Management Accounting Report: Analysis of Vispring Plc's Accounting

This report provides a comprehensive analysis of management accounting, focusing on the application of various systems and techniques within the context of Vispring Plc, a bed and furniture manufacturer. It explores different types of management accounting systems, including inventory management, cost accounting, job costing, and price optimization, and discusses their benefits. The report then delves into different methods of management accounting reporting, such as job cost reports and budget reports, and explains their significance. A key section compares and contrasts income statements prepared using absorption and marginal costing, highlighting their impact on profitability and the importance of choosing the appropriate method. Furthermore, it includes calculations of material cost variances and the valuation of closing stock using LIFO. The report also addresses a specific financial issue faced by the company—a lack of liquidity—and suggests the adoption of an inventory management system to mitigate this problem. Finally, it provides a conclusion summarizing the key findings and recommendations for effective management accounting practices.

Managing Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
P1.Management accounting and its different types of management accounting system:...........1
P2.Different method used for management accounting reporting:.............................................2
P3.Preparation of income statement using absorption and marginal costing:............................3
P4.Advantages and disadvantages of planning tools used in budgetary control:.......................7
P5. Adoption of management accounting system:....................................................................10
CONCLUSION..............................................................................................................................10
.......................................................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In traditional business model, an organization only prepared financial accounts which
were beneficial and useful only for external stakeholders of an organization but in today's
economy, it has been realised that an accounting system is also necessary for internal users and
the method which is invented for this purpose is called Management Accounting. Management
accounting is a process that assist internal stakeholders specially managers in planning,
implementing, controlling and decision making (Bloomfield, 2015).
For better understanding of managerial accounting a business firm has been chosen which
is Vispring Plc which is involved in manufacturing of beds and furnitures in Plymouth, England
since 1901 founded by James Marshall. This report covers explanations of management
accounting, different types of management accounting systems and their benefits, various
methods used in management accounting and their uses within selected organizational
context,calculation of different costs, advantages and disadvantages of planning tools in
budgetary control and various ways for adopting management accounting systems to respond the
financial problems.
P1.Management accounting and its different types of management accounting system:
Management Accounting is a tool of preparing and presenting the available data and
information in such a way that may assist the management in planning and decision making. It
involves presentation of professional skills in order to estimate different costs, prepare budgets
and evaluate performance of the workforce. Management accounting is necessary to operate
daily internal activities and transactions in order to achieve the objectives of an organization
(Abdelmoneim Mohamed and Jones, 2014).
Management Accounting System is a framework that records, summarise, analyse and
present an overall picture of activities and operations which may take place in the organization
within a specific time period. Further this system includes process of internal check and control
so that efficiency and productivity may be achieved. There are so many types of management
accounting system used by various organizations for effective internal system. Different types of
management accounting systems which are used by the Vispring Plc are as follows:
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 Inventory Management System: Inventory management is a tool which is used to keep a
record of inventory from purchase of raw material to sale of finished goods effectively.
This system helps in tracing availability of goods within organization so that company
may be saved from the 'out of stock' situation. The Vispring Plc uses this system in its operations
so that the management can save its energy, time, space and funds and built satisfy customer
base by solving their problems and queries quickly.
 Cost Accounting System: Cost accounting system is a method of tracking and analysing
cost generated by various cost centres in order to manufacture products in organization.
This accounting process contain estimation of various fixed costs as well as variable
overheads, absorption of cost and allocation to cost centres and find the variance between
actual and standard costs. The selected organization uses cost accounting to reduces its
costs and calculate and increase its profit.
 Job Costing System: Job costing method is used to estimate and finalise the cost
of a specific or customised projects or job. Job costing system is required in
chosen firm because customised goods is sent to the customer immediately after
the production without placing it in inventory hence calculation of customised
goods is not possible in inventory management system or cost accounting system.
The management also keep an eye on performance of the employees by using the
information provided by job costing accounts.
 Price Optimisation System: Price optimisation is a technique of analysing
customer reaction and behaviour regarding different prices of products or
services. This mathematical tool helps in opt out the effective price of product that
provides maximum profit with maximum customer satisfaction. Management of
respected firm adopts the system for deciding optimum price of its products in
different situations and markets (Bagautdinova, Kundakchyan and Malakhov,
2013).
P2.Different method used for management accounting reporting:
There are various methods for reporting of management accounting company like
Vispring Plc may choose any methods for their management accounting reporting. Some of
these are as follows:
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 Job cost reports: This method is used by the company when there is assignment of a
particular job or work to a particular individual or worker. It may help the company in
giving responsibility and identifying the person who is responsible for doing inefficient
work. This reports shows the expenses related to specific project. In this, company
estimate the revenue and cost for a particular job so as to find the profitability of such
job assignment.
 Budget reports: One principle methods for management accounting reporting is the
budget planning. Budgets are normally made for future respect for pre-determined time
with helps the company in achieving in desire goals by improving the efficiency and
effectiveness of the working staff.
