Management Accounting Report: Costing, Budgeting, and Financial Issues

This report provides a comprehensive overview of management accounting, focusing on its crucial role within organizations, particularly in the context of KEF Limited, a manufacturing company. It explores various types and methods, including price optimization, cost accounting, and inventory management systems, highlighting their benefits and essential requirements. The report delves into different reporting methods like budget and cost accounting reports, alongside their advantages. A significant portion is dedicated to applying marginal and absorption costing methods to calculate production costs, cost of sales, and prepare profit and loss accounts. It also evaluates the integration of management accounting systems and reporting, and offers insights into the benefits and drawbacks of planning tools like static, zero-based, and flexible budgets. Finally, it examines how management accounting techniques help resolve financial problems within organizations, providing a detailed analysis of various costing methods and budgetary controls.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is crucial part of accounting system. It is related with the
integral management of the organisation by providing various kind of reports to the
managers (Zoni, Dossi and Morelli, 2012). It includes both kind of information like
monetary and non monetary. So, it may be defined as a kind of accounting system that
is associated with the collecting, summarising and interpreting the financial and non
financial data to the managers in taking important decisions. To understand about the
management accounting in broad sense, KEF limited company is selected that is
operated in the manufacturing sector. In the project report, various types and methods
of management accounting is mentioned along with benefits. As well as per unit cost,
cost of sales and income statement is prepared in the report. Apart from it, limitations
and benefits of management accounting is mentioned. As well as importance of
management in resolving financial problems for the companies.
TASK 1.
Mean of Management accounting and essential requirement for various type of
accounting system of management accounting.
This is a type of accounting system that is associated with the integral
management of organisations through help of monetary and non monetary information
(Bryer, 2013). Additionally, by this systems of management accounting organisations
make their further policies. In the context of KEF limited company this accounting
system can help them for better management of different kind of activities and functions.
The systems of management accounting are mentioned below:
Price optimisation system- It is a kind of accounting system which provides a
basis or framework to determine the price of products and services (Grabner, Moers,
2013). Eventually, this accounting system is essential for assigning the accurate price of
products and services at a level which can be beneficial for both to company and to the
customers. Apart from it, this system is also helpful in the analysing the customers
reaction at different pricing levels. Like in the KEF limited company, it can help them in

assigning the right price of manufactured products. As well as due to this accounting
system they evaluate the customer's reaction on different pricing.
Cost accounting system- It is a kind of accounting system which is associated
with the calculating the total cost of different activities. Due to this accounting system,
companies can analyse about each individual activity's cost. As well as it is essential for
the companies to evaluate the actual profitability by comparing actual earned money
with the actual cost. In the KEF limited company, this accounting system is beneficial for
them in computing overall cost of the manufacturing and on the basis of it, they can
evaluate their profitability. Apart from it, this can also help them in eliminating and
controlling the cost effectively.
Inventory management system- It is a type of accounting system that manages
the stock such as raw material, opening and closing stock (Lee, 2012). Eventually, this
system is essential for the companies to track the quantity of available raw material and
finished goods in the stores. In the KEF limited company, this accounting system can be
very useful to provide information regarding to the raw material, W.I.P. and finished
goods. Due to this they can make further decisions regarding to the purchasing of the
raw material and for production.
Various methods of reporting of management accounting:
These are the reposts that provides information regarding to the actual
performance of different kind of activities. On the basis of these accounting reports,
management makes further strategies. Herein, some types of management accounting
reports are mentioned below:
Budget report- It is a kind of report which includes information regarding to the
estimated and actual income, expenditure (Morden, 2016). On the basis of it,
companies can evaluate the actual performance by comparing actual income with the
estimated income. In the KEF limited company, this report is beneficial in measuring the
actual performance.
Inventory report- These reports have the detailed information about the
available stock at the warehouses. As well as total cost occurring due to the inventory
management such as ordering cost, carrying cost etc. In the respect of the KEF limited

company, this report is useful in providing the information related to the inventory cost
and available quantity of raw material.
Cost accounting reports- The cost accounting reports are kind of reports that
consists information related to total cost which occurs in various kind of operations
(Booth, 2018). Due to these reports, companies can estimate about the overall cost of
different activities. In the KEF limited company, these reports are very crucial because
they are involved in the manufacturing sector and it is necessary for manufacture sector
to have complete information about cost. Otherwise in without information about the
cost , it will be hard to manage the cost.
Management accounting system' s advantage:
Management accounting system Benefits
Price optimisation system This accounting system is beneficial for
determining the pricing of the products and
services. In the context of the KEF limited
company, price optimisation system can
help in assigning the the price of
manufactured products.
Cost accounting system This accounting system is useful for the
companies in calculating the total cost of
various activities. Same as in the KEF
limited company, it can be beneficial for
them in having detailed information about
total manufacturing cost. As well as in
controlling the cost.
Inventory management system It is helpful in the management of stock at
the warehouses. In the context of the KEF
limited, this accounting system is beneficial
for making effective decisions regarding to

