Management Accounting Report: Financial Analysis and Decision Making

This report provides a comprehensive overview of management accounting, focusing on its importance for business decision-making, particularly for a company like R.L. Maynard. The report covers key concepts such as assets, liabilities, expenses, revenues, and owner's equity within a management accounting system. It then delves into various methods used in management accounting reports, including budget reports, accounts receivable aging, job cost reports, inventory and manufacturing reports, and performance reports. A significant portion of the report is dedicated to explaining and contrasting marginal costing and absorption costing methods for determining net profit. Furthermore, it discusses how management accounting systems respond to financial problems. The report aims to provide a clear understanding of these concepts and their practical applications in a business context.

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION ...........................................................................................................................................3
P1 Management accounting and essential requirement in different management accounting systems
................................................................................................................................................................3
P2 Different methods used in management accounting report.............................................................5
P3 Calculate cost and difference among marginal costing and absorption costing system....................6
P4 Explaining the advantage and disadvantage of various budgetary planning tools ...........................8
P5 Management accounting system responding financial problems....................................................10
Conclusion............................................................................................................................................12
REFERENCES..............................................................................................................................................13

INTRODUCTION
Management accounting is most useful for the company for the purpose of making the most
important decision regards to firm. Thus, it includes both type of financial and non-financial data that are
used for the purpose of make the forwards decisions regards to business. In the present assignment there
is a mainly discussion on the the management accounting and how they are important for R.L. Maynard
to make most important decisions regards to business activities (Picker, 2016). Furthermore, there is also
describe among the marginal costing and absorption costing method that are used by the company to
determining the net profit. Thus, there is an also discussed in the report how management accounting
system respond financial problem.
P1 Management accounting and essential requirement in different management accounting systems
Concept of Management Accounting
Management accounting is a process it involves the managerial function such as
planning, organising, directing and controlling are done by the mangers, to prepare a final report
and making full control in formulation and implementation of an organisation's strategy. In this
way, it is a process of making a managerial report and account so that it will help to implement
day-to-day decisions by the mangers.
Importance of management accounting
 It helps to determine the aim of an organisation.
 Helps in preparation of plan
 Provides better services to customers
 Easy to make judgement
 It is measuring tool of performance
 It also increase the efficiency of a business
 Provide effective management control
Difference between management accounting and Financial accounting
Management accounting is presented internally, whereas financial accounting is meant
for external stakeholders. Although financial management is of great importance to current and
potential investors, management accounting is necessary for managers to make current and

future financial decisions. Financial accounting is precise and must adhere to Generally
Accepted Accounting Principles (GAAP), but management accounting is often more of a guess
or estimate, since most managers do not have time for exact numbers when a decision needs to
be made.
There are various things which are required in management accounting system in an
organization by the managers. It includes following:
Assets- Assets are resource which are required for organisation's operational activity. To
make a item as a asset, managers should own it or have a right control and use it. For example: In
a delivery business, truck is used to deliver the products so in this way truck is also known as
asset in a business. In other words, assets also have there economic value and it will provide
economic benefit to the business. So that use of truck to deliver the products is also have there
economic benefit for the business.
Liabilities- In organization liabilities is also known as the business obligations. This is
based on past events such as buy an equipment in a loan for a business is also an obligation of
the business. All this type of obligation which occur by the business can not be avoid in a
business place. For example: In a RL Maynard business organization, mangers want to hire the
employees and pay for them salary as per the work they do in the organization. In this way,
hiring an employees is a past event and giving them salary is an obligation which can be
performed by the mangers, so it is called liabilities in an organisation which cannot be avoided.
Expenses- Expenses are all those which reduces the assets or increase the liabilities for a
given periods. For example, In a truck business fuel which are consumed by the trucks for
delivery is called the expenses but buying a gas is an assets because it reduces the cash. In this
way all the expenses are incurred in a business organisation is a repeating events and it is useful
to successful running the business, Because without making an expenses a business can not
achieve what they want in future. Expenses in an organisation it may be various form, it includes
salary, maintenance expenditure, facility expenses etc. in this way many expenses are done by
the manager in RL Maynard. In a management accounting all the business maintain a accrual
basis, in this business can record each and every transaction before the payment for the expenses.
So that while making an entry in a business, all such expenses are recorded in a debit side of
income & expenditure statements.

