Management Accounting Report: Systems, Costs, and Budgeting at Agmet

This report provides a comprehensive analysis of Agmet Ltd's management accounting practices. It begins with an introduction to management accounting and its various types, including cost accounting, price optimization, inventory management, and job costing systems. The report then delves into management accounting reporting, covering performance reporting, inventory management reporting, job cost reporting, and account receivable reporting. The core of the report focuses on cost calculation techniques, specifically marginal costing and absorption costing, providing detailed calculations. Furthermore, the report examines budgetary control, outlining different planning tools and their advantages and disadvantages. The report also explores how management accounting systems respond to financial problems and contribute to an organization's sustainable success. The report concludes with a summary of the key findings and recommendations for Agmet Ltd's financial management strategies.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and its types of management accounting systems........................1
P2. Management accounting reporting and its types..................................................................2
M1: Evaluate the benefits of management accounting system and its applications...................4
D1. Management accounting system and its reporting within organisation process..................4
TASK 2............................................................................................................................................5
P3: Calculation of cost using an appropriate technique..............................................................5
M2: Various types of accounting techniques and financial reporting documents......................6
TASK 3............................................................................................................................................7
P4: Budgetary control and different types of planning tool and their advantages and
disadvantages used in budgetary control.....................................................................................7
M3: Uses and applications of planning tools for preparing and forecasting budgets.................9
TASK 4..........................................................................................................................................10
P5: Responses of management accounting system to deal with financial problems................10
M4: Management accounting can lead organisation to sustainable success in responding to
financial problems.....................................................................................................................12
D3: Planning tools respond appropriately to resolve financial problems.................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a process of providing all the internal data to stakeholders of
the company. It helps in preparing several managements reports which determine the amount of
cash, incomes, expenses, outstanding payments and accrued gains etc. of the company.
Management accounting assist in evaluating accurate financial data to the management which is
necessary for company's operations. Agmet Ltd is a leading recycler and manufacturer which is
located in Reading, UK. It provides innovative and high quality chemicals products to customers.
In this report, company follows essential management accounting systems and reporting
methods which helps in creating accurate reports. Company determine cost and net profit of its
product using appropriate techniques. Its also analysis various budgetary control planning
techniques and identify accounting systems to respond to financial problems.
TASK 1
P1. Management accounting and its types of management accounting systems
Management accounting is an approach of identification, measurement, collection,
interpretation and communication of financial data that is used by management in planning,
controlling it's operations. The aim of management accounting is to aid company in making
effective qualitative decisions. Management accounting system refer to internal system which a
company uses to measure and evaluate it's processes or activities. Agmet Ltd uses several
management accounting system which help in determining it's accurate information to internal
and external stakeholders. These systems assist in making plans and policies which increase
company's performance and profitability. Cost accounting, price optimisation, inventory
management and job costing systems are the different types of management accounting that
Agmet Ltd follow (Agrawal and Cooper, 2017). These systems are described below:
Cost Accounting System: This system refers to accumulated cost of raw material that a
manufacturer use in its production activities. These material processed through several
production stages like raw material, work in progress, finished goods in a particular time period.
So, this system is an essential for Agmet Ltd to evaluate accurate cost of its product that is
important for efficient delivery to manufacturing plants. Company measures and details the cost
of product i.e. chemicals separately then compare actual outcomes with standard and input
results with outputs. By this comparison managers of Agmet Ltd get actual data that helps in
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evaluating its cost accounting strategies. With the aid of this strategies manager track the inside
cost of product for a particular project and record cost of each activities at all levels of
production.
Price Optimisation System: This system helps in determining the proper price of
product or services. This system works as calculating the demand of product at different price
levels. Price optimisation system help organisation in determining their initial pricing i.e. product
secure base for long run, promotional pricing like setting temporary prices of product to increase
its sales and discounting pricing such as selling product according to trends. Agmet Ltd uses this
system as a pricing strategy for finding that optimum price of product which a customer is
willing to pay. The basis requirement of using this system to analyse the perception of customer
regarding the product offer by the company.(Anderson and Dekker, 2014).
