Management Accounting Report: Barry House Hotels Financial Analysis

This report provides a comprehensive analysis of management accounting practices applicable to Barry House Hotels. It begins with an introduction to management accounting, its various systems, and the importance of accounting reports for internal decision-making. The report evaluates the benefits of management accounting systems for Barry House Hotels and assesses the integration of these systems with reporting procedures. Task 2 delves into absorption and marginal costing methods, including the preparation and interpretation of income statements under each method. It also includes a break-even analysis. Furthermore, the report examines various planning tools used for budgetary control, evaluating their advantages and disadvantages. It also discusses how these tools can be applied to prepare, forecast, and analyze budgets, as well as adapt different management accounting systems to address financial problems. The report concludes by emphasizing the role of management accounting techniques in ensuring the sustainable success of Barry House Hotels and the significance of planning tools in resolving financial issues.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Explaining management accounting with different types of management accounting system
................................................................................................................................................1
B. Explaining different types of management accounting reports and its importance ..........2
C. Evaluation of benefits of management accounting system in Barry house hotels.............3
D. Evaluating the integration of management accounting system and reporting in Barry house
hotels.......................................................................................................................................1
TASK 2............................................................................................................................................2
A. 1) Explaining Absorption costing and marginal costing methods of costing....................2
A. 2) & C. Income statements of income statements of Barry house hotels as per marginal and
absorption costing method......................................................................................................1
B. Calculation of Break-even analysis..................................................................................2
C & D. Financial reporting documents that apply and interpret data for Barry house...........3
TASK 3............................................................................................................................................4
A. Advantages and disadvantages of different types of planning tools for budgetary control.. .4
B. Application of planning tools for preparing, forecasting and analysing budgets..............1
C. Requirement of adapting different management accounting system in respond to financial
problems.................................................................................................................................1
D. Role of management accounting techniques for Barry house's sustainable success.........2
E. Role of planning tools to solve financial problem and sustainable success of Barry house
hotels.......................................................................................................................................3
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
Management accounting is a concept of analysing and recording business activities for
internal management use in an effect to increase efficiency and productivity. Present report
highlights issues of Barry House Hotel's management accounting(MA) system. The study
includes a critical discussion on the MA which helps in understanding significance of different
MA system. Further, the report shows an value of accounting system reports for Barry House in
making effective decisions.
The study also includes crucial advantages of management accounting system for Barry
house. Further, absorption and marginal costing is explained. Calculation of net income of Barry
house by applying both the costing method is present in report. Critical evaluation on different
planning tools for budgetary control is included. The requirement of adapting various
management accounting system for Barry house to deal with its financial problem is included in
study.
TASK 1
A. Explaining management accounting with different types of management accounting system
Management accounting is also known as cost accounting, as it a process to analyse
business costs and operations to prepare internal financial report which is used in decision
making process by managers for better improvement and increase efficiency and productivity of
Barry house hotel (Alawattage, Wickramasinghe and Uddin, 2017).
Management accounting (MA) is an act of making financial and costing data to translate
in useful information for the management of Barry House and is considered as important for
various functions including planning, organising, staffing and controlling.
There are different types of management accounting system which is required by Barry
house for effective operations:
 Cost accounting system: This system helps the organization to estimate cost of product
and service for profitability analysis, inventory valuation and cost control. Barry house
should know the profitability of its product and services, as it can be evaluated only when
it has estimated current cost of the product. Job costing system: It is an expenses observing system that allocate manufacturing cost
to each product which helps manager to keep track of each expenditure. It divides the
cost in overhead, direct material and direct labour costs and estimate it at their actual
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value. Barry house should use job costing system to control the use of raw material,
labour hours and equipment by assigning each customer cost separately.
 Price-optimization system: It is a system which helps in calculating the difference in
demands at different price levels, on the basis of this data and the information of cost and
inventory level. Price of the product will be estimated to improve the profit of
organization.
B. Explaining different types of management accounting reports and its importance
Management accounting reports are important tools for company to determine the
complete picture about performance of company over a period of time. It is used by internal
board for making decisions regarding growth and development plans for business.
(Makrygiannakis and Jack, 2016) Managerial accounting report can be an effective tool for Barry
hotels which will help it to eliminate unnecessary costs, rewards high-performing employees,
and invest to improve its services in hotels to get the best returns for the company. The
managers can use these reports for effective decision making process.
