Management Accounting Report: Financial and Non-Financial Information

This report on management accounting provides a comprehensive overview of the subject, focusing on its application within Tech (UK) Limited. It begins by differentiating between management and financial accounting, highlighting the importance of management accounting in strategic management, performance appraisal, and risk reduction. The report then delves into various management accounting systems, including cost accounting, inventory management, and job costing, explaining their roles in providing critical financial and non-financial information for decision-making. Furthermore, the report examines different types of managerial accounting reports, such as budget reports, accounts receivable reports, and job cost reports, and their significance in planning, control, and performance evaluation. The report also explores the calculation of costs using marginal costing and the preparation of income statements. Finally, it discusses the advantages and disadvantages of different types of budgets and their use as tools for planning and control, concluding with the application of management accounting in addressing financial problems. Overall, the report aims to provide a detailed understanding of management accounting principles and their practical applications in a business context.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and essential requirements of management accounting systems..3
P2. Different types of managerial accounting reports and their importance..........................6
M1...........................................................................................................................................8
D1...........................................................................................................................................8
TASK 2............................................................................................................................................9
P3 Calculation of cost and preparation of income statement.................................................9
M2.........................................................................................................................................11
D2.........................................................................................................................................12
TASK 3..........................................................................................................................................12
P4 Different kind of budgets and their advantages and disadvantages................................12
M3.........................................................................................................................................14
D3.........................................................................................................................................14
TASK 4..........................................................................................................................................15
P5 Use of management accounting to respond financial problem.......................................15
M4.........................................................................................................................................16
CONCLUSION .............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting system includes job costing, cost accounting, inventory
management, etc. which helps the accountant of company to provide true information regarding
transaction.. These information are used by the management to make effective decisions
regarding various operations of company. This helps the manager of company to perform three
main functions like strategic management, performance appraisal and risk reduction. This
provides an opportunity to company to effectively guide their employees and achieve
organisational objectives. Tech (UK) Limited is producing special charger for mobile telephone
and other gadgets for the retail outlets in the UK (Baldvinsdottir, Mitchell and Nørreklit, 2010).
In the present report, difference between management accounting and financial
accounting, importance of management accounting in decision making, different management
accounting systems, different types of managerial reports and their importance in providing
relevant information will be discussed. Here, advantages and disadvantages of different kinds of
budgets with their importance as a tool for planning and control purposes will also be discussed.
TASK 1
P1. Management accounting and essential requirements of management accounting systems
Management Accounting
Management accounting includes the use of different accounts and reports to provide
information regarding different activities of business. This will have huge importance regarding
improvement of decision making power of their different stakeholders. These accounts and
reports and good planning and risk management tools which helps in removal of the risk and
accomplishment of their targets.
Management accounting system uses various provisions of accounting to prepare
different accounts which provide accurate information regarding different important functions of

company. This helps the manager of company to perform main three functions which are defined
as below:
 Strategic management: This increases the role of accountant of company to effectively
organise the activities and operations.
 Performance management: These accounting system provides informational base
which provides chances to appraise the performance of their employees with standards
and provide solution to improve their skills as well (Christ and Burritt, 2013).
 Risk management: Various information regarding different departments of company
helps the manager to make effective decisions and policies. This provides opportunity to
reduce the risks among different functions of company.
Difference between management and financial accounting
Financial accounting is the part of management accounting which only focuses on
finance matters of company. It helps the management to know about profit and loss as well as
cash flow situation of company. There are many differences between management and financial
accounting which are defined as below:
Management Accounting Financial Accounting
Management accounting focuses on past and
future information for the purpose of planning
and decision making.
In financial accounting, make focus on
historical economic data of company.
Time horizon is defined by company itself. Financial accounting are done for fiscal year.
This provides help in the planning, controlling
and decision making.
This provides an opportunity to the manager of
company to record financial information and
tell about its financial position.
This covers both financial and non-financial
information which helps manager of
company’s risk management and appraise the
performance of employees as well.
It only covers the financial aspects of company
which provides help to manager in preparation
of future and budgets as well as in allocation of
funds to different departments of company as
per their requirement.
Importance of management accounting in decision making