Revenues- Revenue are come from sales and delivery of the services. Revenues in result
it increases to assets accounts and decreases the liability account. By selling of goods in a cash
basis it will increasing the asset but in other side selling of goods on credit basis, it will reduces
the liabilities because in this conditions customers are pay for the goods in future time. So that
while making an accounting, Increases in revenue is recorded in debited side of the account and
reduction in revenue is recorded in credit side of the account.
Owner's Equity- Owners equity refers to all those capital which are put into the
organization by the owner to start-up a business. So that in technically, equity means all the
capital which are putting by the owners so that business operation's can run properly or
effectively. In accounting treatment owner's equity will be calculated by assets minus liability, in
the basic accounting equations. So that making an proper records, equity can be recorded as by
increasing in equity will be recorded in credit side of account and decrees in equity will be
recorded in debit side of the accounts. There will be direct relationship between investment and
revenues with equity. When investment or revenue are increases in an organisation than equity
will also increases and if there will be withdrawals and expenses are occurs than it will reduces
the equity in an organisation. Hence all above are essentials which are requiring for any
management accounting system. All the assets, liabilities, expenses, revenue etc. are major tool
for performing any managerial accounting by a manger in an organisation.
P2 Different methods used in management accounting report
Managerial accounting reports help business owners and mangers to make control in
company's performance and prepare such report as per accounting periods are needed.
Depending on time, sensitivity of information or structure of the business different managers
prepare different managerial report such as quarterly, monthly, annually. There are various
methods of making management accounting reports, such as:
Budget Report- Budget reports help small business's mangers to analysis the business
performance, and if the business are in good conditions than manager analysis the various
department's performance and control on there costs. Budget are decided in a business based on
the actual expenses which are occur from prior years. If the budget which are decided in present
time-period for the organisation is not enough than the criteria of budget will be increases, in this
way future estimation of budget amount kept to be high for the future, so that it will fulfil the

organisation need. There are many cases, in which budget are used to give bonus to the
employees for meeting the specific goals.
Accounts Receivables Aging- Accounts Receivables Aging is a critical tool of making
report which mange the cash flow for companies that increase credit to their customers. This is a
report which make complete list of all those customers which are unpaid or unsues credit memos
by date ranges. This is a important method in management accounting which are determine
which invoices are overdue for payment. By using this report, it also contain the contact
information of each customers. This report is used by management to determine the effectiveness
of credit and collection functions. This report describes that the customers are good in credit
risks or not. By making periodically report it also helpful to look at the old debts in a company.
Job Cost Reports- Job cost reports shows all those expenses which are occur for a
specific project. This reports are make by the mangers so that it will help to match between the
revenue and profitability of an organisation. It includes all those activity, in which manger can
focus in such areas which gives high opportunities to gain there profits in comparison of those
area which can not generate the profitability of the organisation. In this way. mangers can
prepare a report so that they can more focus on those profitable areas and make expenses to
make it more grow and it also analysis the waste areas which gives less profitability and also
examine the progress so that manager can take effective actions to improve such waste before
costs escalate.
Inventory and Manufacturing- Inventory and manufacturing report make by the
organisation to achieve or determine that manufacturing processes are more efficient or not. This
reports include all those items such as inventory waste, hourly labour cost and per unit overhead
costs etc. In this manger can compare different assembly lines within a company to check that in
which way organisation can improve or offer bonuses to achieve the best performance.
Performance report- In management accounting report, performance report are prepared
to helps the managers plan for future demand in production which increases the cost. Managerial
accountant prepare a budget report to make comparison between actual expenditure and revenues
to the budgeted amounts. While making a budget report all the different calculation are listed in
it and all such amount related to the information are recorded in performance report. This
performance report are prepare as per the time such as quarterly, half-yearly, annually etc. In this

