Comprehensive Management Accounting Report for 4COM Plc

This report provides a detailed analysis of management accounting practices at 4COM Plc. It begins with an introduction to management accounting, its types, and its role in decision-making, followed by an exploration of various management accounting reporting methods such as job cost reports, inventory management reports, and performance reports. The report then delves into the advantages of using accounting systems, including price optimization and inventory management, along with an evaluation of management accounting reporting's effectiveness. The subsequent sections cover the calculation of net profit using different costing methods like absorption and marginal costing, and the interpretation of income statements. The report also examines the advantages of planning tools in budgetary control, the analysis of planning tools used by the company, and how these tools can be used to overcome financial problems. Finally, it discusses how management accounting systems are helpful in responding to financial problems and concludes with recommendations for 4COM Plc to achieve its future goals. The report includes references to support the analysis.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and its types ............................................................................1
P2: Various management accounting reporting.....................................................................3
M1: Advantages of using accounting system and its application...........................................4
D1:Evaluation of management accounting reporting.............................................................5
TASK 2............................................................................................................................................5
P3: Calculation of net profit through using various costing methods....................................5
M2: Various management accounting methods use under reporting.....................................7
D2: Interpretation of income statements................................................................................7
TASK 3............................................................................................................................................8
P4: Advantages of planning tools use in budgetary control...................................................8
M3: Analysis of planning tools used by the company.........................................................10
D3: Use of planning tool to overcome problems..................................................................10
TASK 4..........................................................................................................................................10
P5: Management accounting system helpful in responding to financial problems..............10
M4: Analysis of all those financial issue..............................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is the collection of data from various sources, analyse and
communicate those information in order to make effective decision regarding growth and
development of the business. It consist of financial and non-financial transaction which are
recorded by the manager in companies books of account to generate value to the company. The
project report consist of various task that summarises of different types of accounting systems
and methods those are use by 4COM Plc.
Other aspects of the project report is about various cost those are use under the company
to calculated net profit for the company are explained 1. On the other hand different planning
tools use by company in order to control budget. Some financial problems are also discussed
under the project and how to overcome all those financial issues which are arise in an
organisation. It has been observed that after making proper analysis certain recommendation is
being provided to the company so that they can plan there business in order to achieve there
future goals.
TASK 1
P1: Management accounting and its types
Management accounting is that kind of processes and techniques that are based on the
effective use of organisational resources in order to help managers in their ways of increasing
customer values and shareholder interest 2. On the other hand it is related with the production of
information those are used for making internal report that will be helpful in taking valuable
decision making in 4COM Plc. The major objective of accounting system is to concentrate on
organisation regarding how they are utilising its resources and to find out total cost incurred
during development of each unit of a product and services.
For any company it is important to make effective planning in order to cut down extra
costs those are incurred by the company in their daily operations. So in that process accounting
systems are more helpful to manage and control all those decision which are taken in relation to
1 Fowzia, Rehana. "Strategic management accounting techniques: Relationship with
business strategy and strategic effectiveness of manufacturing organizations in
Bangladesh." World Journal of Management 3, no. 2 (2011): 54-69.
2 Becker, Wolfgang, Patrick Ulrich, and Michaela Staffel. "Management accounting and
controlling in German SMEs–do company size and family influence matter?."
International Journal of Entrepreneurial Venturing 3, no. 3 (2011): 281-300.
1

financial transaction before recording it to company books of account. The company main target
is to minimise losses those are affecting profitability of 4COM Plc. As a management account
officer under the company it is my sole responsibility to look after all those financial decision
those are necessary in coming future. 4COM Plc is a small scale company which is associated
with development of broadband and other electronic phone so it is easy to manage there daily
operation in much more effectively 3. But they will also have to use some accounting system so
that to get best results with the utilisation of available resources of the company. Most of the
accounting system use by 4COM Plc in order to compare there past and current year financial
statements in front of its shareholder and other investors those are responsible for making their
investment under the company so that they would get sufficient amount of return in coming time.
As for proper operation of companies requirements some of the techniques are used in the way to
prepare financial statements. Some of them are as follows:
 Price optimisation system: It refers as one of the important tool of the company which
is use as numerical analysis by 4COM Plc in order to determine how customers are going
to respond to various prices for product and services those are coming in there ways
through different modes. In order to generate maximum profit to the company it is use as
important tool by the company that gives an ideas that what prices should be best that
will meet its aims and objectives.
 Inventory management system: It refers to that kind of software which are use as
tracking of stock level, orders, delivery and sales. It is use under manufacturing sectors so
that to create work order, bill of stock that are kept by the company and other aspect of
data which are associated with the company. The basic reason why company are using
these system is to manage there stock those are kept for very long period of time so that
there quality can not get hampered.
 Batch costing: It is most associated with total lost size produce during the year. The
product are identified through a batch code number which are mentioned under each
product. It consist of information about the product that when they are produce and in
which year.
3 Gates, Stephen, Jean-Louis Nicolas, and Paul L. Walker. "Enterprise risk management:
A process for enhanced management and improved performance." Management
accounting quarterly 13, no. 3 (2012): 28-38.
2