Inventory Management System: This system used to track inflow and outflow of
inventory at different stages of production. It also helps in managing overall information of
inventory in process, warehouse or it market. FIFO, LIFO and weighted average are the methods
of inventory valuation. Agmet Ltd use inventory management system for monitoring,
controlling, directing the flow of product in the operations. It also identify chemicals stock in
process and its availability in the storage. This minimizes the risk of improper inventory
management in the company by controlling and managing the product demand in future.
Job cost System: This system identify the manufacturing costs of product at various job
levels. In this system accountant can track each job by maintaining information which is often
related to company's operations. This system is used in situation where every job is different and
is performed according to the customer's specification. Agmet Ltd is dealing in manufacturing
chemicals and supply it's products to clients. Therefore company deal in two different jobs and
follow process costing system to determine the costs and revenues of its product used in different
levels of job. This system helps in evaluating its actual cost and performance involved in each
jobs i.e. manufacturing and distributing.
P2. Management accounting reporting and its types
Management accounting reporting is an important method of collecting information
through company's accounting records. This details helps in preparing effective management
accounting reports. These reports display fair information that are useful for its managers and
stakeholders. Reports are very clear and easy to understand for stakeholders such as customer
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and investors. Agmet Ltd prepares several types of management accounting reports like
performance, inventory management, job costing and account receivable reports for determining
and maintaining its financial position in future also (Bennett and James, 2017). The different
types of management accounting reporting are explained below:
Performance Reporting: This reporting method used to evaluate regular performance of
the company on the basis of collection and distribution of project data, communication of
information or progresses to stakeholders. This reporting system includes a summary of past
performance, modification in reporting period, any risks in present status etc. Agmet Ltd use
performance reporting method for comparing its actual performance with past. It also evaluate
the variation in production and distribution of its current performance with standard.
Performance reporting aid in future growth of company within various departments. On the basis
of this reporting, company define certain rules and regulations for managers at various level.
These rules helps in determining errors and resolve it on time which is important for improving
company's performance.
Inventory Management Reporting: This reporting technique refers to status, analyse
and integration of inventory at different level of production and distribution. This report includes
analysing and reviewing information about the inventory. Agmet Ltd use inventory management
reporting to determine chemicals status by location, time period etc. It also analyse report to
evaluate product demand, profitability, turnover etc. and review the variance between product
information and accounting information. This reports give accurate information about company's
inventory which helps manager in dealing with over or out of stock situations. It also helps in
creating effective reports (Bennett and James, 2017).
Job Cost reporting: This reporting method shows a lists of each job in which company
works and the total cost incurred on the job in the previous period. Job costs like material, labour
cost, overhead etc. which can be directly related to a job are appears in this report. Agmet Ltd
use job cost reporting for identifying issues such as excess of expenses in manufacturing process
relevant to current job. It ignores this issues in future by minimizing excesses of spending which
helps in generating revenues.
Account Receivable Reporting: This report shows due amount on customers that a
company recovers within a specific time period. This report consist of both summarized and
detailed list of customer's previous and present due invoices, debit memos, cash amounts and on
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account credits etc. This report is also known as aging report because it determine the age of
certain items. Agmet Ltd use account receivable reporting method that assist in identifying the
list of unpaid customers invoice, average collection period and credit customers. With the help of
this report company will try to recover its due amount frequently and minimize the list of
creditors. It also maximize its average collection period which helps company to increase
chemicals sells (Ding, Dekker and Groot, 2013).
M1: Evaluate the benefits of management accounting system and its applications
Management accounting system Benefits
Cost accounting system  It reduces the cost of manufacturing
and give accurate detail to manager.
 It is a favourable system of accounting
that control over expenditures.
Price optimisation system  It aid in attracting both existing and
new customers.
 Agmet Ltd profitability increases that
encourages competition.
Inventory management system  It analyse and evaluate issue as it
occurs with better utilisation of
company's resources.
 It ensure Agmet Ltd in an adequate
distribution of chemicals.
Job costing system  Its highlights whether the job is
profitable or not
 cost of individual job displays
separately in this system.
D1. Management accounting system and its reporting within organisation process
Management accounting system and its reporting methods assist Agmet Ltd in improving
its performance which leads to maximization of profit. Company follow cost accounting system
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for determining exact cost of product at the time of manufacturing. It set a price strategies under
prime optimisation system in order to target more customers by increasing its product demand.