 Accounts receivable Aging: this report is critical tool for management accounting
reporting which tracks records about the credit given to the customers of the company.
This reports shows the customer balances along with period of time up-to which they
have been owed.
 Execution reports: Management accountants uses this method for spending plans for
estimation of normal business operation and specify the manner for its execution. This
report is prepared also for evaluating the performance of company and prepared by
management accountant either monthly basis or quarterly basis (Collis and Hussey,
2017).
P3.Preparation of income statement using absorption and marginal costing:
There two methods or techniques available for preparation of income statement which is
absorption costing and marginal costing.
Absorption costing is a costing method which is used to calculate total costs incurred in
production process including fixed and variable costs. It is also known as full costing method due
to considering both fixed and variable cost while calculation of net profitability.
Marginal costing is a method which is used to calculate net profitability in which
variable cost is considered as unit cost and fixed cost is considered as the period cost. Using such
method increases net profitability of company in their financial statement due to which it is most
preferable method adopted by small-medium organisation.
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Income statement under Marginal costing method for month of May & June
Particular May June
(in £) (in £)
Total Sales 50 15000 25000
Less: variable cost
Opening stock - 3200
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable Cost 3 1500 1140
Less: Closing stock -3200 -1280
Total Variable cost 4800 8000
Contribution 10200 17000
Fixed indirect production cost 4000 4000
Selling & Distribution costs 4000 4000
Administrative costs 2000 2000
Sales commission cost 750 1250
N.P. (Net profit) -550 5750
Absorption Cost per unit
Direct Labour cost per unit 5 5
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Direct Material cost per unit 8 8
Variable cost per unit 3 3
Marginal Cost per unit 16 16
May June
Opening stock - 200
Produced units 500 380
Sold Units 300 500
Closing stock 200 80
Income statement under absorption costing method for month of May & June
Particulars May June
(in £) (in £)
Total sales 50 15000 25000
Less: Cost of Goods sold
Opening stock
D.L. 5 2500 1900
D.M. 8 4000 3040
Variable production cost 3 1500 1140
Fixed indirect production expenditure 4000 4000
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Closing stock -4800 2122.4
Total cost of goods sell 7200 7957.6
G.P. (Gross profit) 7800 17042.4
Selling & Distribution expenses 4000 4000
Administrative cost 2000 2000
Sales commission expenditure 750 1250
N.P. (Net profit) 1050 9792.4
Absorption Cost per unit
Direct labour cost per unit 5 5
Direct material cost per unit 8 8
Variable cost per unit 3 3
Fixed indirect production expenses per unit 8 10.53
Total Absorption Cost per unit 24 26.53
May June
Opening stock - 200
Units produced 500 380
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Sold units 300 500
Closing stock 200 80
Interpretation: After observing the above two income statement, it is clearly stated that profits in
absorption costing is higher than in marginal absorption in both months. This is because, in
absorption costing company shows the cost at the rate which is under recover. Therefore,
marginal costing shows the true profits of the company, as a result, company shall require to
adopt the marginal costing system in its management accounting system (Demski, 2013).
Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
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Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
05/01 Previous balance
(inventory) 40 3.0000 120.0000
05/12 Bought 25 units at £
3.60 each 25 3.60 90. 65 3.2308 210.0000
05/15 Issued 36 units 36 3.2308 116.307
7 29 3.2308 93.6923
05/20 Bought 20 units at £
3.75 each 20 3.75 75. 49 3.4427 168.6923
05/23 Issued 10 units 10 3.4427 34.4270 39 3.4427 134.2653
05/27 Issued 25 units 25 3.4427 86.0675 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.2135 9 3.4427 30.9843
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P4.Advantages and disadvantages of planning tools used in budgetary control:
Budgetary control means how effectively managers use budgets to monitor and control
costs and trading operations in a given time period. It is the process of determining various actual
results by comparing those actual with the standard set by the company and find out the variance
and take corrective action if required. Thus, it is necessary for Vispring Plc to use various tools
which can help them in reducing unnecessary cost while executing different business activities .
Budget:-
Budget is just a process of formulating a plan for spending money. It is plan which is
essential for Vispring Plc to prepare in order to figure out anticipated operations income and
expenses of an organisation for a future period of time. Is is prepared on the base of trends and
past experiences in the enterprise and must be authorized and written by the appropriate
authority.
Advantages :-
 It supply a valuable means of controlling revenue and expenditure of Vispring
Plc.
 Budgeting provides a means through which goals and policies of Vispring Plc are
timely evaluated, tested and constituted.
Disadvantage :-
 Budgeting is very time consuming process because it requires proper research and
analysis.
 The success of budgeting depends on the involvement and group action of all members of
management. Many times budgeting has unsuccessful because executive management has
provide only lip service to its executing.
Zero based budgeting :-
In this zero base is considered while preparing the budget. It justify all the expenses that
incurred of each time then prepare a new budget. This budget is suitable for the organisations
such as Vispring Plc which can bear the expenditure of it because huge expenses are involve in
zero based budgeting.
Advantages:-
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