Management Accounting Report: Aston Martin Financial Performance

This report provides a comprehensive analysis of management accounting, using Aston Martin as a case study. It explores the role of management accounting, its systems, and the application of various techniques like marginal and absorption costing. The report details different management accounting systems such as inventory management, cost accounting, and job costing. It also covers managerial accounting reports, including budget reports, job cost reports, and account receivable aging reports, along with their benefits. Furthermore, the report explains the use of planning tools such as operational and capital budgets, and how organizations can use management accounting to respond to financial problems. The report provides a detailed overview of financial reporting documents and their interpretation, concluding with an evaluation of the managerial accounting system and its reports.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
Role of management accounting and its system or requirement.................................................3
LO2..................................................................................................................................................6
Application of management accounting techniques....................................................................6
LO3..................................................................................................................................................7
Explain the use of planning tools used in management accounting............................................7
LO4................................................................................................................................................11
Compare ways in which organisation can use management accounting to respond financial
problems....................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCE................................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
Accounting is the part of any business that is used to define, recording, dividing,
measuring, verifying, summarizing and communicating financial data. It states profit or loss for a
given time period, where as management is the process of managing resources that helps to meet
with company's goals with the help of employees and organisation resources. Management
accounting gathers, analyses, interpret and monitor the financial, qualitative and statistical data
that help to make effective business decision (Becker and Ulrich, 2016). To understand the
concept of management accounting Aston Martin has been chosen that is UK based company. It
manufactures luxury sports cars and grand tourers. This report will state management
accounting, its system, techniques and accounting reports that helps to understand importance of
management accounting. Additionally, this report will contain planning tools which is used to
control the budget and solution of financial problems.
LO1
Role of management accounting and its system or requirement
Management accounting plays different types of role in a organisation that helps to
achieve company's goals and and maintain profitability by managing accounts and information.
Profit maximization: Any organisation can increase its productivity that helps to
maximise the profits of an organisation. Such as manager of Aston Martin keep records of
transaction and manage the accounts in order to increase profits.
Helps to identify poor performance: This is used to identify the poor performance and
correct them with the help of management accounting. In Aston Martin, manager records the
organisation as well as employee's performance and helps to correct it by reviewing performance
(Bradlcy, 2015).
Proper use of budgeting: It is used to make effective budget and control the techniques
in accounting which is needed to interpret the financial information in order to reduce expenses.
Such as Accountant of Aston Martin prepare a budget by considering past information and use
in organisation that helps to control the expenses.
Making effective decision: Manager of Aston Martin used management accounting that
helps to manage all records and financial information in order to take corrective business
decision.

Management accounting system and its requirement
Management accounting is a part of internal management and control that not only assist
the internal management but also help in decision-making. Management accounting system is the
way of tracking records of accounting activity and provide financial information to run a
business effectively, this is very effective system that is used in most organisation to get proper
records of transaction and maintain profitability. Aston Martin is a manufacturing company
whose manager prepares final accounts and reports that is used internally in order to increase
profits and keep records of financial information. It follows different types of management
accounting system such as-
Inventory management system: This is used for tracking the goods, orders, sales and
delivery of goods and services. To maintain inventory management is very important in
manufacturing company that helps to place orders, keep raw material records and manufacturing
documents. Moreover, this system stipulate the configuration and arrangement of collected
goods. As Aston Martin is manufacturing industry use inventory management system to arrange
the raw material and finished goods and also maintain orders of socks.
It is required as different location and places such as within a facility, in manufacturing
industry and at many location to supply goods and services.
Cost accounting system: This system is mostly used by producers to keep records of
manufacturing activities with the help of inventory management system. Such as manager of
Aston Martin use this system to maintain cost of products and services and track the flow of
stock continuously by using different phases of production.
It is required in manufacturing and many companies to track the flow of inventory on
daily basis. In other words, it is required to allocate the limited resources for specific project and
manufacturing process (Bruehne and Schanz, 2018).
Job costing system: This system is used for gathering and classifying production cost of
single unit of output. It involves number of items who has different cost, need to manage
effectively. In Aston Martin, manager collects and divide the production cost of each item that
helps to provide relevant information for business activities.
It is required at large industry who manufactures number of item and need to classify in
job order costing. Jobs are classified on the basis of business activities and information.