The different types of management accounting reports are:
Budgetary reports: It is the most fundamental report in managerial accounting. It is
important for manager of Barry house to understand and control costs across the organization
(What Is a Cost Budget? ,2018). By analysing the expenses of prior year, it becomes possible to
estimate budgets for following year and essential plan will be made to cut expenses in next year.
The budget reports made for unforeseen circumstances that might arise. It is important to guide
the manager for better employees’ incentives plans.
Job cost reports: This details shows expenses for a specific project or that has been
assigned by Barry house. It helps in comparing total expenses of that job and with the expected
revenue earned by that job (Chiwamit, Modell and Yang, 2014). The reports is important for
managers to decide profitability level of that particular job and make the most efficient use of
their operation by focusing on the most profitable job.
Performance reports: This reports are made to review the performance of overall
company as a whole. It is an important outline for the managers to make key strategic decisions
about future operations of Barry house. Performance review offer some deep insights about their
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working. This report is helpful in pointing out areas where improvement is necessary. Operation
reports are important for Barry hotels to keep an accurate measure of their strategy towards their
mission.
Order information report: This report will help managers to see the trends in their
business, what the customer will prefers in hotel and what their requirement are(What is a
Budgeted Cost?, 2018). This report is important to increase efficiency of a business and
integrating management operations to achieve low cost on placing order and maintain efficiency
of their management.
C. Evaluation of benefits of management accounting system in Barry house hotels
There are various benefits of applying management accounting system in Barry house
and hotels to improve the operational functions of this business entity.
Cost accounting
Benefits Drawbacks
Cost accounting system helps Barry house in
eliminating wastes, loses and inefficiency by
fixing standards for each operation.
It would be a costly system for Barry house
hotels as this system requires maintaining all
the past data and information.
It provides necessary cost information to the
management of Barry house for planning,
implementing and controlling process(Conde
and Valeiras, 2018). It helps in estimating
accurate cost of the product and services
offered.
For accurate decision making process, it is
important to get the correct cost information at
right time.
It improves decision making process and
improves a total quality of management of
Barry house.
Cost accounting system requires participation
of each department of hotel which may not be
possible and will be time consuming.
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Job costing system
Benefits Drawbacks
Job costing system helps Barry house to
estimate the pricing of each job.
The price of job will be fixed only considering
market conditions and not on the basis of past
records.
It will be easy for management of Barry house
in estimating cost of each job on basis of past
records in job costing.
It would be an expensive system for Barry
house.
It helps in taking actions to control
uncontrollable overhead by comparing actual
costs incurred with predetermined costs.
Job costing system required more labour work
for maintaining detailed information for job
costing process.
Price-optimization system
Benefits Drawbacks
Barry house can determine the preferences of
customers based on different prices.
At the time of inflation or economic changes in
country, this system doesn't work at that time.
Price optimization system helps in maximising
operating profits with best prices (Alawattage,
Wickramasinghe and Uddin, 2017).
Fixing up of prices of products and services
offered by Barry house can be decided on the
basis of customers as there are various other
factors to be considered.
It helps Barry house to become more active on
customer's reviews and responses.
Price optimization system is an expensive and
time consuming process.
D. Evaluating the integration of management accounting system and reporting in Barry house
hotels
Management accounting reports and their integration with Barry house hotels are as
follows:
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Budgeting reports help to make a path for Barry House hotel's operational activities to
concentrate on targeted results and objectives in much better way. It measures the company's
actual performance with budgeted presentation.
Job cost reports helps in identifies the cost and profitability of each particular job. The
activities of Barry house hotels should be directed towards the achievement of cost objectives
and reports which can make easier to decide pricing strategies of Barry house and reducing the
overall expenses of services offered.
This report helps in estimating the overall performance of every department with the
budgeted performance (Warren Jr, Moffitt and Byrnes, 2015). The integration between
performance reports and Barry house activities will help managers to plan for future production
and cost increment leading to cost reduction and high profitability.
TASK 2
A. 1) Explaining Absorption costing and marginal costing methods of costing.
Absorption Costing: It is a method of finding cost of production but incurring all fixed
and variable cost in manufacturing process. This method assumes both fixed and variable costs
as product cost of inventory (absorption costing ,2018). It helps in calculating the net profit per
unit of production. That is why, it is considered as full costing or brimful absorption method. It
gives accurate picture of cost required to produce an inventory. Absorption costing is also useful
in decision making process by providing specific cost information.
