Management Accounting Report: Analyzing BLC Organization

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MANAGEMENT ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
Task 1...........................................................................................................................................4
Part 1.........................................................................................................................................4
Part B........................................................................................................................................9
Task 2.........................................................................................................................................11
Part A......................................................................................................................................11
Part B......................................................................................................................................13
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
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Introduction
This report defines the use of the Management accounting system in the BLC organization which
is a UK based financial organization. Various types of management accounting systems are
explained in this report. This report demonstrates the use of the management account reporting
and how it is integrated within the organization. The report reflects all kinds of the benefits that
an organization gets which helps in achieving the objective.
The report analyses the marginal and absorption costing by calculating the cost and making the
cost sheet of the company. The report estimates the financial statement of the company and the
situation of the company by doing the ratio analysis and also explained the various types of ratios
that are used in the organization that predicts the future of the company.
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Task 1
Part 1
A.
Management Accounting
In the earlier period, big companies needed a system to analyze the performance based on which
they can make important decisions which help them to achieve their goals. There were also the
emerging competitions in the market so, the management accounting was introduced which helps
in estimating the financial and the management information which is provided to the internal part
of the organization such as the managers and the business administration. This helped them in
making important decisions about the organization for the development and achieving the
objective (Otley, 2016).
Management accounting system
It is the process through which the management accounting worked that is based on the various
types of the management accounting system which are as follows:
Job costing system
It is the method of executing the work strictly according to the desire of the customer. It involves
the different method of costing in which the process of production is based on the no. of orders
received from the customers. The manufacturing of goods under this process is not for stocking
but the urgent delivery once all process is completed (Accounting notes, 2019).
Cost accounting system
It is a type of accounting system which is designed for the manufacturers which helps them to
record the production activities along with the use of the inventory system which helps in
tracking the flow of the inventory at various levels of production. The cost accounting system
involves the tracking of the raw materials when they go through the process of the production
stage to the finished goods (Schmidt and Nakajima, 2013).
Inventory management system
It involves the tracking of the products which helps in predicting the future sales need, how
much customer requires and reorder before the products become out of stock. It includes the
system of the supply chain which helps in tracking the goods, it covers all the operational cost
occurred in the firm which includes production, retail, warehousing, shipping and movement of
the stocks. In other words, a firm can see even the small movement of its operations (Capterra,
2017).
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Price optimization system
It involves the increasing of the prices against the willingness of the customers to pay. It helps
the firm in setting the process of the business to customer and business to business. By investing
time in the price optimization system will benefit in timely selling of the product with a good
amount of profit.
The problem is that if the price of the item is too high it may not sell and if the price is decreased
too much company may not make the profit. An organization uses this system of accounting
based on the demand of the product in the market (Blackcurve, 2017).
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B.
There are various types of reports which are used by SLC limited so that the financial
performance of an organization can be determined and the growth of the firm can be achieved in
the financial market. The following are reports:
Inventory Reports:
Stock reports are prepared to track the level of inventory as well as the cost of inventory within
SLC Limited (Ball, 2013).
The main aim of this report is to find out the relative information related to the finished goods
closing stock.
Job Costing Report:
It is the costing technique that is utilized by the enterprises. In the development business, it is
especially utilized by the director to recognize the expense of specific employment with the goal
that it can assess the future expense and furthermore helps in dissecting the level of work done. It
helps in following the expense of the on-going generation of a specific item. It is utilized for the
most part in seven days once with the goal that the expense can be recognized and reports can be
readied (Parpia, et. al., 2016).
Budget Report:
It helps in estimating the presentation of Aerospace association and aides in setting up the report
for a private company and furthermore division shrewd. Each Aerospace association readies the
general business spending plan to break down their presentation (Parpia, et. al., 2016).
For the most part, spending plans depend on the past appraisals and experience and furthermore
contain characterized data. Each Aerospace association needs to accomplish its objectives and
mission by remaining on the financial limit and following the spending limit.
Performance Report:
It is the report which demonstrates the exhibition level of the association and furthermore of the
person at each period. Each association readies each office with a different presentation report so
it can investigate. It likewise helps in finding the capacity of a person. It additionally measures
the limit of a person according to the work. It assumes a significant job in each SLC Limited to
keep up precise measures and furthermore their objective.
Cost Management Accounting Report:
It is the report that demonstrates the expense investigates an alternate item. It is the report which
likewise helps in finding the expense per unit. It likewise helps in dissecting the cost with the
selling cost so the overall revenue can almost certainly recognize (Parpia, et. al., 2016).
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C.
Advantages
Job costing system
• It helps the manager to identify the profit earned from each job.
• It helps the manager to track the individual performances and the team’s performances based
on efficiency, productivity, and cost-control (Chron, 2019).
Cost accounting system
• It helps the firm to measure the efficiency in terms of cost, expenses and time.
• It helps in analyzing the operational activities which are profitable and which are not. If a
firm is making the overall profit it does not mean that all the operational activities of the firm are
profitable.
