Evaluating Management Accounting Systems, Reporting, and Cost Analysis

This report provides a comprehensive analysis of management accounting techniques for Connect Catering Services, focusing on systems, reporting methods, cost analysis, budgetary control, and adaptation to financial problems. It begins by explaining management accounting and its essential requirements, covering cost accounting, inventory management, job costing, and price optimization systems. Various reporting methods, including budget reports, accounts receivable reports, inventory management reports, and performance reports, are examined for their impact on financial management. The report further calculates costs using marginal and absorption costing techniques and evaluates the advantages and disadvantages of planning tools for budgetary control, such as cash budgets and operating budgets. Finally, it compares how businesses adapt management accounting systems to respond to financial challenges, emphasizing the importance of aligning business performance with organizational goals. The insights and analyses provided aim to assist Pearl Chartered Accountants in advising Connect Catering Services on effective management accounting practices.

Management
Accounting

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Explanation of management accounting, along with essential requirements of various
systems of management accounting:...........................................................................................1
P2: Explanation of various methods that are used for reporting of management accounting:....3
TASK 2............................................................................................................................................5
P3: Calculation of costs by utilising appropriate techniques for cost analysis for preparing
income statement by using marginal as well as absorption costs:...............................................5
TASK 3............................................................................................................................................5
P4: Evaluation of advantages and disadvantages associated with various planning tools for
budgetary control:........................................................................................................................5
TASK 4............................................................................................................................................8
P5: Comparing how businesses are adapting systems of management accounting for
responding to financial problems:...............................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting can be explained as an approach of identifying and summarizing
financial information or data which facilitates effective decision making by managers of an
organization. Hence, it is utilized by internal team of an entity. Management accounting refers to
a way of distinguishing, deciphering, imparting as well as examining information related to
financial activities (Aouni, McGillis and Abdulkarim, 2017). This report is based on examination
of management accounting techniques for Connect Catering Services. Entity is based in
Oxfordshire and serves in an industry of catering. It has approached Pearl Chartered
Accountants, which helps businesses in various aspects such as, accounting taxation and
strategies for business growth for the purpose of getting advice on management accounting
systems.
This report covers evaluation and understanding for systems of management accounting.
Application of techniques for management accounting are analysed. Further, planning tools that
is utilised in management accounting are demonstrated and lastly, use of management
accounting by organizations as a response to problems related to finance is compared.
TASK 1
P1: Explanation of management accounting, along with essential requirements of various
systems of management accounting:
Management accounting systems comprises of internal systems of business that enables
measurement and evaluation of financial transactions of an enterprise for the purpose of effective
management of organizational processes (Bedford and Speklé, 2018). Therefore, it can be stated
that systems of management accounting facilitate tracking of financial data related to business
which fosters analysis of performance of Connect Catering Services. It provides critical
information to managers of a firm to be utilised for effective decision-making of business.
management accounting systems are of different types, which are demonstrated below with its
essential requirements:
Cost accounting system: It enables estimation of costs incurred in a business, and value of
products of an organization for the purpose of profitability analysis and cost control. Cost
accounting system is an important technique for ascertaining profit and costs of an enterprise. It
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is applied for assessing actual cost which is associated with manufacturing of goods and
providing services by an organization.
Essential requirements: Cost accounting system pertains following essential requirements:
 Utilization of cost accounting system facilitates estimation of all costs which incurs in
Connect Catering Services.
 Tracking and monitoring of costs by this framework helps in identification as well as
elimination of unnecessary costs, hence, profitability of an organization improves.
 It is designed with a motive of monitoring expenses that incurs in a business and
incorporates systematic procedure that enables recording as well as reporting of
information related to expenditures. It fosters managers to formulate effective strategies
and enhance efficiency of Connect Catering Services.
Inventory management system: This system is applied for tracking level of stock in a
business, along with analysing sales, deliveries as well as orders. It ensures effective monitoring
of inventory position of Connect Catering Services. Hence, this tool facilitates organization of
data related to inventories (Cokins, 2016).
Essential requirements: Following are some essential requirements of inventory management
systems:
 Inventory management system helps in minimizing chances if overstocking and
understocking. Overstocking leads to increment in business expenses as costs related to
maintenance of stock increases. On the other hand, understocking hinders operations of
business.
 It simplifies management of inventories of Connect Catering Services and therefore,
ensures enhancement in productivity.
 It consists an array of processes of internal management which fosters automation of
tasks related to inventory management.
Job costing system: This system fosters accumulation of information related to costs which
is associated with service job as well as specific production. Such type of information is required
for tracking costs of each job of Connect Catering Services. It includes approximation of costs