Marginal Costing: In this costing method only variable cost is considered as product cost
of an inventory (Lasyoud, Haslam and Roslender, 2018). Under this method, variable cost is
considered as product cost like direct labour, direct material and irregular overheads are
considered as product cost and fixed cost is considered as a period expenses and will stay
constant in marginal costing method. It is also refereed as variable costing as it is based on
behaviour of irregular cost that vary with volume of output.
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A. 2) & C. Income statements of income statements of Barry house hotels as per marginal and
absorption costing method.
Income statements as per absorption costing:
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Income statement as per marginal costing:
Interpretation
It can be observed from the above figure that, calculating the net income of Barry house
hotel with marginal costing method is 17500 pounds which is less as compared to the absorption
costing method, that is 17700 pounds. Hence, it can be interpreted from the calculation that
Barry house hotel should adopt absorption costing method to evaluate the cost of inventory
production, as it takes both fixed and variable cost in account (barrondo-Dávila, López-Alonso
and Rubio-Gámez, 2015). As financial statements are very important for external users to
evaluate overall performance of Barry House, it is required that financial statements of Barry
House give accurate picture of all activities. Thus, Barry house hotels should use absorption
costing method to determine the net income in financial statements.
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B. Calculation of Break-even analysis
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Break-even analysis helps in determining the volume of sales to cover the cost of
production. The break-even point is said to achieve where the total sales and revenue is equal to
the total expenditure; after reaching break-even point, the company starts generating profit.
From the above figure, it can be observed that to meet the break-even point in number of
products to be sold should be 222. In terms of sales revenue, it can be evaluated that BEP is
888889pounds. The number of products that required to sell is approximately 592. The
marginal safety required to sell 800 products is .72.
C & D. Financial reporting documents that apply and interpret data for Barry house.
To,
General Manager,
Barry House Hotels
London, United Kingdom.
Date: 06/09/2018
Sir,
This is to report the General Manager of Barry House Hotels about management accounting
techniques which are required to apply in Barry House. It can be interpret that both the
absorption and marginal costing method is fruitful for the business entity, which help the
system to evaluate the sufficient profit for Barry House. It can be contemplate by the income
statement that both absorption and marginal costing is useful to calculate the unit cost of
production (Kumarasiri and Jubb, 2016). On the basis of cited case situation, the approach of
absorption costing is more précised to apply as it would provide an accurate performance
picture. Absorption method includes both fixed and variable cost to determine cost of
production of an inventory.
On the perceptive of both the method, it can be observed that by applying absorption costing
method the net income is 17700 pounds which is quit more as compared to marginal costing
which is 17500 pounds. Hence, it can be said that absorption method is more accurate and
should apply in Barry house.
Thank you
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TASK 3
A. Advantages and disadvantages of different types of planning tools for budgetary control.
Budgetary control is a process which is used to control the finances of business operations.
It is an operation in which budgeted operations is compared with the actual performance to see
the variations. Financial forecasting helps the management of Barry House to find differences
and take corrective measures which will help in making future budgets also. Budget planning
tools are used to manage, plan and forecast Barry house's budget to be implemented and
managed to achieve targeted objectives and results.
The planning tools which Barry house can use for budget control are as follows:
Zero based budgeting: It is a process of creating budget without considering the past
year budget or expenditure. In zero based budgeting, each and every activity of business is
determine organization's activities and capability of spending (Zero based budgeting Stages
Advantages and Disadvantages, 2018). Manager of Barry house will identify all expected
expenditure and rank all of the activities according to their cost and importance. On the basis of
this, budget of the following year will be made and allocation of cost will be done.
Advantages of Zero Based Budgeting
 It helps in identifying insufficient operations in Barry house which can be eliminated.
 ZBB accommodates the involvement of staffs at all level of operations in Barry house
since information is required to complete budget (Maheshwari, 2015).
 It assists in understanding and grasp the cost behaviour design of Barry house that could
be strengthen. Resources and funds will be allocated to each department efficiently and economically.
Disadvantages of Zero Based Budgeting
 It gives attention to short term benefits to disadvantage of long term goals in
organization.
 The budgeting process of ZBB may become too inelastic and Barry house may not be
able to react on unforeseen opportunities or threats.
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