Different method is is used for management accounting
Managerial accounting reports are useful to manage business and monitor the enterprise's
performance which is prepared during accounting period. It is prepared on the size of project and
given time period as needed in any organisation. Manager of Aston Martin makes reports
quarterly, weekly and monthly that helps to monitor the performance and make correction if is
required. Manager prepare different types of report such as-
Budget reports: This report helps small as well as large business concern to analyse
company and department's performance. This is prepared on the basis of actual expenses and
incomes by considering past year information. Manager of Aston Martin prepares a budget
reports to give incentives to staff and meeting with organisation goals.
Job cost reports: This report states expenses for a particular project that defines cost of
projects. These reports are mostly compares with an estimation of revenue that is used to
evaluate the job's profitability. Moreover, this helps to define high earning places of business so
enterprise can focus on its efforts rather than wasting money and time. Manager of Aston Martin
prepares job cost reports that is used to analyse the expenses to correct the waste areas before
incremental in cost (Guidotti, 2015).
Account receivable aging reports: This is a technique for managing cash flow for any
organisation that helps to extend credits for customers. It helps to find out the collection process
and time period of collecting the money from creditors (Horváth, 2018). Manager of Aston
Martin used this report to find out the problems during collection process. If customers are
unable to pay due amount, then manager needs to tight its credit policy that helps to receive due
amount.
Benefits of management accounting system and its application
The different benefits of management accounting system are given as-
Inventory management system It helps to manage inventory through a system that is used to
place order, sale and supply of goods and services. Manager of
Aston Marting can improve ordering performance by using this
system.
Job costing system It gives benefit to get estimate of all cost which is occurring in
organisation by preparing budget reports and maintaining
customer's records. Such as manager Aston Martin use this

system to maintain records to cost as well as classified the cost.
It also gives a benefit to stop the work repeat in the
organisation.
Cost accounting system It gives a benefit to evaluate the efficiency in work and
maintain the cost records. Moreover it also helps to control
over the cost of enterprises. Such as manager of Aston Martin
apply this system to get benefit of reduce the cost and increase
the profit margin.
Evaluation of managerial accounting system and reports
Reports Integration with enterprise's process
Budget reports It is integrated with Aston Martin who prepares budget reports
to evaluate the estimated and actual budget that helps to give
financial information by considering business activities.
Account aging receivable
reports
Is is integrated with Aston Martin's activity that helps to analyse
the outstanding receivables and received payments. Moreover, it
helps to achieve organisation's goals by receiving payment on
time.
Job cost reports It involves integration with Aston Martin that shows expenses
for particular period of time by evaluating profitability. It also
helps to make effective business decision in order to make
profits by reducing cost.
LO2
Application of management accounting techniques
Marginal costing: It involves labour cost, material cost and manufacturing cost in order
to get profits. Moreover, it helps to raise and decrease the cost of production that analysis the
payment capacity. In marginal costing the calculation mainly based upon analysing the cost of
production which is also considered as prime cost. Prime cost contains the direct material, direct

