Management Accounting Report: Financial Analysis of Agmet's Systems

This report delves into the realm of management accounting, focusing on the financial systems of Agmet, a UK-based metal recycling company. It dissects the essential requirements of different management accounting systems, including cost accounting, inventory management, job costing, and price optimizing systems, highlighting their significance in organizational decision-making and financial control. The report then explores various management accounting reporting methods such as budget reports, accounts receivable aging, job cost reports, and inventory and manufacturing reports, demonstrating their utility in monitoring performance and informing strategic decisions. Furthermore, the report provides calculations using marginal and absorption costing, offering a reconciled statement of profit and loss to illustrate the application of these techniques. The report also discusses planning tools, and how management accounting systems adapt to financial problems. Overall, the report provides a comprehensive overview of management accounting principles and their practical application within the context of Agmet's operations, emphasizing the importance of these systems in driving financial performance and strategic planning.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
SECTION 1......................................................................................................................................1
P1. Management accounting and essential requirements of different types of management
accounting systems......................................................................................................................1
M1...............................................................................................................................................2
D1................................................................................................................................................3
P2. Explaining different methods used for management accounting reporting..........................3
LO 2.................................................................................................................................................4
P3 Calculate cost using appropriate cost analysis to prepare an income statement using
marginal and absorption costing.................................................................................................4
Reconciled statement of profit and loss shows in the techniques...............................................7
M2...............................................................................................................................................8
D2................................................................................................................................................8
SECTION 2 .....................................................................................................................................9
LO 3.................................................................................................................................................9
PART A...........................................................................................................................................9
P4 Compare and contrast the planning tools used in the management accounting....................9
M3...............................................................................................................................................2
D3 ...............................................................................................................................................2
LO 4.................................................................................................................................................2
PART 2............................................................................................................................................2
P5 How management accounting adopting systems to respond to financial problems. ............2
M4...............................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is refers to the management oriented accounting. It is the whole
study is based on financial accounting. Management accounting helps to analyse the concept of
accounting system of organisation. Present report is based on the accounting system of Agmet
which is a leading recycler of metal bearing industrial products in UK. Furthermore, this present
report divides into two sections which describes the different aspects of management accounting.
It will focus on different essential requirement of types of management accounting systems. It
explains the methods used for management accounting reporting. It will also explain the some
calculation as well.
SECTION 1
P1. Management accounting and essential requirements of different types of management
accounting systems
In management accounting is the financial and non-financial decision making approach.
In this process organisation management make planning and organising the performance
management system (Chenhall and Moers, 2015). Management accounting system helps Agmet
to produce a management report and accounts which provide the overall structure of the financial
position of the company. Besides, this helps to make short and long term decisions. The main
role of management accounting systems which helps organisation to take best plans and decision
making approach. Main function of management accounting is to forecast the future which helps
company to make further investment plans and expansion ideas.
This may create new opportunities for company. Forecast the future means take decision
making approach which solves the business problems and minimize the future risk (Cooper,
Ezzamel and Qu, 2017). This helps to maintain a strong financial position of company which is
an important function of the organisation. Management accounting another function is to help in
buy or make decision. This helps to minimize the cost and insufficient requirements. This
process helps in operational and strategic levels. There are some types of management
accounting systems and their essential requirement in the organisation.
Cost accounting system: Cost accounting system is the first system of management
accounting. It is also known as product costing systems or costing systems. This helps to
measure the cost of the products. For profitability analysis and inventory valuation. This also
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helps to maintain the cost control activities and in making effective plans. Effective and accurate
cost of products helps to estimate the profitability ratio of company (Eldenburg and et.al., 2016).
Cost accounting or product cost accounting systems help Agmet to identify which product is
productive or which ones are not. It is essential for the company to measure the future estimating
prices. Another essential requirement of product or cost accounting is to estimate the closing
value of material inventory, work in progress and finished goods inventory for preparing
financial statement of company. In cost accounting.
Inventory management systems: It is another management accounting system which
helps to maintain the inventory or stock accounting system (Fullerton, Kennedy and Widener,
2014). Manufacturing companies need to adopt these systems in order to stable the product
overstock to avoid outages. This is the most essential and important tool to make inventory data.
Company applies this system on daily basis according to the situations. Inventory management
system is the vital system in management accounting to show the actual requirement of stock or
raw materials for production. Inventory system helps to solve the challenges by finding right
solutions.
Job costing systems: On the other side, another management accounting system is Job
costing system (Job Costing, 2017). It is the best tool of accounting. This is the manufacturing
cost to an individual product or batches of products which help to identify the product identity.