way, performance report are created by the manger in an organisation to analysis the
performance or capability of the employee within a given time.
Other Report- Other reports also prepared by the managerial accountant. In which order
information report are prepared by the mangers. In all such orders which are receive or deliver
by the organisation can be recorded effectively, so that it can make mangers suitability to
understand the business performance or capability. It also include such type of report in which
manager can focus in such area which give the profitability so in this way manger can expenses
in such area to achieve more profitability. Hence in this way all above the various reports
prepared by the manager in management of accounting report so that it will help them to
determine the current and present condition of the company by analysing there performance and
capability.
P3 Calculate cost and difference among marginal costing and absorption costing system
Income statement: It is used by most of the company to understand the financial position for a
specific accounting period. It is summarized into revenues and expenses that are inured by the business
activities by both non-operating and operating activities. It indicated the firm outcomes of operating
during a specific time period that describe how the firm perform. Revenue can be defined as a inflow of
inventory in returns for goods they earned money and expenses is a sacrifice cost that are inured during
a period. In regard to this, R.L. Maynard determining the net profit through adopting marginal costing
and absorption costing method to know the financial position of a firm.
Difference among marginal costing and absorption costing method
 Marginal costing is that type of management costing method through which they ascertaining
the both type of expenses are fixed and variable cost. Under this method, the variable cost are
to be charged into the operations but the fixed expenses are excluding at the time of
ascertaining the net profit during the period( Otley, 2016). Beside this, the absorption costing
are to be consider as a full costing in which it take all the type of cost whether its is variable
expenses and fixed expenses that are absorbed at the time of produced total units. Most of the
scholar has researched on this they say that marginal costing method is best management
costing to determine the net profit while other may adopted absorption costing method.
 Marginal costing are to be known as a variable costing as it only consider the variable cost as it is
most useful to make decision that are relating to fixed and variable cost to finding out the

product for production. Beside this, absorption costing method is also used for the purpose of
valuation of inventory in which they consider all the manufacturing cost that are allocating into
the cost centers to recognizing the total cost of production. Thus, all the manufacturing
expenses are involve all variable as well as fixed expenses.
 Marginal costing includes all the variable costing that are relating to product regards to cost.
Whereas, the fixed cost are to considering as periodic cost. Therefore, the absorption costing
method taken both type of costing are fixed and variable cost that are to be consider as a
product cost.
Table 1: Marginal costing
Particulars Amount Amount
Sales 21000
Less: Cost of goods sold 6600
Less: closing inventory 3500
Gross profit 10900
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Net profit 9100
Interpretation: The R.L Maynard adopts the marginal costing techniques in which they
consider only fixed expenses and ignore the variable cost. Under which, they determine the cost
of good sold in which they take direct material, direct labor, fixed expenses. Furthermore, it has
been analysed from the above data and figure in that the sales revenue incur by a company
during the particular period that is 21000 Therefore, the cost of good sold of a company is 6600
that are deduced from the sales revenue to determine the gross profit that is 12600. The R.L.

Maynard determine net profit by deducting only fixed expenses from the gross profit that is
9100.
Table 2: Absorption costing
Particulars Amount Amount
Sales 21000
Less: Cost of goods sold 6600
Less: closing inventory 3500
Gross profit 10900
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Less: Fixed Expenses
Production overhead 2000
Administrative cost 700
Selling cost 600
Total fixed expenses 3300
Total expenses 5100
Net profit 5800
Interpretation: The R.L Maynard adopts the absorption costing techniques in which
they consider both fixed expenses and variable cost. Under which, they determine the cost of

