Management Accounting Report: BAE Systems Plc Financial Analysis

This report delves into the critical role of management accounting within BAE Systems Plc, a manufacturing company specializing in defense electronics, munitions, and naval vessels. It explores various management accounting systems, including inventory management, cost accounting, and job costing, highlighting their significance in cost control, profitability analysis, and efficient resource allocation. The report analyzes different types of management accounting reports, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports, evaluating their integration within the company's financial framework. Furthermore, it examines cost analysis through the formulation of income statements using both absorption and marginal costing methods, providing detailed numerical interpretations. The report also covers the application of planning tools, particularly budgeting, and their role in forecasting and financial problem-solving, ultimately emphasizing how management accounting contributes to sustainable success within BAE Systems Plc.

Unit 5 - Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
Management accounting together with its essential....................................................................1
Management Accounting reports................................................................................................2
Benefits that are related to management accounting system......................................................4
Evaluation for integration of reports with management accounting system...............................5
TASK 2............................................................................................................................................5
Cost analysis trough formulation of income statement .............................................................5
Application of range of management accounting techniques for prepare financial reports.......7
Data Interpretation......................................................................................................................7
TASK 3 ...........................................................................................................................................7
Planning tools..............................................................................................................................7
Application of planning tools so to prepare with forecast budget............................................10
TASK 4..........................................................................................................................................10
Use of management accounting system for responding few of financial problems ................10
Analysing the way in which management accounting lead companies to respond financial
problems....................................................................................................................................13
Application of planning tools to respond financial issue along with attainment of sustainable
success.......................................................................................................................................13
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15
APPENDICES...............................................................................................................................17

INTRODUCTION
Management accounting which is also far-famed as managerial accounting is a process
which deals with analysis and timely recording of financial data and also includes proper
presentation of this information (Management Accounting – Meaning, 2019). It is used by
internal management and other stakeholders for effective planing and decision making. This
assignment is based on BAE Systems Plc which is a manufacturing company having its
specialisation in manufacturing products such as defence electronics, munitions, military
aerospace and naval vessels. This assignment focusses on critical role of management accounting
in solving the financial problems of an organisation (Su and Baird, 2018). For that purpose it
includes types of management accounting and different reporting methods. Techniques for
calculation of cost, advantage and disadvantage of various planning tool in context to budgetary
control along with role that management accounting plays in responding to different problems.
TASK 1
Management accounting together with its essential
Management accounting system is process which involves timely presentation and
recording of financial addition to statistical information that business mangers and top authorities
utilises for proper planing and budgeting, decision making and also includes measurement of
organisation performance. The primary purpose of management of accounting is keeping a
control and check on cost and providing true image of profitability level of organisation.
Different management accounting system
Inventory management accounting - This include overall management of inventory or
stock, this process started from ordering of raw of material and further includes storing of
components and converting it into finished products. Decorous warehousing , processing
together with storage of each material ( raw as well as finished) is the responsibility of inventory
management system. They keep a proportionality among demand and supply related to raw
material and helpful in minimizing the wastage of resources. For preparation of best quality
defence products, BAE Systems Plc is uses the type of system that is inventory management to
keep a check on flow on inventory and ensure timely supply of raw material with minimum
possible cost. BEA Systems is dealing in products like munitions, defence electronics as well as
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land electronics. Essential requirement of the system is to properly track the inventory that enters
or leaves the entity.
Cost accounting system – It is framework or process exploited for estimation
commodity cost which is required by organisations to properly analysis their profitability. It
provides approximate value of closing material or stock, work in progress together with finished
good inventory which is essential and very help in preparation of financial statement (Oldman
and Tomkins, 2018). BAE Systems Plc administrators uses cost accounting system to decided
different range and types of products in which it should deals. This system of management
accounting is essentially required as it provide proper estimation and comparison of cost of
different product thus helpful in selecting product which is most profitable.
Job costing systems - It is a system associated with accounting used for accumulating
and calculating manufacturing cost of an individual unit separately (Akkermans and Van, Steiss,
2019). the system mainly used when an organisation deals in various type of products different
from each other and has a significant effect on cost. This method is essentially required by
manger to keeping a proper record of amount of expanses made on a particular product through
preparing a separate job cost record for every product or item. BAE Systems is also making use
of this accounting as it provide many variety of defence electronics, land welfare systems and
munitions to its customers.