This system is used generally in those manufacturing firms where products manufactured are
sufficiently different from others. It is the report of direct material and direct labour. Overall, job
costing system accumulate of the costs of material, overhead for a specific job. It is the most
approachable tool which helps to trace the specific cost to individual job examining (Messner,
2016).
Price Optimising systems: This management accounting system determines the
customer’s response against different prices of products and services.
Essentials requirement of management accounting systems
All the accounting management systems is the equally important and essential for the
organisation. These accounting systems help to analyse the actual position of the financial report
will be shown. Moreover, the main aim of the organisation is to maintain the accounting systems
to sustain the effective management performance (Messner, 2016).
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M1
Management accounting system is the most beneficial tool to determine the actual
position of organisation (Otley, 2016). This is the most important and necessary requirement for
the financial accounting system. For example: it helps to reduce the expenses off the company
and show the unnecessary expenses. Therefore, manager of company takes actions to control the
expenses or cost. This is an important function of management accounting systems. Another
advantages of is to improve cash flow, in which budget are the main part of the management
accounting. With the help of cost accounting system, company manages their additional cost and
improves the functioning level of the organisation. Agmet can easily control their expenditure
cost out of necessary cost. For Small scale enterprises these cost accounting systems are very
beneficial to make best decision making approach (Pimentel and Major, 2010).
D1
Management accounting system is the effective tool to enhance the performance
management which gives negative and positive aspects to the company. Moreover, the main
purpose of the organisation is to grab the best opportunities. Company mainly focus on the
financial statement of the annual report to measure the net cost and net income. Besides, it has
the limitation of personal bias personal prejudices and bias of an individual can affect the
objectives of the organisation. Apart from that, due lack of understanding and market knowledge
may give less productivity in making cost effective approaches and management accounting
system (Renz and Herman, eds., 2016).
P2. Explaining different methods used for management accounting reporting
Management accounting reports are very useful for small business owners through which
they get help to monitor company’s activities to prepare the frequent accounting report.
Management accounting reporting is based on the size and time, owner and manager may request
quarterly, monthly weekly. There are different types of managerial accounting reports.
Budget Report: Budget report is very much helpful for small businesses to make their
budget report in order to measure the performance level. This budget report helps to determine
the department performance and control costs. Manager prepares the budget based on the actual
expenses from prior years (Salehi, Rostami and Mogadam, 2010). This makes the opportunity to
control on the unnecessary expenses. Budget report is also very much helpful at the time of
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employee’s incentives. On the basis of budget report owner enhance the incentives of the
employees. In case of funds budgeting company may give the bonus to employees in order to
meet the financial goals (Schaltegger and Burritt, 2017).
Accounts Receivable Aging: this accounts receivable aging report helps to critical the
managing cash flow for companies which extended the credit to their customers. This report
breaks the customer balances by break the credit owned limits. Moreover, the main objective of
this report is to gain the customer preference. In this reporting payments are late by 60 days, 40
days or 30 days. It is the duty of manager to checking and finds the issues with collection
process. Again it is important to make tight credit policy for the customers. So that, company
does not face any issues in future times. This may enhance the possibility of risk and uncertainty.
This report helps to determine the pending debts and unclear checks (Wijaya and et.al., 2015).
Job Cost Reports: job cost report analyse the actual cost of project. Company measure
the estimate revenue to meet the needs of objectives of job profitability. This process helps
company to find the learning Ares. So that, company focus its efforts on the major areas and
reducing the time from wasting areas. This job cost report helps to measure the unwanted
expenses and unwanted activities which arise the expenses for the company. In order to that,
company removes those ineffective activities and make new ineffective changes (Renz and
Herman, eds., 2016).
Inventory and Manufacturing: This report of inventory helps to make the company
manufacturing processes more efficient. Job cost report includes waste, hourly labour costs, per
unit overhead costs items. In this reporting manager of the company compares the different
assembly lines in the company in order to enhance the improvement and bonuses to the best
performing departments. This helps to make environment positive and energetic (Messner,
2016).
On the basis of above reporting methods, these all are for the betterment of the company.
With the help of all these reporting methods company make new financial plans in order to meet
the objectives or goals of the company. This makes the management accounting system more
powerful and expanded (Eldenburg and et.al., 2016).
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LO 2
P3 Calculate cost using appropriate cost analysis to prepare an income statement using marginal
and absorption costing
In respect of having systematic activities. There are different techniques which creates
cost this helps to enjoy the motivation level of the organisation. Management accounting cost
helps to enhance the services of product (Eldenburg and et.al., 2016).