related to three primary aspects, materials, labour as well as overhead.
Essential requirements: Various essential requirements of job costing system are described
below:
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 It allows assessment of costs related to each job which helps in determination of profit
margin that is associated with specific business processes.
 It provides accessibility to business management for formulation and development of
effective strategies that enhances activities of cost control in Connect Catering Services.
 Apart from it, job costing system allows continuous monitoring of business processes. It
facilitates identification of potential issues of an enterprise, which can be managed
adequately by managing team of an entity.
Price optimisation system: This system of management accounting enables calculation of
variations in demand of customers due to fluctuations in level of price. In other words, price
optimization system analysis response of customers at different level of price in relation to
products or services of Connect Catering Services.
Essential requirements: Following are some essential requirements which are associated with
incorporation of price optimisation system in Connect Catering Services:
 Price optimization system helps in implementation of effective pricing strategy as per
demand of customers.
 It enables alignment between expectation of customers and profitability of business.
 Hence, sustainability and profit earning capacity of Connect Catering Services improves
with the application of price optimization system of management accounting.
P2: Explanation of various methods that are used for reporting of management accounting:
Management accounting reports is a technique of displaying financial status of an
organization over a period of time. It complies information of business related to finance
(GOVDYA and KHROMOVA, 2018). It is prepared with a motive of informing managers of
Connect Catering Services in context to financial data of an enterprise. It ensures formulation of
effective strategies and making of informed decisions by managers of business. it emphasizes
internal information related to funds that is utilised for planning, regulation, decision-making as
well as performance measurement. Management accounting reports are analysed by managers of
a firm for enhancing profit earning capacity and productivity of an enterprise. Different types of
management accounting reports are explained below:
 Budget reports: It indicates an internal report that compares estimated or budgeted
projections of revenue or expenses of an enterprise with its actual level of performance
during a time period. Preparation of budget report in Connect Catering Services helps in
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determining and controlling high expenditures which ultimately leads to improvisation of
company’s profitability. Overall, this report entails comparison for performance of
business along with estimations of company. hence, any loopholes or drawbacks can be
identified and eliminated.
 Accounts receivable reports: This report of management accounting plays a crucial role
in fostering activities of enhancing productivity of an organization by providing an
overview of balances of business related to credit. Monitoring of credit balances or
accounts receivable of business is essential for formulating effective credit policies that
aligns with payment capabilities of customers and requirements of business. application
of technique of preparing management accounting report helps in minimizing risks of bad
debts (Hoozée and Mitchell, 2018). This report records unpaid balances of debtors along
with duration which helps Connect Catering Services in keeping track of customer debts
and improves organization of finance in an entity.
 Inventory management reports: Preparation of this report facilitates with a snapshot of
inventory position of an enterprise at a specific time period. It provides summary of
existing or available stock in a company. In context to Connect Catering Services,
computation of inventory management report ensures maintenance of safety stock, on-
time ordering of inventory so that processes of business are not hindered due to
unavailability of stock. Apart from it, this report of management accounting helps in
avoiding overstocking, i.e., a reason for expense increment related to maintenance of
unnecessary inventory. In addition to it, preparation of inventory management report
ensures evaluation of average lead time that is required by suppliers which fosters
adequate stock ordering as per organizational requirements. Overall, this report fosters
production efficiency of Connect Catering Services.
 Performance reports: This management accounting report states expectations of
business performance which enables comparison of actual performance with the
estimated one (Hyndman, 2016). In relevance to Connect Catering Services, it is created
for the purpose of reviewing performance of an organization which is helpful for
formulating effective key strategic decisions regarding future growth and development.
Preparation of performance report enables analysis of current business situations and
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fosters effective governance of a firm. It improvises accountability and productivity of
Connect Catering Services.
TASK 2
P3: Calculation of costs by utilising appropriate techniques for cost analysis for preparing
income statement by using marginal as well as absorption costs:
Cost analysis refers to a procedure of analysing costs that are associated with various
elements of business (Kumarasiri, 2017). In relevance to Connect Catering Services, there are
mainly two purpose of conducting cost analysis, i.e., internal reporting and external reporting.
Former indicates utilization of technique of cost analysis by internal team of management of an
enterprise for understanding and evaluating cost of business operations. While, later states
utilization of cost analysis by external users of business for analysing efficiency of a company.
Marginal costing: It refers to a technique in which costs which are variable are charged to
per unit costs while fixed costs is written off against aggregate contribution. Hence, marginal
costing evaluates change in relation to total costs of business when quantity of production is
increased by one. In other words, it implies additional costs which is involved in production of
additional output unit. This costing technique helps managers of Connect Catering Services in
ascertaining appropriate activity level by evaluating variable costs of business.
Absorption costing: It is a technique of accumulating costs which is associated with
manufacturing of a product. This method of costing allocates fixed costs to each output unit in a
period of time. It ensures accurate accounting as it analysis fixed as well as variable costs (Libby
and Salterio, 2019).
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