Price – Optimising Systems – This method is used for determining the most preferred
price of a product which will provide best balance between amount of sales and profit. If price
set is too high for a customer it will reduce the quantum of sales and if price set is very low it
will reduce the amount of profit. Thus price of product must be decided or set after proper
analysis of customers respond for different prices of a product. BAE Systems is providing its
products at distinct rates to attract more customers and at the same time to gain sufficient amount
of profit.
Management Accounting reports
Management accounting reports includes all relevant written document maintain and
prepared by an organisation to keep a track of its day to day transaction in form of financial
statement or budget report ( Dewi and et. al., 2018). BAE Systems Plc is also preparing timely
reports and other statements to know its cost effectiveness and actual level of profitability. Few
of the important management accounting reports includes the followings:
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Budget reports – It is the most basic and fundamental report used for comparison
between estimates made and actual performance of organisation. All expected income and
expenditure form a part of budget which are later compared with actual data to check the
contemporary action and position of governing body (Bedford and Speklé, 2018). BAE Systems
Plc is also in a habit of making proper budget report to compare its current performance with
estimates made. Its budget report mainly shows favourable variance revealing a good
performance and position of its business.
Account Receivable Aging Report –Tthey are useful in providing information about
outstanding receivables and their quality. This report furnish a detail summary of unpaid
customer invoice and unused credit memos with proper date range. This report includes customer
name alphabetically sorted with information about all invoices of each customer directly below
its name which is mainly sorted either by date or invoice number (Barros and da Costa, 2019).
This report is also useful in calculating estimates about potential bad debts on the basis of
records of doubtful accounts on which payment is not received. BAE Systems Plc is providing
facility of late payment or credit facility to its regular customer, thus it become necessary for
them to keep a proper record of these customers so that they can ensure payments from them in
future.
Cost Managerial Accounting Reports – The report shows and compute total cost of
production and all expenses incurred in manufacturing and delivering a product. It includes cost
of raw material, labour, overhead or any other coat directly or indirectly related with production
process (Richards and et. al., 2019). This provide a summary of all theses cost required by a
manger to decide the selling price of an article. It also include information regarding amount of
inventory waste in production process, hourly labour coats and others overheads and thus helps
in optimization of resources also. This report is used by BAE Systems Plc for fixing best price
for its product and to minimize wastage of resources in manufacturing process.
Performance reports – It provide a review of overall performance of organisation as
well as also provide analysis of performance of each employee at the end of a fixed time period
(Piercy, 2018). It is very essential to evaluate the performance of every employee to ensure
future growth and expansion of organisation. This report is helpful in early detection of flaws if
any in in working of organisation therefore time for corrective action is always left with
company (Ferguson, 2019). BAE Systems Plc is timely preparing performance reports for whole
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organisation as well as for each employee to assure amended performance and growth of
organisation.
Benefits that are related to management accounting system
There are umpteen benefits of different management accounting system which cater a
statistical data for faithful determination making and also helps in controlling business activities
(Raffoni and et. al., 2018). Benefits of different accounting system for BAE Systems Plc is
manufacturing organisation can be understood through following table:
Kinds of management
accounting system
Benefits for BAE Systems Plc
Cost accounting system The systems is applies at selected form to determine costs of its
numerous products in effective manner. It helps in measuring and
improving efficiency of organisation through proper calculation of
coat of each product.
Inventory management
accounting
Application of the system at respective association is done top
keep detailed record of inventories that enters and exits premises.
This assist in abidance right amount of raw material, which will
trim back the cost of storehouse along with also reduce the danger
of non availability of inventory which hinders production process.
Job costing systems The system is applied to determine profits earned from single job
or products as per the costs allocated on them. It provides helps in
calculation of amount of profit earned on individuals products or
customised shake provided by this organisation (Hariyati, Tjahjadi
and Soewarno, 2019).
Price – Optimising
Systems
It is applied at BAE Systems so that customers perceptions are
analysed and further products are manufactured according to their
demands. This facilitates selection of best pricing strategies
provide a equilibrium between demand of product and income
margin.