 Cost accounting system: In order to identified profitability analysis and inventory
valuation this system are more useful because under this how to control cost those are
incurred during production process are determine and total cost which are required to
produce a product is also estimated with this system.
 Job Costing: It is related with overhead costs to one or more than one cost pools. Under
this process the cost which are incurred by company to a specific job in which our
business is associated with are identified 4.
P2: Various management accounting reporting
In every business organisation it is essential to have a effective system which are use to
make business more effective. In starting and controlling professional accounting procedure in
order to make company grow and plan to achieve its desire objectives. It also help to provide
other expertise those are having certain kind of skill those are utilise by the company in its
financial reporting and control to assist management in the preparation of effective business plan.
The management reporting is a kind of process that provide information to different
stages of management so as to modify in judging the effectiveness of its roles and responsibility
and set a base for making certain measures it is required during the process. For the manager
income statement which is also said to be profit and loss statements of a company is one of the
important accounting reporting system that is available to managers which is use to find out
profit and loss incurred by company from its operations.
It help management of an organisation to make informed decisions those are necessary
under operation of an organisation. This type of report provide information to the managers of
various department and help them to make decision that have fundamental impact on the
business. There are some accounting report method which are use by managers in there business
operations:
job cost report: It is associated with that cost which are incurred for a specific project of 4COM
Plc in an accounting year. They are generally linked with an estimation of total revenues incurred
by the company in order top find out job's profit. It will also help to determine high earning areas
of business from where they can get maximum profit and to make more effort over there without
4 Nielsen, Lars Braad, Falconer Mitchell, and Hanne Nørreklit. "Management accounting
and decision making: Two case studies of outsourcing." In Accounting Forum, vol. 39,
no. 1, pp. 64-82. Elsevier, 2015.
3