Absorption costing: with the help of fixed and variable cost included that helps to maintain the
good performance of the company. Variable expenses are not fixed they continuous changes
may occur in the manufacturing process. In the present analysis of costing, the are different
elements of te absorption are developed for the job at production place.
Quarter 1
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Quarter 2
Marginal costing plays a very important role in the participation in the business activities.
This helps to calculate the cost by account manager. Organisation needs to analyse the different
product and services expenses before making any services (Chenhall and Moers, 2015).
Company needs to measure the actual product expenses in Agmet enterprise. If unit increasing,
variable cost and other expenses also change during the time. Marginal cost also helps to
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determine the techniques that used to create break even analysis. This is the best techniques to
interpret the crucial methods that helps to cover the cost (Eldenburg and et.al., 2016).
In this present analysis, profit has been calculated with the help of different methods
which includes absorption and marginal cost. These techniques and methods which helps to
enhance the profit of Quarter 1. Agmet determine the two methods or techniques which helps to
create more profit with different approaches. There are huge different between fixed and
variable cost. This is duty of the financial manager to set the benchmark for the company for
future development (Pimentel and Major, 2010).
= 66000*£0.20 = 13200
Total fixed cost = 16000
Under absorption = -2800
Reconciled statement of profit and loss shows in the techniques
Quarter 1= 4700-2800
= 1900
Fixed = 16000
66000*0.20
It is under absorption
Quarter 2
5900-1200
= 4700
74000*0.20
= 14800
Under the absorption = 1200
Types of budget
1. Statement under the marginal costing
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2. Statement under the absorption costing method.
M2
Management accounting techniques are the different ways and methods to make financial
document more perfectly and effective (Salehi, Rostami and Mogadam, 2010). There are
different techniques of management accounting such as financial planning, analysis of financial
statement, historical cost accounting, standard costing, budgetary control, marginal costing,
funds flow statement, cash flow statement.
These techniques influence the functions of company and enhance the performance level of the
Agmet. Moreover, the main purpose of the Agmet is to use the effectiveness of these techniques
and better decision making approach.
D2
Financial report of the company helps to interpret the business activities. Along with that,
financial report helps to determine the company position (Messner, 2016). This helps to measure
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the competitors position in the market. Besides, another importance of financial report is to make
effectiveness action plan for the company. Moreover, financial report also helps to take the
further plan relating to the business activities (Cooper, Ezzamel and Qu, 2017). Financial report
is very much important for the organisation to measure the performance level of the
management.
SECTION 2
LO 3
PART A
P4 Compare and contrast the planning tools used in the management accounting.
Budgetary control is the process which used to control the company finances. It involves
the comparing of budgeting to actual financial results (Eldenburg and et.al., 2016). This much be
very effective and effective tools to measure the actual expenses of the company. This helps
Agmet to take action for short term and long term. There are some techniques of budgetary
control which helps to enhance the services or functions of the organisation.
Variance analysis: all the budget of the each department made with estimated figures.
Then after at the end it compares with actual accounting figures. With the help of this tool
company finds the variances (Pimentel and Major, 2010). Given variances sometimes favourable
and unfavourable for the company. For example Agmet record the cost and quantity of raw
material we will find the variance labour cost overhead cost. Along with that, this budgetary
technique helps to reduce the cost of the company.
Responsibility accounting: it is the another best budgetary control technique which
creates cost centre, profit centre and investment centre. All employees have responsibility to take
the company policies in serious manner (Pimentel and Major, 2010). On the other sides, it also
takes helps to motivate the employees working. It is responsibility of the sales manager to take
the responsibility. To enhance the sales target of the company. On the basis of this technique or
tools manager can also takes the decision making of employees demotion and promotion.
Zero Base Budgeting (ZBB): Zero base budgeting is the most popular and best
technique of budgeting control. In this technique budget is made on the basis of zero basis. It is
possible at the time when company expenses is equal to company income. Estimated income and
the estimated expenses will be zero (Salehi, Rostami and Mogadam, 2010). It Agmet estimated
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income is more than estimated expenses. In that case company needs to enhance the estimated
expenses. It makes the new changes and development opportunity for the organisation. This
approach helps to manager to estimate the future along with that moreover, zero base budgeting
technique can control the money which have to spend. These techniques also helps to maintain
the effective management organisation (Pimentel and Major, 2010).
Sales budget calculation:
Interpretation: As per the present analysis it can be interpret that sales budget create more
effective results and enhance the performance of the company. With the help of sales budget
profit revenue can easily estimating (Otley, 2016).
