Management Accounting Analysis: Advance Construction Group Ltd Report

This report provides a comprehensive overview of management accounting, focusing on its application within Advance Construction Group Ltd. It begins by defining management accounting and outlining the essential requirements of different systems, including traditional and lean accounting approaches. The report then delves into various management accounting reporting methods, such as job cost reports, sales reports, inventory reports, and performance reports. A key section of the report focuses on cost calculation using absorption and marginal costing techniques, providing a statement of income analysis. Furthermore, the report evaluates the advantages and disadvantages of planning tools used in budgetary control within the context of the construction company. Finally, it compares organizational strategies for adapting management accounting systems to address financial problems, concluding with a summary of the key findings and references.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ..........................................................................................................................................4
P1 Management accounting and essential requirements of different types of systems of
management accounting..............................................................................................................4
P2 Different methods for management accounting reporting.....................................................6
TASK 2............................................................................................................................................8
P3 Calculation of cost using absorption and marginal cost techniques......................................8
TASK 3..........................................................................................................................................12
P4 Advantages and disadvantages of planning tools used in budgetary control in case of
Advance Construction Group Ltd.............................................................................................12
TASK 4..........................................................................................................................................14
P5 Comparison between organisation for adapting management accounting system to respond
financial problems.....................................................................................................................14
CONCLUSION .............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting can be defined as the process by which mentioned entities can
analyse statements of finance and management which helps in giving detailed description of the
financial position of the entity, which may be required by various stakeholders of the entity. It is
basically a profession which involves assisting in administration decision making, planning and
systems for management of performance, and giving support in financial report and control so as
to assist administration in strategy implementation and formulation (Fullerton, Kennedy and
Widener, 2014). Managers use this accounting provisions for getting information before taking
decisions in the organisation, which helps in the performance and management of functions. This
report is based on the case study of Advance Construction Group Ltd is a construction company
in Scotland, it carries out business of civil engineering and dynamic groundwork. It has a good
reputation in industry which provides excellent workforce. In this report a detailed description is
given on management accounting and necessary requirement of different systems of
management accounting is given. This study will help in providing various methods of
management accounting, advantages and disadvantages of budgetary control planning tools.
Reports which are prepared on the basis of management accounting helps in showing what
amount is available with entity and also the profit which is generated from sales.
TASK 1
P1 Management accounting and essential requirements of different types of systems of
management accounting
Management accounting can be defined as the analysis, sourcing, use and communication
of various decisions which are related with the financial as well as non financial information so
as to preserve and generate value value for entity. It combines finance, accounting, and
administration with the skills and techniques of business which will be needed to add value in
any entity (Talha, Raja and Seetharaman, 2010). Management accounting work in the entire
business and not just in giving advise to managers, finance and implications of important
decisions, formulation of strategy of business and in risk monitoring. It uses all kinds of
information and not just related to finance so as to lead mentioned entity towards success.
Marginal costing and absorption are some of the tools and techniques of cost accounting by

which mentioned entity prepare efficient and effective strategies for the maintenance of
productivity.
There are various systems of management accounting which are very helpful in
development of Advance Construction Group Ltd. Management accounting helps in reducing
expenses of various operations . It is used by owners of business for reviewing cost of operations
of business and economic resources which are used by the entity. It helps in better understanding
of how much money will be required to run business (Hiebl, 2014). It can also be used to
conduct several analyses on resource quality which are used for the production. Management
accounting system helps in improving cash flow, as budget is the important part of it. Business
owners generally use budget so that the full analysis of financial map will be there for the
expenses of business in future. It helps in creating master budget for the company and will help
in careful analysis of useful and not so useful expenses. It helps in taking several business
decision based on analysis of quality and quantity and many more. It will also help in increasing
financial returns. Management accounting can prepare forecast report related to finance for
customer demands, sales. It can be used by the business owners so as to make sure how much
amount of goods and services should be produced to satisfy customer (Dillard and Roslender,
2011).
There is an essential requirements of management accounting system for various purpose.
These essential requirements can be like : Traditional Management Accounting: This type of management accounting system is
necessary as it focuses on cost as a means of job order and ways of process costing. With
the help of this method, Advance Construction Group Ltd will be able to allocate several
types of cost which is related to labour, material and manufacturing. Traditional
management accounting system is very helpful and necessary for entity. Technique of job
order costing is used in construction industry that has large projects. So in such cases
several types of cost are easy to trace and mentioned entity can allocate them easily in the
respective project. Techniques of process costing helps in allocating cost to several
processes (Contrafatto and Burns, 2013).
 Lean Accounting: Lean accounting is the term used in the cited entity for the
requirement of changes related to control, accounting, management and measurement to
support lean thinking and manufacturing. It is revolutionary because it not only