Management accounting system uses various provisions for the maintenance of cost
accounting, job costing and inventory management accounting, etc. All these different accounts
help the manager of Tech (UK) Limited to interpret important information from these accounts
and make effective policies as well as decision making about different functions of company.
Some other importance are defined as below:
 Determination of aim: Management accounting system provides various financial and
non-financial information which helps the manager of company to find out their actual
targets and best ways to achieve such targets. This will enhance the ability of
management to make effective decisions regarding various functions of departments
( Cinquini and Tenucci, 2010).
 Helps in preparation of plans: Information provided by management accounting
systems provides accurate data which helps to make the future plans for activities of
company. These plans help to define roles and duties to employees and satisfy the
demand of their customers.
 Measurement of performance: These accounting systems provide information
regarding performance of different departments and employees of company. This
provides an opportunity to compare their actual performance with standards and make out
deviations. This enhances the decision making of manager of company regarding
improvement of performance of their employees by providing them better solutions and
training programs (Dillard and Roslender, 2011).
Different management accounting systems
There are many management accounting systems which are described as below:
 Cost accounting system: This system is used by the management of Tech (UK) Limited
to determine the cost of their products for profitability analysis, inventory valuation and
cost control. It is very important for company to determine the actual cost of their
products. This system helps the management of company to know that whether their
products are profitable or not.
 Inventory management system: This system is used by company to manage their stocks
properly. This system provides information regarding stock present in company and their
proper allocation to different departments. This contributes in optimum utilisation of
stock of company for increasing the production and profitability (Fullerton, Kennedy and

Widener, 2014). It is effective system which helps in determination of the stocks which
are used and remains in organisation. It also contributes in planning activities regarding
the inventories and stocks and helps in their proper allocation to different departments.
This provides the opportunity to different departments achieve their individuals targets
effectively.
 Job costing system: This system provides information regarding cost and revenue
generated by job in company. To support this system, job numbers are assigned to
individual items of expenses and revenues. To apply job costing in manufacturing
company, there is the need to track various types of direct expenses such as direct labour
and direct materials which are involved in completion of particular job. This method has
huge importance regarding determination of the profitable process and areas which helps
regarding improvement of overall profitability. This process have large importance
regarding reduction of cost and become cost efficient.
P2. Different types of managerial accounting reports and their importance
There are many accounts formed to record various operations of company. Management
of Tech (UK) Limited prepares different accounts like job costing, cost accounting, inventory
management system, etc. To provide important information from all such accounts, the manager
of company provides different managerial accounting reports. These reports contain important
information regarding functions of company. This enables the management of company to make
effective decision making, planning, performance appraisal, risk reduction etc. These reports also
provide an important information to external stakeholders which attract a large number of
investors towards the activities of company (Garrison And et. al., 2010). Different managerial
reports which are prepared by the management of company are defined as below:
 Budget report: These reports are used by the management of company to analyse
performance of different departments and control costs. The estimated budget made by
the manager of cited company is based on the actual expenses from prior years. These
budgets helps the company to compare the actual performance of employees with such
standards are make improvements. These budgets are used by management of company
to provide benefits to the employees which are performing good. Financial budgets which
are made by manager contributes in effective distribution of financial resources to
different departments as per their requirements.

 Accounts Receivable report: This report provides the information to the management of
cited company about amount outstanding from debtors. This provides the opportunity to
effectively manage the cash flow and credit period given to their customers. This helps
the manager to understand about what are their existing credit polices and need to
improve them regarding fast recover of dues form customers (Macintosh and Quattrone,
2010).
 Job cost reports: This report shows the cost incurred on starting of specific project. This
report provides the information regarding cost and revenue which are going to incurred
on specific project for evaluation of jobs profitability. This contributes in identification
of such areas of job which are high earning and have to give more emphasis on them.
This saves the time and cost of company on wasting low profit margin jobs. This helps
the management of company to increase the overall profitability.
 Inventory and manufacturing: These reports provides the information regarding actual
position of inventory in company. By using this information the management of cited
company effectively allocate the resources to different departments and increase their
efficiency (Nandan, 2010).
Importance of managerial accounting reports
There are many importance management accounting reports which are defined below:
 Decision making: These reports provides various financial and non financial information
which enhance the ability of the manager of company to make effective decisions
regarding important aspects. This helps in future planning, performance management and
risk management which increases the profitability. These systems and reports plays huge
role regarding enhancement of the power of management to improve their decision
making power. The information provide by such system are used by manages as planning
and risk management tool which improve their power to make effective budgets and
provisions which are used further in future.
 Reduces loss: These informations helps the management of company to anticipate the
future problems and make provisions regarding that. This enables the company to
effectively tackle the problems and reduces the chance of future losses. For ex, use of Job
costing method helps determination of such area which wasteful and having less