Advantages and disadvantages of budgeting tools:
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Advantage of budget control
Nero Ltd. Is help to find out that budget is one of the most important part or can say
techniques which is used for future improvement in working condition. It is help to increase the
growth rate and reduce mistake level in work place. With the help of budget achieve goal and
objective of organisation (Wijaya and et.al., 2015).
 Recording of activity :- In this context budget is most important part and focus on profit
and loss work. It is help to balance between loss and profit of the organisation and make
improve internal and external Nero Ltd. working environment. In this way, budget is
assistance to increase profit making part in work place (Pimentel and Major, 2010).
 Improve communication :- In each and every worker of firm will be easy subordinating
with to each one other in command to have an expression on the sphere which is making
high net profit in working environment.
 Coordinate internal working environment :- Budget is assistance to provide each activity
and make some improvement in growth rate in market. On the other hand, using
betterment of fund method acting then this will be portion one administrative district with
the addressable money of other sector (Salehi, Rostami and Mogadam, 2010).
Disadvantages of budget control
In this context, some time negative impact will be there for budget control like are as
follows :-
 Zero it could not been taken :- In this way, Nero Ltd. organisation is to be used zero
based budgeting is give negative impact and reduce the level of outcome. At the time of
budgeting time detriment could not be balanced to financial gain of that time period
which is interpreted as premise (Wijaya and et.al., 2015).
 Lack of employees participation :- In internal working environment is to be focus on lack
of worker participation in internal work place. They are not taking any kind of interest to
understanding the budget structure and how to used it in work place.
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M3
These techniques are more manageable is analysing the areas which are performing
goods and which ones are not. These techniques are also helps to maintain the effective
management (Pimentel and Major, 2010).
D3
Planning tool helps to resolve the issues of financial problems. It is the success tool for
the business. It will become the effective tool. If the planning of the firm is good than. It will
easy for Nero limited to take better financial year (Pimentel and Major, 2010).
LO 4
PART 2
P5 How management accounting adopting systems to respond to financial problems.
In respect to attain desired results in Nero Ltd. there are different techniques has been
implemented with solving economic problems. They are as follows:
 Monetary administration: This technique has been used in the management of Nero
Ltd. to maintain changes in the business. In this consideration wastage of money and fund
will be controllable at workplace (Eldenburg and et.al., 2016). It is also helpful to take
correction in the management. In order to remove the issue monetary administration
activities are also managing. With the help of the corrective actions and operations,
management of the chosen business able to deliver the monetary administration in the
company (Wijaya and et.al., 2015).
 Key performance indicators: This is another helpful perspective that assists to business
to indicate the key performance indicators at workplace. Nero Ltd. successfully
implement their functions and operations to assess their key performance areas. It is also
useful strategy to manage new activities that are played in the business to operate several
activities in the organisation. Key performance indicators are also helpful perspective that
make systematic transactions in the business environmental to deliver and helps to attain
more systematic results at workplace (Pimentel and Major, 2010).
 Benchmarking: In this consideration, standards of the performance of businesses also set
as per the standards that judge by the management. It is also helpful perspective that
assists to attain crucial elements in the business. With the help of the standards, earlier
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achievement also set at started time of the company. This method generally used in the
selected business to create systematic benchmarking in short period of time. Further, it is
also helpful to accomplish systematic results in the enterprise to develop more creative
results (Renz and Herman, eds., 2016).
Balance scorecard: It is also important method that is useful to remove financial issues and
problems in the business environmental. In this manner, issues and problems will be solved in
proper manner to attain desired results and goals. This method also used to measure the
performance in all areas which includes mainly 4 things such as financial, customers, internal
business process and learning of growth. Nero Ltd. using the balance scorecard to identified their
issues and problems in systematic manner. In this manner new areas of development also applied
in the chosen business for their development.
M4
Overall management accounting is the effective planning tool which leads to sustainable
success. It will more reliable and effective source to manage the working performance of the
operational department (Pimentel and Major, 2010).
CONCLUSION
Form the above report is based on Management accounting techniques and operations
made by the firm during the period which will be presented in the various accounts and statement
for the period. As per the above report is based on the budget control and cash flow management
in working environment. Both factor is help to manage the growth rate and improve internal and
external working environment. This report is based on analyses of Nero Ltd. Profit in a year. On
the other hand, marginal costing and absorption both costing is most important to find out the
income statement and increasing level of carrying into action in working environment. Form the
above report to set budget ion each and every activity is one of the most important part and work
is to be done administrative district with the addressable money of other sector. In this report
planning tool is one of the most important part and help to future performance in market and
make some improvement in work place. Nero Ltd. Is set benchmark for future competitors in
market.
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