wasting time and money on a single job that is not so effective and which generated low profit
for the company.
Inventory management report: Under 4COM Plc they are having a physical inventory those
are use as managerial accounting reports to control and manage different level of stock and to
find out necessary steps to maintain the level and position of stock. It includes products such as
stock waste, labour cost and per unit costs 5. The role of manger under this process it to evaluate
and compare various lines in case of production of product and services to observed which area
needs to develop and improvement.
Operating budget report: Under this type of budget report provide support to an organisation to
examine their performance in order to manage its daily expenses those are incurred by the
company as a whole and every department need to plan, monitor and control extra costs of
operations. Another basic advantages of this kind of report is to provide incentives to its
employees so that can motivate to perform the tasks.
Performance report: According to this report which enables management to access the
performance of product and service, department or group that are associated with business
operations. In order to exploit the advantages of the company they are enables business to
undertakes profitability analysis for a particular segments and concern department. It is also
associated with the controlling and management of cost so the efficiency of the business should
be increase and company should be able to take more corrective decision with looking future as a
base.
Account receivable report: This type of report is use by the manager in order to manage its
cash flows in relation to credit which is offers to its customers. It is use by most of the customers
to balance in order to find out about how long they are going to owed the business.
M1: Advantages of using accounting system and its application
According to above mentioned various accounting systems company should use it in
effective manner to manage its operation then it would provide maximum benefit to them. Some
of the basic advantages of using all this system will help to maximise efficiency of management
and evaluate various plan in proper manner so that chance of growth will be more in coming
future time. It is simply use to track, record and report accounting information in order to make
5 Ahmad, Kamilah. "The adoption of Management accounting practices in Malaysian
Small and Medium-sized Enterprises." Asian Social Science 10, no. 2 (2013): 236.
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reviews. Some of the application are standard costing methods, cost volume profit and activity
based costing and benchmarking which are said to be most effective tools used under accounting.
D1:Evaluation of management accounting reporting
In the words of many most of the concern member that accounting reporting are basic
tools which is use by the company in order to make appropriate decision for the company growth
and development 6. Operating budget report are the one which are more effective as they are
providing an estimation of net profit that a company is going to achieve in coming time.
Whereas, inventory reporting are use to identified track of their stock which are kept by the
company to reduce wastage and cut down extra cost on it. It is mostly associated with the
information about performance of each and every individual as well as organization.
TASK 2
P3: Calculation of net profit through using various costing methods
Cost: It is said to be an amount which is required to be paid or given in order to receive
something in return. In case of accounting costs are basically associated with financial valuation
that consist of efforts and materials. It is that sum of amount which is represent on invoices as
the cost and recorded in financial statements as an expenses or assets. There are some of the cost
methods which are use by company in order to know its net profit and loss. Those are:
Absorption costing: It is said to be that cost of production which are use by 4COM Plc in their
operations either directly or indirectly related cost which are incurred by the company. Under
this costing both fixed and variable cost are taken into consideration. On the other hand it is that
method of joint overheads among number of products or services on a corrective fair basis.
Marginal costing: It refers to the cost of last unit produce by the company. With the available
resource production of one extra unit or one less units are also said to be marginal costing. Under
this method it varies directly with total number of sales and production done by 4COM Plc. It
includes prime cost but it does not consist of fixed cost which is separated under the case of
marginal cost.
Difference between Absorption and marginal costing
Basis Marginal costing Absorption Costing
6 Adams, Laurel, and Ralph Drtina. "Multinational Transfer Pricing: Management
Accounting Theory versus Practice." Management Accounting Quarterly 11, no. 3
(2010).
5

Meaning It is one of the decision
making techniques for
determine the total cost during
production process.
It is said to be distribution of
total costs to cost area in order
to estimate the cost during
production process.
Cost identification Under this costing variable
cost are taken as product cost
but fixed cost are termed as
period cost.
Under this costing method
fixed and variable cost are
taken into consideration.
Profitability Under this profit volume ratio
is use to identified profit to the
company.
Because of absence of fixed
cost profitability of the
company get affected.
Cost per unit Under this costing method
both opening and closing stock
can not affect the cost per unit
as output.
Cost per unit get affected
under absorption costing
methods.
Income statements through marginal costing
Particulars Amount
Sales 35*600 21000
Less:
Production cost 6+5+2 - 9100
Closing stock: 100*13 - 1300 -7800
Contribution 13200
Less:
Variable sales overhead 600*1 600
Fixed overhead -2000
Selling and administrative cost expenses (700+600) -3900 -3900
Total Profit / Loss 9300
6

Income statements through Absorption costing
Particulars Amount
Sales 35*600 21000
Less:
Production cost 6+5+2 9600 9600
Contribution 11400
Less:
Variable sales overhead 600*1 600
Less: Over absorbed Fixed production overhead -100
Selling and administrative cost expenses (700+600) 1300 -1800
Total Profit / Loss 9600
According to the information provided under the project report it has been found that by
applying both costing method different results are come in front of the company as if the
company is using regional costing method the net profit they are getting is around 9300 and if
they are using absorption costing method they are receiving 9600 7. so it on the basis of
absorption costing company will be able to plan it objectives more effective manner because they
are getting more favourable results from this methods. So as a senior account officer of the
company I would recommend to go with absorption costing methods so that maximum profit will
be generated in coming future.
M2: Various management accounting methods use under reporting
In the above explain accounting techniques those are helpful in making decision under
financial accounting system in order to achieve its aims and objectives. There are various
management accounting techniques available with the manager as wide and diverse subject. It is
very difficult scope because of its dynamic nature. Some techniques are historical cost
accounting which is use under maintenance of books of accounting in order to know actual cost
made by company. Other are decision accounting, control accounting and revaluation accounting
are also helpful in achieving management objectives.
7 Vakalfotis, Nikolaos, Joan Ballantine, and Anthony Paul Wall. "A literature review on
the impact of Enterprise Systems on management accounting." (2013).
7