profitability. This provides chance regarding focus on profitable areas and saves their
cost and increase their profit margin.
 Increase financial returns: Such important information helps the manager to make
better policies and plans for futures which enhance the ability of departments to perform
their functions effectively. Development of new skills and training to employees
increases the financial returns for company.
M1
Benefits of different management accounting systems are mentioned below:
Job costing systems
Advantages
 It helps estimation of all types of cost which are incurred during overall manufacturing
process
 It helps in analysis of the quality of work which is performed by different departments
Inventory management systems
Advantages
 It provides the opportunity regarding saving time and cost
 It helps in effective management of inventory
D1
Type of reporting Integration with organisational process
Accounts receivable report Its integration with organisational functions
helps in collection of due amounts from
debtors.
Job cost report Its integration helps in improvement of the
efficiency of manger regarding ascertainment
of the most profitable project.

TASK 2
P3 Calculation of cost and preparation of income statement
Costing is the concept which is used to find out the cost incurred on the production of
products or running the business. So, it is define as system of determination of the cost of
production and running a business by distributing the expenditure to various stage of production
or operations of company (Nixon and Burns, 2012).
Marginal costing: During the calculation of cost various cost are considered by the management
of company. In this method, variable cost incurred in production as to be taken into account
instead of fixed cost. Variable cost changes as per the change in production capacity of company.
This will have great effect on the profitability of Tech(UK) Limited.
Absorption costing: Under this method, while calculating the total cost of production fixed cost
is also included. This shows that while calculating the net profit of company both fixed and
variable cost has to be considered. The fixed cost has divided into total units of products which
are manufactured by company.
Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing £ £
Sales value 52500

Less: Variable costs
Opening stock
Cost of production
Closing stock
Variable sales overheads
Contribution
Less Fixed costs:
Fixed Production overheads
Fixed Selling overheads
Net loss
0
30000
(7500)
15000
10000
(22500)
(7875)
22125
(25000)
(2875)
Income statement on the basis of Absorption costing method:
Selling Price per unit £35
Unit costs
Direct materials cost £8
Direct Labour cost £5
Variable Production overhead £2
Variable sales overhead £5.25
Budgeted production for the period is 3000
units
Fixed cost for a month:
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material £8

Direct labour £5
Variable cost £2
Fixed cost £5
Total £20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40000 500*20 = £10000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000(under absorbed)
Net profit using absorption costing £ £
Sales value
(-) Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less: selling Expenses
Variable sales expenditure
Fixed selling expenditure
Net loss
0
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
(375)

M2
To interpret the financial position different accounting tools are used. Such information
enhance the decision making power and improve the organisational profitability. It is analysed
from the above financial statements that organisation working in loss. It means they don't have
the sufficient amount of funds for future growth of their business functions. Keeping the record
of all data improves their internal strength and forecasting power.
D2
It is observed that two costing techniques are used regarding calculation of profit which
are marginal and absorption. Through the use of Absorption costing method loss is obtained by
the organisation of 375. On other hand, by the use of Marginal costing loss of 2875 is attained by
the organisation. This different between the loss is arses due to the amount of fixed assets
because it is considered under absorption costing method.
TASK 3
P4 Different kind of budgets and their advantages and disadvantages
There are many kind of budgets are prepared by the management of Tech(UK) Limited to
effectively the manage the functions of company. It includes master budget, operational budget,
cash flow budget etc. These budgets are includes principles which are required to follow by the
employees of company to accomplish their tasks. These budgets are described below:
 Master budget: This budgets includes about the projection of different functions of
company during fiscal year. Master budget of company includes the cash budget which
provides the information regarding estimated income statement and balance sheet. Master
budget of company is interrelated to the many budgets of various departments of
company. These budgets are used by the manager of company to plan and set
performance objectives (Otley and Emmanuel, 2013).
 Operational budgets: This budget covers the revenue and expenses incurred by
company on day to day core business activities. This budget shows the cost incurred on
production of good and overhead and administrative cost which are directly related to
production of products. This also shows about the revenue generated by company by
sales of their products in markets. All these information helps the company to effectively
plan their operations in such way that increases their profits and reduces operational cost.