labour and direct expenses. Fixed production overhead cost is not considered while calculating
profit by marginal costing. Contribution is calculated in after adjustment of prime cost among
revenue results. Selling and distribution expenses is calculated in terms of calculating profit.
Absorption costing: This is the method of cost accounting that states whole amount of
cost manufacturing or services provide. Moreover, it states accurate cost of enterprise ensuring
producing the products. This costing technique helps in analysing the profit by absorbing fixed
manufacturing cost in manufacturing cost. This mainly remain the part of cost of sales. The
profit is calculating after deducting cost of sales.
Apply of management accounting techniques and appropriate financial reporting documents
It has been recommended that accounting technique like marginal costing and absorption
costing are used to calculate exact cost and states the profits of the organisation. All company
prepares financial statements such as income statement and balance sheet that shows company's
financial position. By application of management accounting techniques and preparing reporting
documents any organisation can get accurate cost of the organisation and can get improvements
in order to make profits. Such as Aston Martin prepares financial documents and calculate cost
by using marginal and absorption costing technique that shows profit margin and give which
technique should be used to maintain profits („IONAȘCU, 2015).
Apply of financial reports and interpretation of data
It is observed that financial reports are ballpark of any business that shows financial
position of the company and states profit and loss. It provides financial data which is useful for
creditors and investors to getting information for further investment. No one organisation can
not ignore financial statement because it provides accurate and exact information that helps to
run a business. Financial reports contains working capital statement, balance sheet, cash flow
statements are used to take business decision and shows what steps need to taken for making
profits (Kong, 2016).
LO3
Explain the use of planning tools used in management accounting
Planning tools are essential devices to guide and suggest what action should be taken to
increase profit by reducing cost of the organisation. It is an instrument that states how to
maintain financial information and and budget in order to maintain profitability situation.

Budgetary control is continuous process of defining performance and financial goals by
comparing actual and estimated budgets. Aston Martin is a manufacturing organisation who
prepares budgets end of the year with the help of planning tools. It states financial and
performance goals with budgets by managing business activities.
Following budget are described as:
Operational budget: Operational budget is concerned as annual budget which is
prepared by the organisation in order to sale the products and services. Such as Aston Martin
prepares operational budget with the help of financial information and set the profit margin.
Aston Martin uses variance analysis that states difference between actual and budget
performance, forecasting which states future activity of business and standard costing which
define the actual cost of manufactured products.
Advantages: Aston Martin can get information about actual cost of the organisation and
can increase the profit within business organisation, moreover, by using operational budgeting it
can expand its business because it consume less cost and raise more profits.
Capital budgets: This is the process of defining and evaluating the potential long term
expenses such as new plan and machinery, new products, replacement etc. Aston Martin uses
capital budgeting in order to define the Net present value, Internal rate of return, Average rate of
return and payback period which help to define the in how much time company will get back its
amount which is given by this organisation.
Advantages: Aston Martin uses capital budgeting in order to understand the various risk
in an investment opportunity that states how it affects return of the company. The manager of
Aston martin can increase the profitability by using pay back period and internal rate of return
that states in how much time period it will recover amount.
Disadvantages: It may be risky for Aston Martin such as it is uncertain which and
decision take time which may be costly for organisation. Additional, there is not professional
skilled person available easily who can provide accurate results.
Advantages and disadvantages of planning tools.
Cash Budget: This is required in all types of organisation which is used to know the
exact cash amount. It helps to run a business continuously because it fill the cash requirement in
order to maintain profitability. It is prepared on the basis of sales and production budget that
states expected receipts and payments. Manager of Aston Martin prepare cash budget that helps

to get information about receipts and payments in order to maintain liquidity (Advantages and
disadvantages of cash budget 2019).
Advantages: It helps to avoid the debt by spending on long term activities. It helps to
meet with organisation goals by tracking particular spending habits. By preparing cash budget
Aston Martin becoming more resourceful such as it save cash and increase profits by eliminating
wasting and controlling on expenses (Nagaratnam, Nagaratnam and Cheuk, 2016).
Disadvantages: It may create a danger of theft because it is common and most demanded
assets that can be steal by tracking. It also limits the spending of an enterprises as result low
productivity and lower profits.
Master Budget: This involves accumulation of all lower level budget which is prepared
by the company in different functional areas. Moreover, it involves estimated financial budget
statements and financial plan. In contains direct material budget, manufacturing overhead budget
and direct labour budget in order to make profits for enterprise. Such as manager of Aston
Martin use master budge to know the financial position of the company and accomplish the
organisation goals. Its includes income and expenses, overhead and manufacturing cost which is
prepared on the basis of monthly and yearly.
Advantages: The master budget gives a motivation to employees by comparing actual
with estimated performance. In Aston Martin, it provides satisfaction and contribution to the
growth of business organisation. Moreover, it helps to achieve organisation's short and long term
goals by improving the performance (Nagaratnam, Nagaratnam and Cheuk, 2016).
Disadvantages: It create a pressure on employees from the employer that leads to low
revenues and high expenses. Manager may not leads to growth of business because of rigidity.
Zero base Budget: This is essential tool which is used to prepare new budget with out
any base. It is prepared by the manager of the enterprise that helps to define actual allocation of
budget and cost. It is prepared on the basis of actual need of expenses for future expectation.
Manager of Aston Martin can prepare Zero base budget which can prepare with out any basis. It
defines efficient and alternative method for enterprise who has an option to prepare Zero base
budget by utilizing the resources.
Advantages: It emphasis on decision making of business activities that helps to improve
the productivity. It gives proper guidance to utilize the available resources in the organisation.