good sold in which they take direct material, direct labor, fixed expenses and variable expenses.
Furthermore, it has been analysed from the above data and figure in that the sales revenue incur
by a company during the particular period that is 21000 Therefore, the cost of good sold of a
company is 6600 that are deduced from the sales revenue to determine the gross profit that is
10900 The R.L. Maynard determine net profit by deducting all type of cost from the gross profit
that is 5800.
P4 Explaining the advantage and disadvantage of various budgetary planning tools
Budgetary planning & controlling is a process that is followed to prepare a number of
budgets like material purchase, marketing, labour, variable overhead, cash budget, production
budget and many others through forecasting the possible financial outcome of the activities that
will be carried out by Unicorn in the next year. Thus, it can be presented as a quantitative
expression of the result of future business activities by the projection of income & spendings.
The main focus or aim of using budgetary plan in the business is to attain the targeted aims &
goals covering both the revenues & the possible spending. It helps the business entity to attain
the decided outcome by implementing the effective control in order to ensure better use of
resources at an controlled cost and maximum revenue. A multiple of methods are being available
to Unicorn’s managerial team which can be assisted the entity in creating budgets, that are stated
below:
Incremental budgeting: This is a classical way or approach of budgeting which begins
with the previous period budget as a starting point because it believes that operations and regular
activities that has been carried out by Unicorn in historical years will be defintely continue in the
future also. However, for the projection about future, it add some additional amount in both the
revenue & expenses and justify only the incremental charges and income.
Advantages:
The primary benefit of this method is its simplicity because it uses either the latest period budget
or actual performance which can be easily verified.
It is helpful in ensuring proper funding requirement that will be necessary to have to run the
programme.

This budgeting approach assure operational stability that believes that all the divisions of
Unicorn will operate their regular functions in a consistent or stabilized manner.
Disadvantages:
The major limitation of this method is it fosters overspending, however, the focus should be on
curtailment of cost to gain the benefits of higher return. The method believes that past
operations will be continue consistently which leads to encourage wasteful spending.
As it makes very minor changes in the budget therefore, there is very little incentives provided to
the Unicorn’s departmental managers to review & examine the budget comprehensively.
It leads to arise budgetary slack by little bit or small improvement in revenues and high growth
in spending so that they will attain favourable variances.
Zero-based budgeting: It is a modern way which begins with zero to arrive a budget for
the new period. The method involves detailed analysis by the Unicorn’s mangers of the market
trends and external industrial forces for the purpose of forecasting. By this, each & every
element of budget is justified very well in order to create a budget for the newer period.
Advantages:
Unlike IB, it does not believes in the previous year’s resource allocation system and do not apply
the same method for the current year.
Inefficient, wasteful and obsolete activities are eliminated from the operations so as to bring
improvement in the net yield by controlled the cost.
Disadvantages:
Zero-based budgeting requires paper work to justify the inclusion of every item that goes into a
budget. In this manager can take a documentation in ranking manner to each item according to
its importance and cost.
It is very time consuming process because to make proper implementation of work, there should
be training program of there workers, so that all this process take lots of time.
As per above there are many advantages of budgetary control techniques such as, it
defines the goals, plan and objects of the enterprise. It also fixes the target and secure better co-
ordination among various departments. Budgetary control helps to management in finding up the

responsibility. It also help to reduce cost in production by eliminating the wasteful expenses. It
also gives centralized control in an organisation. By promoting cost consciousness among the
employees, budgetary control brings in efficiency and economy. Budgetary control also help to
make smooth functioning of the organisation. At last budgetary control help to give the guidance
that in which areas action are required to improve its performance. But in other side it also have
there some disadvantage such as it is very difficult process to estimate the accurate budget in
inflationary conditions. It also have high expenditure during the operational activity, so that
small business can not afford such type of strategy. Budget are always prepared on the basis of
future estimation, such type of estimation are uncertain in future because it is only a management
tool. The success of budgetary control is depend on the support of the top management level. So
in this way budgetary control is useful techniques for management accounting but it also has
there some limitation which make the techniques less effective in management accounting
system.
P5 Management accounting system responding financial problems
The R.L Maynard adopts the management accounting system for the purpose of
responding the financial problems these are describe as follows:-
 Traditional management accounting system: It is used by the R.L. Maynard ltd. for the
purpose of tracking costs through adopting process costing or job costing methods. It
assist the company to ascertaining the allocating cost that are regards to direct labor,
direct material and manufacturing overhead. Thus, job costing method is used by the
company for the allocating cost for the larger projects. Furthermore, the cited company
used process costing method through which they allocating costs that are based upon the
process numbers that are using for the purpose of establish homogeneous products.
 Lean accounting system: It is that type of accounting management system that are
adopted by R.L Maynard company for the aim of minimizing costs through removing
wastage. Under this system assist the firm to quickly providing financial data for making
the immediate decisions, measured profits and also evaluate value streams. Thus, this
lean accounting system helps in cut the excess wastage from wastage (Noordin,
Zainuddin and Mail,2017). There are reason among one is a positive that used the lean
accounting to timely understand information on right time and accurate manner.