concentrate on cost , but also gives support in making strategy to control or reduce the
management cost. With the help of lean accounting, accountant of management can make
several strategies in regards with reduction of cost and such strategies can be
implemented for Advance Construction Group Ltd benefit. By this manager of personnel
management can take necessary decisions.
There are various examples of management accounting system which can be explained as
follows: Cost accounting system: It is the type of structure which is used in Advance construction
group, so that cost estimation of the product can be made which will help in determining
control cost, profit and inventory. Entity should be aware of the various products that are
non-profitable or profitable, and it can only be possible if there will correct estimation of
product cost which is offered by firm. Job costing system: This type of system is helpful when there are different types of job.
In job costing there is the involvement of direct as well as indirect costs. It is helpful in
finding out the information which is in relation with the production and job cost. Batch costing system: It is a kind of particular order costing system, and have similarity
with the job costing. In every batch there are different identical units but each is different
from each other. Inventory management system: It is the kind of ongoing process which is involved with
moving parts and product in and outside of the company's current location. Whenever
there is a completion of new order regarding any product, firm manages its inventory
with the help of inventory management system. It can also be defined as the type of
software which helps in the proper administration of the stock or inventory.
 Price optimisation system: This system is helpful in demand variations at different level
and then makes combination of data with the cost and inventory level in order to suggest
price which helps to improve profits.
P2 Different methods for management accounting reporting
Management accounting reporting is very necessary for the development of Advance
Construction Group Ltd. There are number of methods which are used for the management
accounting reporting which will help in the development an growth of the entity. It helps in
making several reports , strategies, plans which are necessary for the business to carry out its

activities in a proper and organised way. Several methods and techniques which are used for
management accounting reporting in Advance Construction Group Ltd are mentioned below : Job cost report: Job costing report can be defined as the process of allocating and coding
expenses of the project which are needed to track profitability and financial efficiency. It
is basically a mission critical activity. There are various kinds of expenses which are
included in a particular project at different stages. Therefore, it is very necessary to make
proper allocation of the expenses related to the project. Sales report: The proper record of the calls which are made and the products which are
sold by the company in a particular time is defined in the sales report. This kind of report
gives the overall view of the company sales. A typical sales report may include data
based on sales volume, current and new accounts which are contacted and their time and
cost which are involved in selling and promoting products. Inventory report: An inventory report can be defined as the summary of the items which
belongs to a business, organisation or industry. It supports in providing comprehensive
account of stock or supply of different items. This report can be presented in different
lengths and forms. A good inventory report should be simple, exhaustive and clear. Account receivable report: This report give detailed list of the balance due from the
subscription of the individuals. It includes all the debtors whose amounts are due on an
organisation. This report is helpful in analysing customer credit worthiness and
receivables, and also supports in forecasting collection of the customer's payments.
 Performance report: It is an important activity helpful in project communication
management. It includes disseminating and collecting information of the project, resource
utilization, forecasting of future progress, communicating progress of project and
different stakeholders' status as per the plan of communication management.
M1
System and application of management accounting is very helpful in Advance
Construction Group Ltd for its development and proper management of accounting reports.
Management accounting is the process of making reports and accounts of management which
helps in providing timely and accurate information regarding finance and statistics. Systems of
management accounting helps in making long term and short term decisions. Systems of
management accounting has become an integral part of entity. It helps in determining aim and