the purchasing of raw material.
Evaluation of integration between the management accounting system and reporting.
The managerial recording system consists different type of accounting
information systems like cost accounting system, inventory management and price
optimisation system, system. (Lachmann, Knauer and Trapp, 2013). Accounting
system basically remain associated with the accounting reports. Information which are
produced through management accounting systems Like in the KEF limited company,
they make administration accounting reports such as cost accounting reports, inventory
management reports by implementation of cost accounting system and inventory
management system. This is how the management accounting reports and
management accounting systems remain interrelated with management accounting.
TASK 2.
Use of marginal and absorption costing method for different calculation.
(I) Production cost per unit:
(II)Total production cost:

(III)Total cost of sales:
(IV) Budgeted P&L account for June:
(a) Absorption costing method- It is a kind of technique that take both cost(fixed and
variable) as unit cost.

(b) Marginal costing method- It is a costing technique in that both the costs are
considered in different ways (Kober, Subraamanniam and Watson, 2012). Under this,
fixed cost is taken as the periodic cost and variable cost as the unit cost.

(V) Preparation of final accounts:

Interpretation- From the above mentioned table, it has been analysed that profits
are changed in at the level of 19000 production units. At the 18000 units, profit is of
£3340000 and at the 19000 units, it is of £399000.
(VI) Advice to the company about costing techniques.
There are various kind of costing techniques which are being used by the
companies. Herein, the project report marginal and absorption costing techniques are
applied to make profit and loss accounts on the given data. Both the methods are
suitable but have some drawbacks.
Apart from these methods, company may use activity based costing method. It is
a kind of costing method in which each activity is identified and cost is assigned as per
the different activities. This method is better then other two costing method.
So company should use this method for computing the profit and loss because in
this costing method, each activity is justified. Due to this, possibility of errors in the profit
and loss account get decreases.

TASK 3.
Drawbacks and benefits of planning tools of budgetary control.
The budgetary control is a kind of process in that managers of company establish
particular standard of performance by budget and compare with the actual performance.
There are various kind of planning tools such as:
Static budget- This budget is also known by the fixed budget. It is a kind of
budget which does not change in relation to change in sales or volume ( Arnaboldi,
Lapsley and Steccolini, 2015). Basically, this kind of budget is applicable on fixed nature
activities. This budget is being used by the KEF limited company for short time period.
Herein, advantages and disadvantages of this budget are mentioned below:
Advantages-
 This type of budget does not need to be update like other budgets. So it
helps in time and cost saving.
 As well as this budget is very easy to track because it does not change.
Disadvantages-
 It's disadvantage is that lack of flexibility. Due to this, it becomes difficult
for the companies to update the budget if there is any huge change in the
sales.
 Additionally, this budget does not provide any systematic way to track the
expenses.
Zero based budget- It is a type of budget that is prepared from the zero level.
So, the zero based budget is not consider the past year's budget activities. As well as in
this budget every activity is justified before entering into the budget. ZBB can be useful
for the KEF limited company in preparing the budget with transparency. Herein,
limitations and benefits are mentioned such as:
Advantages
 This budget brings efficiency and accuracy in the budgeted results.
 As well as this, eliminates those activities from the budget which are not
justified.
Disadvantages

 One of the main disadvantage of this budget is that it consumes too much
time and cost.
 This budget can not be prepare by individual, it requires huge manpower.
Flexible budget- This is a type of budget which can be change as per the
change in the sales and volume. Eventually, the flexible budget is more suitable in
compare to the static budget. The KEF limited company can apply this budget for
flexible activities. Apart from it, this budget has following benefits and drawbacks:
Advantages
 The variable budget is less stressful because it can be according to
flexibility in sales.
 This budget improves the performance evaluation because it updates
timely.
Disadvantages
 Due to more changes, sometimes this budget becomes confusing.
 In this budget, actual data can be manipulated which result in fraud or
cheating.
Analysing the role of various planning tools for preparation of the budgets.
The budgetary control consists various planning tools that helps in preparation
and forecasting the budgets accurately (Evans, Burritt and Guthrie, 2013). This is why
because on the basis of the planning tools such as static budget, variable budget and
zero based budget provides a framework for making the budget. Like in the KEF limited
company, static budget helps in identifying those activities which are constant in nature
as well as zero based budget brings accuracy in the preparation of the budget.