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Evaluation for integration of reports with management accounting system
Proper reporting and written document always facilitate better management accounting
system. Like for material planning requirement in BAE Systems Plc organisation proper sales
document and budget is used to see the past records on the basis of which future amount of raw
material purchased at one time is decided (Berry, Broadbent and Otley, 2019). Thus proper
integration of both systems and reporting is necessary to ensure proper and timely flow of work
and manufacturing process.
TASK 2
Cost analysis trough formulation of income statement
Absorption costing method – in this method both fixed cost addition to variable cost are
considered as product cost (Scott and et. al., 2018). This show accurate and fair cost of each
product and thus absorption of all costs like production cost, raw material cost, etc. is shown
more clearly. Income statement of BAE Systems Plc company by using absorption costing
method is shown below for better understanding of this method.
Marginal costing Method – In this method variable coat are considered as product cost
and fixed coast form a part of cost of period. This method is used for fixing selling price and for
selecting best product mix (Monden, 2019). Calculation of Net Profit for BAE Systems company
is shown below with the help of following income statement that are calculated with absorption
and marginal techniques.
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Application of range of management accounting techniques for prepare financial reports
In the competing era, there are umpteen techniques which like marginal costing,
absorption costing ,cash flow statement and many more that can be used to show the financial
reports and to show profit earned (Saona and Muro, 2018). In above tables proper calculation of
Net profit and cost of goods sold is provided to clearly show the application of these of
techniques in preparation of financial reports.
Data Interpretation
From the above numerical interpenetration, the profits earned by marginal costing
method in November month are £ 61000 as well as in December month is £ 101000. With
absorption method, the company attained profits in November are £ 129000 and within
December are £ 143000. further it can be said that for BAE System Plc marginal costing is better
than absorption costing as total net profit earned is more with marginal coasting and its also
provide help in controlling cost of production.
TASK 3
Planning tools
Budget – A budget is said to a written document prepared by mangers to provide an
estimation of income and expenses for a fixed period of time. It is basically a fiscal plan for a
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definite period of time which includes sales volume and different incomes and also includes all
relative coast and expenses (Boddy, McCalman and Buchanan, 2018).
Budgetary control – It is a process used for controlling costs through formulation of
timely budget and examination actual performance with estimate data. It is basically a tool that
helps managers of BAE Systems to controll business activities through taking proper corrective
action on the results of comparison to achieve maximum productivity and profitability.
Planning tools for budgetary control– There are many planning tools used by every
organisation to control its operation and working. The main aim of using diverse planning tool
for budgetary controls is to minimize the amount of wastage of resources and to accomplish the
cost potency. BAE Systems Plc is also making utility of galore planning tools, some of them are
explained below with their advantages and disadvantages:
Master Budget : All the departments and functional division of organisation prepares
budget for their particular division. All these budget are united in one single budget which is
known as Master budget. It includes all other budget such as sales, production, labour and
overhead. For manufacturing company like BAE Systems Plc it is helpful in coordinating all
functions and departments of organisation thus ensure easy flow of operations. Different
advantage with disadvantage of master budget are as follows:
Advantages Disadvantages
Provides a summary of all budget in single
report making it easy to cross check and verify
all other budgets.
It lack Specificity i.e. does not provide specific
information about a particular department (The
Advantages and Disadvantages of a Master
Budget, 2019).
It helps in overall estimation of profit and also
facilitates information useful for forecast of
balance sheet.
It is really difficult to update or make changes
in mater budget as it includes extensive
description and charts.
Increases the ability to identify a problem by
spotting the department having relatively more
expenses through proper comparison with
other department.
Master budget is very complex as include all
expenses and income of whole business and
thus difficult to understand and read.
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Cash Budget: Cash budget is used to reflect or estimate future cash position of an
organisation (Hoque, 2018). It shows different source from which cash can be generate in future
and also shows future requirement and disbursement of cash to meet the expenses. For BAE
Systems Plc, it is providing formal presentation of expected cash flow for whole organisation
ensuring proper day to day work without any disturbance due to insufficiency of cash.
Following are few advantages addition to disadvantages that are concerned with cash budget:
Advantages Disadvantages
Provide effective balance between working
capital and cash to ensure ease in day to day
operation.
It is based on future estimates about sales and
other collections, hence these estimates limit
the effectiveness of cash budget as it not based
on factual knowledge.
Provide adequate control on cash expenses
through properly monitoring spending of
different departments.