giving better services to customers. It increase efficiency of business, taking judgement will also
be easy, provides effective management control and maximize profits (Ward, 2012).
D1
According to Van Helden and et. al., (2010) , system of management accounting is vital
and provides effective management control. It increases the business efficiency and helps in the
measurement of performance. On the other hand Vaivioand Sirén, (2010), says that management
accounting reporting is another important factor which helps in significant planning related to
finance and other major resources used in various activities. Management accounting reporting
and systems both play important part in development of Advance Construction Group Ltd. As
per the view of Jansen, (2011) management accounting system and reporting helps in making
statements of fund flow and cash flow. This is very helpful for the entity in successful growth.
TASK 2
P3 Calculation of cost using absorption and marginal cost techniques
Calculation of net profit can be done with the help of several techniques in management
accounting. Net profit of Advance Construction Group Ltd as per the marginal costing and
absorption costing is given below:
 Absorption Costing : Absorption costing can be defined as the management accounting
technique by which several cost which are in relation with various type of production
process that are implemented on a product. This method is also required for the
evaluation of inventory of mentioned entity. Forecasting is the important element used in
management accounting (Shah, Malik and Malik, 2011). All expenses are carried on a
specific basis therefore when there is actual occurrence of expenses, on that time it is
possible that the expense of the budget may get different from actual budget. With the
help of absorption costing, under and over absorption can be managed.
Statement of income according to absorption cost :
£ £
Sales 700 x 35 21,000
Less: Cost of Production 16 x 700 11,200
Less: Closing stock 16 x 100 (1,600)

9,600
Less: Over- absorption of fixed production
overhead
(100)(W3)
Production cost of sale 9,500
Gross Profit 11,500
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Administration cost 700
Selling cost 600 1,900
Profit 9,600
 Marginal Costing : Principles of marginal costing are used for the decision making in
entity for short term. At various level of activities, marginal costing can be for the level in
which generation of contribution is there. In different words, marginal cost can be said as
change in opportunity cost which change because of change in production. There is a
change in opportunity cost because of increase in production cost (Jansen, 2011).
Statement of income as per marginal costing:
£ £
Sales 700 x 35 21,000
Cost of Production 13 (W2)x 700 9,100
Less: Closing stock 13(W2) x 100 (1,300)
Variable cost of sale 7,800
Contribution 13,200
Less: Variable sales overhead 1 x600 600
Less: Fixed Costs; Production overhead 2,000
Administration cost 700
Selling cost 600 3,900
Profit 9,300

Working notes:
W1
Fixed Production overhead absorption rate (OAR)= £1,800/600 =
£3 per unit
W2
Calculation of cost of production:
Marginal Absorption
Direct material 6 6
Direct labour 5 5
Variable overhead 2 2
Fixed production overhead 0 3
Cost of production per unit 13 16
W3
Adjustment for over or under absorption of overheads
Actual production overhead £2,000
Absorbed production overhead (700 x 3) £2,100
£100
The following information are also given in the question
Selling price £35
Direct materials £6
Direct Labour £5
Variable Production overhead £ 2
Actual production for the month 700 units
Actual sales for the month 600 units
Closing stock for the month 100 units
Difference between absorption and marginal costing:
 In marginal costing, difference cost which is related with productivity are apportioned
whereas in absorption costing all type of costs are carried out on a particular basis.

 Product cost includes variable cost in marginal costing whereas absorption costing
includes both fixed and variable cost (Shah, Malik and Malik, 2011).
 Overheads are divided in variable and fixed in marginal costing and in absorption costing
overheads are divided in administration, production and distribution and selling.
M2
Advance Construction Group Ltd can use techniques of management accounting so as to
improve financial growth in market. The construction industry have approx 50 employees and
there turnover is £500, 000. So to increase their turnover they can use some functions to enhance
their performance. Some of the techniques are:
Absorption technique: This technique is used by entity for calculating their overall
expense. With the help of this they will be able to make income statements so that there will be
overall management of account (Renz, 2016). Advance Construction Group Ltd total fixed
production is £200 and total gross profit is £9800. On the basis of it they will assess their growth
in financial terms so that success can be achieved in market.
Cost volume profit technique: With the help of this approach, Advance Construction
Group Ltd can analyse their overall cost so as to identify their profit level. This will give benefit
to the construction industry, because of this they will be able to make growth.
D2
Entities are doing their business and performing business operations in the environment
of business so as to improve their growth (Pipan and Czarniawska, 2010). Here, Advance
Construction Group Ltd can use several techniques and methods so as to calculate their financial
data. With the help of these all expenses of the entity can be identified to make growth and
success. According to the method of marginal costing , net profit is 7500. By this effective
strategies can be made by business.