Therefore, it is used by the sales people, manager, accountant, operation leaders and lean
team improvement teams. Thus, this information provides the clear insight regards to
firm performance in terms of both financial and operational. The benefits from lean
accounting is that it motivating the team member within organization that moves towards
the lean improvement. In regard to this, the lean accounting also finding the financial
problem in most effective manner.
 Throughput accounting system: It is that type of accounting in which it is not seen
costing procedure that are taken under the traditional management accounting system. It
is mainly focused on identification of those constraints under the firm's production
system. Thus, it includes all such constraints that are production capacity, insufficient
level of materials as well as labor. Therefore, it is essential to minimizing all these
constraints that allows to enhance production volume ( Järvinen, 2016). It is also
lowering the cost for all unit production that are work under the traditional job order or
process costing system. It is that system in which it supporting data for the firms to
improves profitability and it is mainly focused on cash that helps R.L. Maynard to
responding the financial problems that occur within the organization. Thus, it does not
require to allocating cost such as variable and fixed expenses that are occur at time of
selling the goods through business entity. It is mainly used by firm for the purpose of
measuring the theory of constraints under which they maximizing the cost that directly
increase the firm profitability.
 Transfer pricing system: It is that type of management accounting system in which R.L.
Maynard will costing their products if they move from department to another department.
Thus, each items are transfer from one department to another department as well as
process that will add a some of cost into the goods. It is that price in that there is division
of firms when they are transacting each other that includes if the trade supplies among the
departments. It is used by the manufacturing firms so, they can able to measuring the
separate entities that runs. In context to management accounting terms is when the
company transacting among each other there is required to ascertaining costs as it is not
much differ from the market price. In regard to this, they can easily responding the
financial problems through transfer pricing management system( Guinea, 2016). Thus,
the government formulating various rules and regulations in transfer pricing which makes

sure that the accuracy and fairness of pricing which are relating to business entities. It is
based upon the similar transactions that are done among parties that are not relating to
same firms. Therefore, transfer pricing are monitoring closer within the firm's financial
reporting and it is needed a strict documentation by regulators and auditors. In regards to
this, R.L. Maynard can effectively respond the financial problems in most effective way
by considering taxes that are paid.
 Balance score card approach: It is that type of approach that are used by company for
to measure the overall performance by covering all four perspective. It includes customer,
learning and growth, internal process and financial process. Therefore, to respond the
financial problem under the financial perspective of balance score card. Under this, the
company finding out the unexpected variance through performance measures against
uncertainty.
 Key performance indicator: It is that type of tool that define, monitor and track the
financial performance of an organisation over a some time period. They measure the
performance by their strategic and operational goals. The R.L. Maynard's management
accountant used KPI in which they identified and respond financial issues while
measuring firm's performance by set priorities. The KPIs on the basis of annual revenues,
customer satisfaction indices, size of the workforce etc.
Conclusion
Summarized the whole report is has been concluded that management accounting is
totally differ from the financial accounting system that are used for the futuristic and ignore the
historical data. It has been also analyzed that the absorption costing are to be consider as a full
costing in which it take all the type of cost whether its is variable expenses and fixed expenses
that are absorbed at the time of produced total units. Most of the scholar has researched on this
they say that marginal costing method is best management costing to determine the net profit
while other may adopted absorption costing method.

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