Disadvantages: It may be difficult for organisation because it does not include any past
information and budget. So it may consume time and money in order to prepare Zero base
budget (Neuland, 2018).
Use of different planning tools and its application in order to preparing and forecasting budget
Planning tools Application
Cash Budget It provides appropriate and accurate information about
cash and its equivalent that helps to manage cash
liquidity. Manager of Aston Martin should use this tool
that will help to get information about cash and will
show a path to arranging the funds. By application of
this tool any organisation can get financial information
that will helps to make decision about further decision.
Master Budget This tool will be useful for Aston Martin to calculate
estimated and actual cost of the organisation that
decides which method will be better to make profits. It
can be apply through preparing income statement by
marginal and absorption costing method that states
estimated and actual cost of the organisation.
Zero base Budget This can be used in new starting business that helps
make get information about income and expense. By
application of this budget Aston Martin can get
estimation of revenues and incomes.
Respond to financial problems that can lead organisations to sustainable success
It has been analysed that any organisation should use planning tools like cash budget,
zero base budget and master budget that will help to provide estimation of revenues and incomes
that need to be maintain in an organisation. By preparing these budget an organisation can
maintain profits that will help to sustainable success. By preparing cash budget and master
budget organisation can get estimate income and expenses which has chances to be occur in
future in order to maintain success. Moreover, this helps to solve financial problem such as if

company will maintain profit, it can make further investment decision that helps to get success
(Rizza and Ruggeri, 2016).

LO4
Compare ways in which organisation can use management accounting to respond financial
problems
In present business era, there are numerous situation that impact the overall performance
of organisation and also reduces the profitability and production level that are known as financial
problems. In an organisation there can be difficulties at various level that hinder in achieving the
overall objective and also create issues among the workforce. In Aston martin there are some
major issues that impact on production product due to which company is continuously reducing
their global image. The major issues are use of tradition technology that reduces the entire sales
for company. It is very important for manager of respective company to resolve these problems
by proper planning and implementing best management accounting methods (Schaltegger and
Burritt, 2017). Some of these are discussed underneath:
 KPI: These type of Indicator support to measure the overall performance of company
while performing operation and achieving objectives. Manager of company basically set
standards at each stages to analyse the expenditure and monitor so that control can be
done easily. These are consider to be the effective business tools that can be implemented
by Aston Martin to record and analyse several factors that support in the entire success
(Tempel, 2015).
 Benchmarking: Benchmarking is mainly used by manager of companies to compare the
processes, polices, performances of their companies with other organizations operating
business in same industry. This is the practice Aston martin use to compare key areas of
their operation to the other similar organisation so that meaning full decision are made for
better improvement ( Verboncu and VRÎNCUŢ, 2015).
Financial Problems:
 Liquidity: Aston Martin has been experiencing problem in its working capital that has
resulted in delayed payments made to creditors. In addition to this, there has been a lower
current ratio being maintained in the company which has also contributed to this problem.
Liquidity Problem is one of the serious financial problems that can result in decline in
operational ability, profitability as well as credibility for an organisation in the short run.
Financial Governance: