Management Accounting: Cost Analysis, Reporting, and System Adoption

This report provides a comprehensive overview of management accounting, including cost analysis techniques and reporting methods. It begins with calculating costs using marginal and absorption costing to prepare income statements. It explains management accounting and its essential requirements, detailing different reporting methods. The report then discusses the advantages and disadvantages of planning tools for budgetary control and compares how organizations should adopt management accounting systems to address financial challenges. The analysis includes income statements prepared using both absorption and marginal costing methods, highlighting the differences in profit calculation and the impact of fixed cost allocation. The report also covers price optimization, cost accounting, inventory management, and job costing systems as crucial components of management accounting, alongside the significance of inventory, performance, and budget reports for effective management decision-making.

Management accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Part A...............................................................................................................................................4
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................4
Part B...............................................................................................................................................7
P1 Explain management accounting and give the essential requirements for different types of
management accounting systems.................................................................................................7
P2 Explain different methods used for management accounting reporting.................................8
Task 2.............................................................................................................................................11
P4 Explain the advantages and disadvantages of different types of planning tools that can be
used for budgetary control.........................................................................................................11
P5 Compare how organizations such as yours should adopt management accounting systems
to respond to financial problems................................................................................................13
Conclusion.....................................................................................................................................15
Bibliography..................................................................................................................................16
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Introduction
Management accounting is that technique which is needed in all types of organizations as by the
help of them it will be possible to ascertain all the required information. That will be taken into
consideration by the managers and other officials on the decision making process. In this
assignment, there will be a discussion in respect of the manner in which cost is to be calculated
and all the systems which are to be taken into account so that data which is needed is acquired.
With the help of them, their company will be able to make all the reports and all of this will be
performed in the first task of this assignment. Then in later part, all the planning will be made
with the use of the tools which are present such as budgets and in this section the techniques to
be used for resolving of all the financial problems will also be taken into consideration.
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Task 1
Part A
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Income statements are required to be prepared in order to identify the profits which are made and
for this, the methods which are present include marginal and absorption costing which is
discussed below.
Absorption costing: there is the need to use various types of cost in the production of the unit
and on this, they are classified as direct and indirect and also as the variable and fixed cost.
While the calculation of the total cost it is required that they are taken into account in a proper
manner. This is the method which is also known as the full cost method as in this all the cots
which are incurred will be included in the total cost (Aurora, 2013). There are various methods
which can be used for the allocation of the cost in an appropriate amount and one of them is
activity-based costing and in this, all the distribution is made by taking activities as the base and
in this cost pools and drivers are identified. There will also be an allocation of the fixed cost
which has been made in the particular period.
Marginal costing: There is certain cost which will be changing in direct proportion to the
change in the volume and they all are known as a variable cost which is to be taken into
consideration in the marginal costing. In this, they will be used and by that, the contribution
which has been earned is ascertained which then helps in calculation of the final amount which
has been earned by the business. Under this, the apportionment of fixed expenses is not made.
In the making of these reports there is the need for the various types of information and also the
methods are to be used so that correct amount is included in the cost sheet. The one tool which
can be used is budget in which standards of all the costs are determined. By the use of them the
best cost will be determined and then they will have to be compared with the actuals so that the
deviations which are present can be calculated and for this variance analysis will have to be used.
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Income statement as per absorption costing
Particular Year 1 Year2 Year 3
Amount (₤) Amount (₤) Amount (₤)
Production units 3500 3800 3650
Sales units 2600 3500 3200
Sales @85 per unit 221000 297500 272000
Opening stock
Production cost:
Direct material cost@ £13 per unit 45500 49400 47450
Direct labor @£ 10 per unit 35000 38000 36500
Other variable expenses @ £7 per unit 24500 26600 25550
Fixed manufacturing cost 92000 92000 92000
Total production cost 197000 206000 201500
Less: Closing stock 50400 16200 24750
Cost of goods sold 146600 189800 176750
Gross Profit 74400 107700 95250
Other overheads:
Distribution expenses 24000 24000 24000
Administrative expenses 89000 89000 89000
Interest expense 1100 1000 0
Net profit before tax -39700 -6300 -17750
Tax @30%
Net profit or loss after tax -39700 -6300 -17750
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Income statement as per marginal costing
Particular Year 1 Year2 Year 3
Amount (₤) Amount (₤) Amount (₤)
Production units 3500 3800 3650
Sales units 2600 3500 3200
Sales @85 per unit 221000 297500 272000
Opening stock
Production cost: Variable
Direct material cost@ £13 per unit 45500 49400 47450
Direct labor @£ 10 per unit 35000 38000 36500
Other variable expenses @ £7 per unit 24500 26600 25550
Total Variable production cost 105000 114000 109500
Less: Closing stock 27000 9000 13500
Cost of goods sold 78000 105000 96000
Interest expenses 1100 1000 0
Contribution 141900 191500 176000
Distribution expenses 24000 24000 24000
Administrative expenses 89000 89000 89000
Manufacturing expenses fixed 92000 92000 92000
Net profit before tax -63100 -13500 -29000
Tax @30%
Net profit or loss after tax -63100 -13500 -29000
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From the calculations which are made above it can be noted that the profits which are made in
both the methods are different and this is due to various reasons. The manner in which allocation
of fixed assets is made in them is different and due to this, there is deviation which is identified.
As the distribution of fixed cost is done in case of absorption so in this the amount of loss is less
in that in comparison to what is ascertained in marginal costing.
Part B
P1 Explain management accounting and give the essential requirements for different types
of management accounting systems.
In the business, there are various processes which are to be performed such as collection,
interpretation, and analyzation of the information and all of these are performed under
management accounting. By the help of this, all the managers are able to make the proper
decisions as the data which is required will be made available to them on time. All of this will be
beneficial for the business as the processes will be performed in an appropriate manner. There
are certain principles which are to be used in this and they include the principle of casualty and
analogy. Management accounting plays a very important role in the business as by the help of
this all the issues which are there can be dealt in the proper way with the use of the processes and
tools that are available (Mongiello, 2016). The management will be able to use them and perform
the operations in such way which is best in the interest of the company. Some of the most
important systems which will be included in this are as follows:
1. Price optimization system: this is the system in which information in relation to price setting
will be collected. All the entities are required to set such price by which the company will be
able to make the maximum amount of profits. There is the various method which is available in
this regard. Some of them are penetration pricing, cost-plus pricing, market-led pricing. In the
undertaking of them, there will be a requirement of a lot of information and that will be collected
under this system and this will be done in such manner by which all the information is taken into
use.
2. Cost accounting system: Under this, the company will be required to undertake such process
by which the optimum cot will be ascertained. This can be done with the help of the methods and
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then it will be possible for the company to know that whether overspending is done by the
company (Wiedemann , 2014). For this proper plan will be made so that this can be reduced and
then the company will be collecting the information by which this can be achieved.
3. Inventory management system: In this system, all the aspects in respect of the inventory will
be taken into account. There will be various materials which are used in the process of
production of the goods. All of them will be determined and the information about them such as
the quantity and the time at which order is required to be placed is also collected. Then they will
be used in the business so that there are no problems which are faced by the company. This is the
man component and so it is important that they shall be taken into account and this will be
possible with the help of this. The manner in which the allocation is to be made of all the stock
will also be identified in this system.
4. Job costing system: In the company tee are various processes and jobs which are undertaken
and it is required that they are carried out in the best possible manner. For this, all the required
data will be collected by the company and this will then be used to perform all the actions. Under
the manner in which performance s to be made and the ones who will be responsible in this
regard will also be identified and they will be told about the task which is to be completed by
them. By this, the work will be completed in the specified and manner and there will be no
confusion which will be made in this respect.
P2 Explain different methods used for management accounting reporting.