It does not include Non Financial factors thus
actual position of business is not shown.
Zero base budget: It is a budget which involves preparing of budget from Zero base or
from starch level. It includes revaluation of every aspects and proper justification of all
expenditure is also required. In this method all the disbursement for new period are measured on
balanced basis despite of differential basis (Hiebl and Richter, 2018). BAE Systems Plc is
making use of Zero base budget for only new products making it easy to get information about
actual expenses and income.
Advantages Disadvantages
Provide cost effective way to improve
activities and efficient allocation of resources
on the basis of needs and benefits.
It is time consuming method as require proper
justification for all expenses.
It helps in eliminating wastages of resources
and out of date operations through providing
new ways of calculation of expenses and
income.
It require proper and deep knowledge of each
financial aspect thus calls for elective training
of manager and employees.
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Application of planning tools so to prepare with forecast budget
Planning tools play a vital role in preparation and forecasting of financial budgets.
Forecasting is basically the prediction and estimation made by manger about future
circumstances (Steiss, 2019). Planing tools include components like master budget, cash budget,
zero base budget and many other budgets, all involves estimation and prediction of future data
related to sales, cash flows etc., thus forms a base and provide ease in forecasting overall budget
of organisation. In BAE Systems Plc, cash budget is used to provide proper estimation of cash
requirement and inflow and outflow of cash in future which provides all relevant data required
for forecasting budget of this organisation. Master budget helps in estimation of expected profit
which is also an important component of overall budget of organisation.
TASK 4
Use of management accounting system for responding few of financial problems
Financial problems – this type of problems are mainly related with financial crisis
makes an organisation unable to meet its debts on time and also limits its purchasing power.
Insufficient amount of funds creates problems in purchasing raw material and also in hiring new
labour. This will ultimately slow down or stop manufacturing process which will reduce sales
amount and thus decreases profitability of organisation (Richards and et. al., 2019)
Reasons for financial problem – Major cause of financial problems are lack of timely
budgeting and money management, unexpected decrease in income and other resources,
improper management and wrong estimations made by managers. All these factors leads to arises
of financial problem makes it difficult to operate or run a business successfully and profitably.
The main financial problems faced by BAE Systems Plc are as follows:
Poor fund management – Money is considered as the backbone of every organisation.
No organisation can survive or plan future expansion without adequate funds. BAE Systems Plc
is facing a crisis as the managers are incompetent to properly manage funds which are available
with business.
Uncertain expenses: In the dynamic environment, various expenses takes place that are
uncertain in nature or are not forecasted previously. BAE Systems Plc is also going through such
issue. They have to make huge payments in uncertain issues like machine maintenance and
repairing of new machine that decreases profit reserves on entity.
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Decreasing profit margin: it is also considered as financial challenge that selected
company is facing because of lower efficiency of manpower. It is assumed that the superiors do
not provide rewards or other benefits to employees that decreases their efficiency to work with
determination which affects business productivity resulting in low profit margins.
Poor accounting system – This problem arises due to lack of proper bookkeeping or
overlooking of small transaction (Akkermans and Van Oorschot, 2018). In BAE Systems Plc,
procrastinating or delay in recording daily transition lead to arises of financial problems as
timely documents are not available.
Late customer payments: BAE Systems Plc is large association and to attract more
clients, huge credits are offered to uncountable clients. Various times these clients refuses to pay
on time that affects money availability to operate activities.
There are a number of performance management strategies and approaches which are a
part of management accounting system used for solving or addressing financial problems of an
organisation. Some of these strategies of management accounting system used to respond
financial problems are explained below:
 Key Performance Indicator (KPI) – This is an quantifiable metric used to reflect
capability of organisation in achieving its goals and objectives. It also provide link and
proper balance between organizational vision and individual interests (Booth, 2018).
Selected institution can use financial addition to non financial indicators which will help
in resolving all the money related or other business challenges.
 Balanced score card: One of the business management tool with the application can help
financial analysts of an entity to identify and make changes in certain business functions
so to achieve beneficiary outcomes. Such approach can help selected association in
improving internal functions addition to employees productivities in managing
accounting systems effectively.
 Activity based costing: Another method that helps in assigns all the associated costs to
organisational products. With this method, BAE Systems can analyse and assign right
costs to distinct type of activities performed at workplace.
