74000
12000 0.65 7800
66000 0.65 42900
-4000 0.65 -2600 -42800
25900
8

-5200
4700
9

M2:
There are various range of accounting system can a company do have which they can
apply it in their business operations. Such as inventory management system and job costing
systems are more effective in evaluating the performance of the businesses.
D2:
As it was mentioned under the above scenario that company do have the option of both
absorption and marginal costing which can be use to evaluated the profitability of the company.
The one which provide more relevant results should be selected.
P4
Budgetary control is simply used to monitor and control costs of company and operations
also for any particular accounting year (Lukka and Modell, 2011). This procedure is undertaken
by an organisation to decide their goals and targets, after that various plans and strategies are
made to enhance performance of company and get actual results same as budgeted data.
Functions and operations are performed by a company in such manner that decided results can be
attained. This technique is used by internal management of any company so that wanted results
can be got and then actual data is compared with budgeted data and variances are found. After
that company takes reasonable steps to remove these differences. Following are some purposes
and objectives of budgetary control:Its main objective is to make coordination between all
resources available so the internal management which can utilise them properly.
 To maintain standard in such manner that is required for all control systems.
 Maintaining the costs and control as well as minimise them.
 Provide guidelines and right path to manage all functions and operations of organisation.
Advantages:
Increased Efficiency: This technique of budgetary control is useful in increasing
efficiency of employees in any organisation. It is possible because it provides a path to all the
workers that what is to be done and how it is to be done. If efficiency will be increased then it
will automatically generate high profits for organisation.