TASK 3
P4 Advantages and disadvantages of planning tools used in budgetary control in case of
Advance Construction Group Ltd
There are two types of control in budgets used in the entity which is budgetary control
and financial control in management accounting. Budget can be defined as the quantitative
expression of financial plan for a specific period of time. In budget volume of planned sales,
resource quantities, expenses and costs, liabilities, assets and cash flows are included. It defines
plans related to strategies of business, organisation, events and activities. Budgetary control is
the process by which planned results are compared with actual results (Setthasakko, 2010). It is a
system by which cost are controlled and it includes coordination with departments, budget
preparation, establishment of responsibilities, comparison of actual performance with budgeted
one and to take action on results for achieving profitability. With the help of these analysis ,
several differences can be controlled effectively and easily . There are number of budgetary tools
, which are mentioned below : Master Budget: Master budget can be defined as the projection of how administration
expects to conduct every aspect of business in the budgeted period. It gives summary of
projected activities with the help of cash budget , income statements and balance sheet.
Many master budgets include interrelated budgets from various departments (Sánchez-
Rodríguez and Spraakman, 2012). Operational Budget: Operational budget covers expenses and revenues of daily business
activities in entity. Revenue can be defined as the profit whereas expenses can be defined
as the cost. If the budgeting is done on annual basis operating budgets are broken into
periods of small reporting whether monthly or weekly. Cash Flow Budget: Budgets related to cash flow analyse outflow and inflow of cash
regarding daily activities of business. It analyse the ability of the company to take more
money in than it pays out. Cash flow budget is being monitored to examine shortfall
between sales and expenses. It also suggests storage levels and production cycle. Financial Budget: It is helpful for a business make report regarding receiving and
expenditure of money on business scale, which may include revenues from business and
cost and income of capital expenditure. It helps in managing assets such as building,
investment, property, equipments etc (Macintosh and Quattrone, 2010).

 Static Budget: Static budget contain several elements which are not changed with
variation in level of sales. Example of static budget is the overhead cost. Various
department have fixed money in budget which needs to be spend, and it is the duty of
manager to ensure that these amounts are properly spent without over budgeting.
There are various advantages and disadvantages of planning tools which are used in
budgetary control in Advance Construction Group Ltd.
Advantages
 Budgetary planning tools make involvement of employees in mentioned entity for the
budget preparation and therefore it motivates employees of Advance Construction Group
Ltd.
 It helps officers who are related with management accounting in taking prompt decisions
in the cases where is difference between planned and desired outcome (Nandan, 2010).
 It helps officers in making several strategies of future operation.
 It helps in the coordination of different departments of Advance Construction Group Ltd,
so that they can work with each other properly so as to get efficient results.
Disadvantages
 With the planning tools it is possible that Advance Construction Group Ltd managers
may make high cost in the budget preparation.
 Allocation of resources with these tools may be less effective or improper.
 These planning tools may put pressure on employees as it creates targets for them (Lukka
and Modell, 2010).
 If targets will not get achieved than all departments will blame each other this will
increase disputes.
M3
Budgetary planning tools are used for forecasting and preparation of budget in Advance
Construction Group Ltd. Planning tools will help entity for making budget successful in relation
with various organisation and department. With the help of budgets current expenses can be
managed and projection of future expenses can be made. It helps in making reserves and
accountability. Master budget which the budget of utilities will help in controlling liquidity and
in maintaining revenues and expenses, also helps in giving sales, budget production and capital