Agmet Ltd follow inventory management system and reporting to balance its inflow and outflow
of inventory. Its also works under two job like manufacturer and distributors of chemicals so,
they follow process job costing system for identifying individual job costs and revenues.
Account receivable reporting helps in determining average collection period. Above these
systems helps Agmet Ltd in preparing their reporting techniques more effective.
TASK 2
P3: Calculation of cost using an appropriate technique
Cost: It is monetary value which is used in creating a product, need in running an
organisation or execute its operations. It is an amount that buyer pays to seller for buying a
particular product. Agmet Ltd want to set a right cost for its product which is increasing
customer's purchasing power. Here right cost refers to that cost which is bearable by both
company and customers (Dalla Via, 2012).
Marginal costing: It is a cost of additional unit which is added to the production. Agmet
Ltd use marginal costing technique for determining variable cost that charge to extra level of
production. It assist in profit planning, cost control and managerial decision making.
Absorption costing: This method is used to absorbed all the cost which are incurred in
the production when same product is sold. This technique is used by Agmet Ltd in determining
the budgeted cost which involved in manufacturing process.
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 320
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
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Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: This analysis determine the relationship between sales revenues,
variable and fixed expenses as to evaluate the minimum unit at which production can be
profitable. Agmet Ltd identify break even analysis to determine its BEP where company is in
state of no profit or loss (Ji, 2017).
A. Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
C. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of Safety: It is a situation where product is buy by buyer only when its market
value is less than inner value. It is an excess of standard sales over break even sales volume. It is
also calculated by dividing profit by P/V ratio. Agmet Ltd identify its marginal of safety for
evaluating its sales level before business reaches to its break even point (Lee and Cobia, 2013).
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M2: Various types of accounting techniques and financial reporting documents
Techniques of managerial accounting are used by Agmet Ltd for short and long project
decision making and it also help to record operational measurement in a company. Concepts like
standard costing are used for controlling cost and it shows the difference between actual and
expected cost, marginal costing is use to find additional cost spent over production of additional
unit of output and historical costing that provide past data for each type of cost so that
comparison may be easy and will benefit in cost control.
D2: Data interpretation
Resulted from the above calculation it is easy to say that marginal costing method will
provide more benefit to Agmet Ltd as compared to an other method. As, profit generated from
marginal costing approach is about £17500 and from absorption costing method it is £15675. It is
clear from the result that marginal costing approach give £1825 amount more as a result.
Acording to break even analysis, if Agmet Ltd sell 500units at £40 per unit it will be generating
sales revenue of £20000 to reach break even. If company wants to earn desired profit of £10000
they have to swll 1333.33 units. Similarly, if company is willing to sell 800 units the margin of
safety is 37.5%.
TASK 3
P4: Budgetary control and different types of planning tool and their advantages and
disadvantages used in budgetary control.
Budgetary control: This system of management refer to how well their manager uilize
past or present result to monitor and control its existing cost and operation in an accounting
peorid to maximise their future profit. Agmet Ltd is a producer and distributor of various
chemical, so their management must set predefined financial and performance goals with
budgets, compare those actual result, and adjust performance of their company if needed. If
management of Agmet Ltd is able to have a proper budgetary control then it will be advantage
company in many ways like proper co-ordination, important tool to measure performance,
maximisation of profit, economic growth, help to reduce production cost etc. (Maskell, Baggaley
and Grasso, 2016).
Management of Agmet Ltd take following steps in budgetary control process. First, they
set performance budget/goals that management wants to achieve like production or sales goals.
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Second they compare and interpret the actual performance result with the budgeted goals. Third,
after comparison if there is any need manages of company needs to improve their, under
performing operation and give more strength to the favourable one. These reposts help
management to focus more on unfavourable operation and improve them as soon as possible to
gain more profit. At the last, manager of Agmet Ltd take final steps at the end of an accounting
period, they start making plans for the next year. So in budgetary control company uses three
planning tools that are explained below:
Forecasting tools: This is a process or an attempt to predict future outcomes based on
past events and management insight. Management of Agmet Ltd uses this tool in decision
making that help in budgeting, planning and estimating future growth. It help them to cope with
the uncertainty of the future, mainly depending on data collected from past and present result.
some of the common techniques of forecasting are Box-Jenkins model, Delphi method,
exponential smoothing, moving averages, regression analysis and trends projection (Forecasting
tool, 2018).