In the company there is a lot of the data which is collected by the use of the systems and that will
be recorded when it is not possible to use it in the perfect manner. For this various reports are
required to be prepared. There are several types which are involved in this and it is essential to
follow this as of this is not done then the chances are there that data may be modified and
misused. Some of the reports which will be made are as follows:
Inventory report: In this report, all the data which is related to inventory and has been collected
in the above procedure will be recorded so that it can be used in the coming period. The
managers are required to use that in their processes so that they can deal with all the issues in
such manner by which no harm will be made to it (Zaleha Abdul Rasid et al., 2014). The
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shortage or bulk stock problems which are faced will be eliminated and company will be able to
save the cost which is incurred due to this and also the goodwill is made of they are working in a
proper manner.
Performance report: Under this, all the information by the use of which performance can be
evaluated will be recorded. There are various aspects which are involved in this process and all
the actors which are to be checked for the determination of this will be mentioned in the report.
by this employees will feel motivated as they will be required to achieve the targets which are
specified otherwise they will not be able to prove themselves. For this, they will be working with
the full potential and by this company will also be obtaining benefits. The overall performance of
the company will be improved and this will lead to the attainment of the success and this the
main objective for which working is made.
Budgets: This is also a kind of report in which plans are made in respect of all the incomes and
expenses which are made in the business and this will help them in obtaining the required
targets. There are standards which are set in this and they are the marks which are to be achieved
and so the company will be required to incur all the expenses in such manner by which they can
be maintained and this will be in the interest of the company (Wang et al., 2015). By the use of
the overall reduction in cost will be made which is needed to increase the level of profits.
Job reports: in this report, all the information which is related to the jobs will be entered. The
persons who will be responsible for this will be mentioned in the report so that they know that
what is to be done by them and also the manner in which they will be required to perform all of
these tasks. The time within which it is to be completed and provided will also be mentioned in
this report. By this there will best result’s which will be obtained and also the data will be used
for future reference.
By the use of all the reports and systems, it will be possible for the company to attain the
required results. Then they will also be useful for the management as they will be able to take
such decisions which will bring the additional benefits for the business (Zinyama & Nhema,
2016). All the departments will be able to establish a proper plan with the help of this and this
will lead to carrying out of the operations in the best manner which will lead to increase in
satisfaction among all.
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All the reports and systems which are made in the business are integrated with each other and
this is because of the fact that they cannot be used in the business without each other. This is
because all the data which will be required in order to prepare the reports will be collected by the
use of the systems as they are responsible for this (Mayeli & Bakhoda, 2016). Then if the entry
will not be made then the collection process will not be used as in order to use the information it
is required that it is presented in the proper manner.
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Task 2
Report:
Introduction
In this report, all the components which are required in the planning will be discussed and
together with them the techniques by the use of which it will be possible for the company to
eliminate the issues which are present will be discussed.
P4 Explain the advantages and disadvantages of different types of planning tools that can
be used for budgetary control.
Budgetary control is required to be undertaken in the business so that all the operations can be
controlled in an appropriate manner and for this, it is required that proper planning shall be
undertaken. There are various tools which can be used such as budgets can be made in then it
will be required that the best costing method is used as by the help of that proper cost will be
ascertained that will have to be used in the formulation of the budget (Kovalevaa et al., 2016).
There are some of the merits and limitation which are present in relation to them and they are as
follows:
Advantages of budgetary control:
 There will be the availability of the information in them which is required in order to
carry out the process in such manner by which wastage which is currently made will be
reduced.
 As in this research is performed so the resources which are available will be identified
and then they will be distributed among all the sections as per their requirements by which
they will be able to improve the performance.
 Risk factors which are present will be identified and then the manner in which they can
be reduced will be considered in the making if the budget.
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 They provide the guidelines for the manner in which actions are to be taken and also the
communication will be improved as all the will be required to coordinate to identify all the
aspects.
Disadvantages of budgetary control:
 As this is the time-consuming process so this will be a demerit as the time which would
have been saved can be used for other beneficial purposes.