D2: Interpretation of income statements
In above presented income statements is has been found that company use this
statements in order to know its total income incurred under the production of products and
services and cost related with the each product are represented through profit and loss statements
8. The company are using two methods of costing to identified net profit and loss incurred during
the year. From marginal costing they are getting a profit of 9300 and if they are using absorption
costing then profit increase to 9600. So absorption method is more effective in order to get more
favourable results.
TASK 3
P4: Advantages of planning tools use in budgetary control.
Budgetary control: It refers a system through which utilisation of budgets are use as a
means of planning and controlling of all the aspects of product and services. The major aspect of
4COM Plc is to control its operations through using a budget report that are use to compare
actual results with budgeted 9. It is use as comprehensive system of budget that helps the
management to carry out its basic functions.
Process of budgetary control:
Preparation of the budget for definite future: Under the first stage of budget formulation a
perfect plan is to be made from collecting all the information and data from each and every
concern department those are working in an organisation. It consist of various aspect of cost and
expenses those are incurred by the company. It is done with keeping future in mind so that they
would get more profit in coming time.
Actual performance has to be recorded: In the next process company need to identify its
actual performance which is carry in current year and if indicate favourable results then more
effective steps are use to increase profitability and if they are not getting proper results so they
need to do corrective action to make it to favourable position. All action are recorded under this
stages and make it ready to discussed in with senior member.
8 Bodie, Zvi, Alex Kane, and Alan J. Marcus. Investments, 10e. McGraw-Hill Education,
2014.
9 Fourie, Mare-Lise, Lucas Opperman, Deon Scott, and Krish Kumar. Municipal finance
and accounting. Van Schaik Publishers, 2015.
8

Comparison among actual and budgeted figures: Under this process after prepared record of
actual performance the company need to analyse actual budget and estimated budget of the
company that are to be in perfect position to make effective decision regarding growth and
development of the company in near future 10.
Corrective steps: It summarise with all those deviation which are shown in between actual and
budgeted data are find out and make planning to solve those issues which are comes under
budget formulation. Actual budget should taken as base to estimated budgeted.
Revision of budget: If all those action taken during budget preparation are effective then the
company need to analyse it with taking various review and feedback from other member and if
any things need to be change then it should be revised according to the requirement of the
company and other member 11.
Advantages of budgetary control:
 The first and foremost benefit of budgetary control is to help in anticipate and prepare it
for the particular changing situations that are arises in an organisation.
 It will be helpful in coordination of activities through support of various department.
 Another advantages of budgetary control is to increase production and reduce waste or
control costs.
◦ It also help to maximise profitability through effective planning.
Disadvantages:
 The advantages of the budget can leads to maximisation of cost to company.
 Some time the information collected from various department are not accurate that make
the budget less effective.
 It has been found that budget in some situations leads to dis-functional management in an
organisation.
 All department are will not be able to provide valuable decision that create a huge chance
of biasses in the company and profitability comes to lower level.
Planning tools use in the company:
10 Merchant, Kenneth A. "Making management accounting research more useful." Pacific
Accounting Review 24, no. 3 (2012): 334-356.
11 Hopwood, Anthony G., Jeffrey Unerman, and Jessica Fries. Accounting for
sustainability: Practical insights. Earthscan, 2010.
9