 Benchmarking – It provide or discover the best performance that can be achieved by any
organisation. It can help executives of BAE Systems to compare existing policies with
that of rivals so that they can check errors or hindrances in their systems. Thus provide a
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better scope for improvement and ensure future action and success till the benchmark is
achieved (Berry, Broadbent and Otley, 2019)
 Financial governance: All the ways through which an institution gathers, manages,
monitors and controls information in context to finance is defined by financial
governance. It is mandatory for business concerns to comply with financial principles at
the time they are managing funds or formulation final accounts. The application of such
method can help in reducing possibilities while managing funds.
To understand the effectiveness of these approaches of management accounting in
solving different financial problems a comparison is made between BAE Systems Plc and its
competitor Raytheon.
Basis of comparison BAE Systems Plc Raytheon
Benchmarking The administrators of BAE
Systems Plc uses such method to
deal with various costumes or
clients that makes late payments
by comparing their own credit
policies or plans with that of
competitors (Ferguson, 2019).
The management team of the
entity uses the method for
comparing positions with
another strong businesses for
reducing chances of lower
revenues.
Key performance
Indicators
Concerned entity uses financial
KPI so to find reasons of rose in
uncertain or sudden expenses in
order to reduce possibilities of
more expenses in future.
Raytheon administrators opts
non financial KPI so that they
can find errors in their timely
delivery of products,
development of manpower,
meeting customer satisfaction
and supply chain management.
Balance score card By implementing the tool,
managers can deal with lower
productivity as it will help in
recording performances and
Administrators uses the
method for allocating accurate
benefits to manpower as per
their productivity or
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providing feedback to all staff
members as well as providing
them compensation as per
performance feedbacks.
performances that are recorded
within it (Berry, Broadbent
and Otley, 2019).
Activity based costing With this, managers can maintain
all the systems or activities that
results in unavailability of funds
as they can assign proper costs to
various activities as per the
requirements.
Managers with such approach
can make sure that accurate
allocation of costs is done for
all activities in order to limit
overspending then set budgets
are reduced.
Financial governance For resolving issue of improper
fund management, usage of such
technique can help administrators
as it directs finance personnels to
comply with financial principles
that are mandatory.
Raytheon managers uses the
approach for analysing that all
the principles are followed by
finance department or not.
Analysing the way in which management accounting lead companies to respond financial
problems
Almost all institutions faces financial issues and BAE Systems Plc is no different. At
present, the entity is facing uncountable issues such as uncertain expenses, poor accounting
systems, decrease profit margins and late customer payments. For dealing with all these
problems certain accounting techniques are used (Oldman and Tomkins, 2018). The techniques
includes KPI, activity based costing, benchmarking, balanced scorecard and financial
governance. Through financial KPI, issue of uncertain expenses are resolved as the method
guides in identification of reasons of uncertain expenditures that helps in overcoming issues and
achieving sustainable success.
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Application of planning tools to respond financial issue along with attainment of sustainable
success
There are chances when entities fails to maintain proper fund utilisation that results in
issues of finance like uncertain expenses and many more. Planning tools like Master Budget,
Cash Budget addition to Zero base budget are used for responding financial issues. These
budgets improves awareness about problems that are the reason of failure (Scott and et. al.,2018).
All the planning tools helps in forecasting situations and financial problems so that effective
strategy can be prepared to respond them and achieve success.
CONCLUSION
As per the above assignment conclusion can be drawn that management accounting
techniques plays a pivotal role in maintaining proper financial conditions. Management
accounting tools like cost accounting system and inventory management facilitates proper
calculation of cost and helps in maintaining adequate amount of inventory. Management
accounting also provides proper recording and presentation of financial data through different
reports like budget report and performance reports. Application of marginal and absorption
coating is also evaluated. Further conclusion on benefits and drawbacks of planning tool can also
be made. Management accounting strategies like KPI are very effective in solving the financial
problem relate with performance management and other crisis.
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REFERENCES
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Online:
Management Accounting – Meaning. 2019. [Online]. Available through:
<https://cleartax.in/s/management-accounting>.
The Advantages and Disadvantages of a Master Budget. 2019. [Online]. Available through:
<https://bizfluent.com/info-7796881-advantages-disadvantages-master-budget.html>.
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APPENDICES
TASK 2
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