Advantages Disadvantages
 It help to give a general idea to Agmet
Ltd Manager about market condition
and trends.
 It ensure the best utilization of
resources by revelling the areas of
weakness of there resources.
 It is not possible for a company to
accurately forecast the future as
business can come up with different
scenarios.
 Sometime data are old so it produces
forecasts that leg behind the actual
trends that result in decrease in
demands of product.
Contingency tools: It is a process in which actual response system are placed in order to
prevent or better response to any kind or emergency or uncertainty happen to Agmet Ltd that
can effect their business and decrease profit. Manager involve following step like, objective and
scenarios are identified, priorities and goals are set,task and activities are determined to achieve
those goals, proper allocating of resources and responsibilities are done and product is develop. It
is associated with risk management process for developing back up plans it work as a “plan B”
for any company (Ogata and Spraakman, 2013).
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Advantages Disadvantages
 It is a significant tool as it predict
future and help to develop Plan B in
case of any emergency.
 Prediction of future help to overcome
any irrelevant events so it led to
increase in profit for Agmet Ltd .
 Uncertainness may be of any kind so it
is not possible to predict all
contingency.
 It led to improper utilization of
resources in many situation.
Scenario tools: It is a process of analysing possible future events by considering various
alternative possible result. It helps management of Agmet Ltd in making assumption on what the
future is going to look like and how their business will change overtime regarding of that future.
It is basically the practice of creating different courses of action for a business to implements
based on expected events and situation. Managers uses scenario tool to identify a special set of
uncertainties that might happen in future and effect their business (Proctor, 2012).
Advantages Disadvantages
 It helps managers Agmet Ltd to
identify various uncertainties ans
separate them for certainties.
 It help the management to expand their
thinking and allows them to develop a
ranges of possible outcomes.
 It is a time consuming process and
management is not able to focus on
other factors.
 Sometime there are incorrect
assumption and correlation as scenario
are based upon past event that might
have changed now.
M3: Uses and applications of planning tools for preparing and forecasting budgets
Agmet Ltd uses budgetary control to develop an effective system for management in
order to determine any risk and uncertainties that might occur in future and effect their business.
So their management uses various important tools for budgetary control like forecasting tool that
help them in predicting future depending upon their past activities plus their current position,
contingency and scenario tools which help them to develop “Plan B” and make them prepare to
defeat any possible uncertainty that could effect performance and result in decrease of
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profitability of the company. Planning is a must for any company to grow and proper uses of
these tools in planning help Agmet Ltd to predict future and overcome uncertain events.
TASK 4
P5: Responses of management accounting system to deal with financial problems
Financial problems may be defined, a situation where company is not in a condition to
pay its outstanding bills, provides salaries to their employees or sells off its assets to raise fund to
run their business. Agmet Ltd also faces problem of financing due to following factors like lack
of money management, more number of credit customer, late recovery of funds etc. therefore
Manger of Agmet Ltd must have a unique approach to resolve its financial problem and follow
proper guideline in utilizing their resources and available fund (Schaltegger and Burritt, 2017).
Lack of budgeting and money management skills: management of Agmet Ltd faces
problem of funds and money to run their business because the lack the skill how to manage their
existing resources and funds.
Sales are good but profit are low: Major factor for Agmet Ltd financial problem is not
generating high profit. As a result company is making sufficient sales but not maximising their
income because there are various hidden cost which were not recognise by the management.
Improper book keeping habits: small business like Agmet Ltd are usually bad record
keeper , they do not have a proper record of all their expenses and income.
Paying bills late: late payment of outstanding bills may led to financial problem in
Agmet Ltd as there liability keeps on increasing and effect their profit.
More spending on promotion and coupons: regular promotion in order to increase sales
for their product Agmet Ltd spend huge amount on their profit that led to a financial problem.
These problem of finance must be properly examine and solved by Agmet Ltd
management, that will increase their marketplace. To solve these problem following tools are
adopted by Agmet Ltd :
Key Performance Indicators (KPI):- Agmet Ltd uses this tool to resolve its financial
problem, as it help the management to set predefined quantitative measure and examine there
performance in a period of time. It is also referred as key success indicator that help a company
to compare its financial position and performance against other companies within the same
industry. These may differ from organisation to organisation based on business priorities. KPI
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