 Sometimes budgets are rigid and so there is not the scope to make any changes in it by
which employees feel that they are not able to perform in a proper manner.
Several kinds of budgets:
Incremental budgets: In this, the budget is made by taking into consideration the data of the
past years and in that some increment is made in order to adjust them in accordance with the
changes which have taken place in the period. The budget will be made by the inclusion of all
the changes which shall be made in order to make it proper.
Operating budget: This is the budget in which all the expenses and incomes which are made
with the help of the undertaking of various operations will be taken into account. There will be
targets which will be set in respect of all the tasks which will have to be acquired by the proper
management and implementation.
Cash budget: The transactions and operations which will be including the use of cash will be
included in this. By the help of this, it will be possible to determine the cash requirements on
tome so that they can be made available whenever required (Mansfield & Beresford, 2014). All
the cash related problems can be dealt with the making of this budget.
Zero-based budgeting: Under this, the past year's information will not be taken and all the
information will be collected from starting and so the budget will be a new one in which there is
no base. Due to this, the mistakes in past budget will not be included in it.
Budgets will be made and the company will be using various techniques in order to know that
they have been implemented in a proper manner or not. For this variances are to be collected
which are there in the actual and the budgeted amounts and for this variance analysis will be
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carried out (Saddam, 2015). Then they will be used and the reasons due to which this is
happening will be determined and that will then be taken into consideration in the further
planning so they are not repeated again. Also, the costing methods such as target and ABC
costing will also be used in making the budgets.
P5 Compare how organizations such as yours should adopt management accounting
systems to respond to financial problems.
Management accounting systems are the important tool that will be used by the company in the
process of responding to all the financial problems as this includes various other techniques
which prove to be beneficial. All the issues will have to be first identified and for that, there is
the need to make a proper evaluation and such systems shall be established by which it will be
made possible (Olusegun, 2016). There will be a collection of the information by which this will
be some and in addition to this certain other tools are also there which can be used and they
includes:
Benchmarks: Under this certain standards are set in the basis of the industry and they will have
to be followed so that the manner in which industry is growing ill also be adopted by the
company and it will be able to deal with all the issues. The risk which is involved is also reduced
as activities will be undertaken in accordance with the targets and standards.
Key performance indicator: It is necessary that performance shall be regularly evaluated and
for this, some of the indicators are set by the company so that all of the people will have to use
them (Strelnik et al., 2015). They will be performing in the manner by which they all the ability
to follow the parameters which are set.
Financial governance: Under this, the financial aspects will be controlled and for this proper
systems will be there so that plans can be made and can be executed in such manner by which no
issues are faced afterward and this is beneficial in overall interest (Ahmed, 2015).
For the purpose of ensuring the sustainable success will be attained it is required that proper tools
are used and some of them are included in management accounting by which this is possible.
Budgets are discussed which will be made and they will be contributing to this. In addition to
this, there is the need to make such decisions in which opinion of all is included so that the issues
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which are faced due to lack of coordination can be reduced. The reasons will be ascertained and
then they will be used to make the plan by which proper measures will be taken.
The proper plan will be the one which will be most beneficial in the attainment of the objectives
as there will be all the aspects which will be included in them and are to be undertaken by all the
members. By the plan, all the elements by which performance is affected will be taken into
consideration and such steps will be taken which will ensure the sustainable success.
Conclusion
From this, it can be concluded that budget is the most important tool and in that various other
methods are to be used so that they can be made in a proper manner. Then the techniques by
which all the issues will be resolved are also discussed and there will be the attainment of the
success by that.
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Conclusion
From the report which is presented above, it can be noted that there is the collection of
information which is made with the use of the systems and then they will be required to be
reported. Then there is the need to calculate the profits which are dining with the help of methods
available and the income statements have been presented by the use of them. The tools which are
used in the company for planning are also discussed with the help of which proper budgets will
be made which ensures that proper expenses are made. Also, all the techniques which are there
for the solving of financial problems have also been explained in the report above.
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