Financial budget: In an small scale business company like 4com plc they are
combination of cash flow, income statements, balance sheet and capital budget. These are said to
be that kind of budgets which are use by the company in order to estimate future years 12.
Operating budgets: It refers to be that budgeted statements and activity budget
schedules. It is prepared with the combination of all the revenues budgets which includes
production, marketing and research-practices. It consist of various sales and revenue budget and
related expense budget.
Static budget: It refer to as an estimation of budgeted data which is use at one level of
activity (Static budget, 2015.). If it has been compared with actual outcomes those are received
after the facts. The results are more different from actual budget of the company because they are
fixed 13.
M3: Analysis of planning tools used by the company
In above mentioned planning tools used by the company in order to make there business
more effective. In relation budgetary control these tools are being used so that effective results
are being taken into with minimum cost incurred during production process. Financial budget are
major tool of any business which are use in order to evaluate cash flow and other statements
those are helpful in delivering effective results to the company. Operating budgets are more
effective as company need to use it in order to control extra cost that are incurred by the
company in an accounting year.
D3: Use of planning tool to overcome problems
After analysis of all methods and process of budgetary control those are affecting the
business profitability are need to be considered by the company before making any important
decision. If company is performing well from many year year they necessaries faced some
financial issues which are to be evaluated with applying corrective measures those are helpful in
development of the company. Planning tools are more effective as they are use to control and
manage business operations in its daily course of activities. Some of useful tools like financial
governance and other performance indicators can be more useful for the company to overcome
there financial problems.
12 Håkansson, Håkan, Kalle Kraus, and Johnny Lind, eds. Accounting in networks.
Routledge, 2010.
13 Kotas, Richard. Management accounting for hotels and restaurants. Routledge, 2014.
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TASK 4
P5: Management accounting system helpful in responding to financial problems
In an organisation there are various financial and non financial problems are arise
because of improper management accounting system. It also affect the growth and profitability
of the company 14. The company do have the option in context to overcome financial issues
balance scorecard is being used by the company to evaluate performance and make right
direction in order to achieve its objectives. Company can use this system as an important tools to
get more effective results and to maintain appropriate balance among every department those are
associated with solving financial problems. The most accounting techniques are more useful
sometimes as they are use to solve issues in more quick time without any wastage to of resources
15.
The major part of company is operated by its shareholder and investors those are
responsible to make valuable investment in order to get maximum profit in coming time. So
interest of them should be kept in order to make effective decision that would make them
comfortable to take effective decision. There are some of the financial tools which are used by
the company in order to overcome there financial problems. Under any kind of situation financial
decision are helpful in relation to make operations of the business those are related with cost of
production that are use by the managers 16. Every organization like 4com company which are
facing some problems which are affective profitability and growth of the company. Some
effective strategies and other plan which are use by the company in order solve issues without
affecting company resources.
Comparison among 4com and Unicorn grocery
4Com Unicorn Grocery
This company is associated with the
development of electronic product those are
helpful for the people to solve there problem.
The comparison between actual and planned
budgets are identified and evaluated through
different variance analysis.
14 DRURY, COLIN M. Management and cost accounting. Springer, 2013.
15 ter Bogt, Henk, and Jan van Helden. "The practical relevance of management
accounting research and the role of qualitative methods therein: The debate continues."
Qualitative Research in Accounting & Management 9, no. 3 (2012): 265-273.
16 van der Steen, Martijn. "The emergence and change of management accounting
routines." Accounting, Auditing & Accountability Journal 24, no. 4 (2011): 502-547.
11

As this company is operating in a small scale
so that they are utilising cost in more effective
manner.
Under this process less cost are required and
company would get maximum profit to the
company.
Under this company are collecting data and its
operation on regular basis.
Mostly of the decision are taken through
evaluating the financial statements on yearly or
weakly basis.
Some of the financial tools are used by the company those are use by 4com company as
key performance indicators which are use to observe the performance on regular basis and find
out if any rectification is required during any difficult situation. Other are benchmarking under
which company use to set a range and work according to achieve as compare to other company
of same businesses 17.
M4: Analysis of all those financial issue
From above mentioned financial issues those are affecting business of 4com company are
analysed properly in order to prevent certain risk those are coming in front of company growth
and profitability. Some of financial problems are difficult to analysed and solve as they require
effective techniques. Those are solve through using key performance indicators which is playing
most important role in resolving those financial issues. Other one is financial governance those
are associated with effective decision making through evaluating accounting system in order to
make the company more stable in coming future.
CONCLUSION
From the above project report it has been concluded that management accounting is an
important aspect of any company such as 4com plc in order to take effective decision regarding
its daily operations. The objectives of the company is clearly indicated under this project report
as to make use of accounting systems and applications so that profitability and growth of the
company would be achieved. The project also consist of various budget and planning tools which
are used by the company in financial planning and solving various financial problems those are
17 Lukka, Kari. "The roles and effects of paradigms in accounting research." Management
Accounting Research 21, no. 2 (2010): 110-115.
12

arises in an organisation. With proper analysis about accounting system various suggestion are
being provided those are helpful for the company in coming time period.
13