Inventory management system
• It helps in making the process of managing the inventory simpler, time-saving, cost-effective
and sanity.
• It helps to reduce the risk of human error as it involves the automation process.
• Overselling is a major issue especially in the online market so, by synchronizing the
inventories and the orders in the online platform, this system helps in ensuring the adjustment of
the stock levels whenever any sale is made (Linnworks, 2016).
Price optimization system
• It promotes competition in the market which further helps in encouraging the companies to
perform better and sell products at the best price to the potential customers in the market.
• An advantage of increased customer and optimal price whenever a firm allocates the financial
resources towards the research and the development.
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D.
Integration of management accounting system with reporting
Both the factors work within the organization as inventory management systems helps in
analyzing the actual stock which has went inside and outside the organization while the reports
which are related to inventory helps in analyzing the amount which is retained for stock (Ball,
2013). The cost accounting systems help in tracking the cost which is assigned to the products of
SLC Limited. The information related to cost helps in determining the expenses and revenue of
firm within that accounting period so that the actual cost may not exceed budgeted cost and
overall financial performance of organization may not get impacted (Ball, 2013).
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Part B
Planning tools
There are various planning tools used in the BLC which helps the organization in performing its
operations efficiently and helps them to achieve their goals efficiently. Some of these tools are as
follows:
Benchmarking
With the help of this planning tool, a firm sets a standard in the organization by analyzing the
strategies and the techniques of the other leading organization in the market. It measures the
performance of the leading company’s processes, products, and services and tries to implement
the same strategies in the organization efficiently and effectively which further helps the
organization to perform better in the market.
ABC Costing
It is a process of assigning the costs as this planning tool finds and assigns the costs to overhead
activities and then assigns the cost of the goods. It shows the relationship between the costs,
manufacturing products and overhead activities. With the help of this relationship, it assigns the
indirect costs of the goods which are less subjective than the old methods.
Cash flow budgeting
This planning tool helps your organization to forecast the company’s financial health. It is very
important to find whether the company will be profitable in the future or not. So, it is very
important to track how much money a firm is taking and how much is required for the future.
Companies face various problems such as they are profitable on paper but they are trouble
because they do not have the cash in hand to run their operations so, this cash flow budgeting
helps in solving all these issues (Turner and Guildin, 2012).
Discounted cash flow method
It the process of estimating the present value of future cash flows of an investment which helps
in determining the fair value of the investment.
It helps in finding the value of the stock for which first of all projecting of the cash flow is
needed to be performed which is to be produced in the year. The cash flow should of at least five
or ten years. From that point, the process of estimating the worth of future cash flow in today’s
amount is performed by discounting them back to present rate which is enough to compensate
the risk any taken under the investors (Investing answers, 2019).
Breakeven analysis
This analysis helps in finding what should be sold annually or monthly which covers the
business costs. It helps in calculating the breakeven point that is based on the variable cost, fixed
cost, and revenue per unit of the sale. It is a financial tool used to find the level of the company
in which the goods and services are profitable. In other words, the meaning of the breakeven is
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that when a company neither makes a profit and nor makes the loss. A company having lower
fixed costs involves the lower break-even point of sale.
Task 2
Part A
Marginal costing
In the words of ICAI London marginal costing is calculated by differentiating between the
variable cost and the fixed costs, of marginal cost and the effect of change in profit volume or the
change in the type of the output. For understanding the marginal cost, it needs the proper
knowledge about various costs and their relations with a change in the level of the operational
activities of the firm. Fixed cost and the variable costs are classified under marginal costing. One
of the features of the marginal costing is that the cost of the product which depends on the
activity volume is separated from the fixed costs as the costs do not change with the change in
the activity volume (Nawaz, 2013).
Absorption costing
It is also called the full costing system as it involves the technique of cost ascertainment. This
costing includes the practice of charging all expenses like both the fixed and the variable costs to
the goods, operations and the processes. It is the traditional technique and wider scope of
ascertaining the costs. This costing involves direct costs including the overhead costs which are
absorbed on a suitable basis. Under this costing, the level of per-unit costs changes with the level
of the output because of the fixed cost presence which is constant, but the per-unit cost does not
show any change when the output level remains the same (Accounting notes, 2019).
Calculation of the absorption and the marginal costing
Absorption cost
Selling price per
unit 10.5
Total units
produced 400000
Particulars Amount
Direct material 550000
Direct labor 750000
Fixed overhead 600000
Total cost 1900000
Absorption cost 4.75
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Marginal cost
Outpu
t
Variable
cost
Fixed
cost
Total
cost
Marginal
cost
400000 1300000 600000
190000
0 0
Calculation of marginal and the absorption cost sheet statement of eyemen Ltd:
Statement of income under marginal costing
Particulars
Amoun
t
Sales
360,000 @
10.50
378000
0
Less:
Cost of sales
closing stock 40,000 @ 10.50 420000
Less: Variable
expenses
Direct material 550000
Direct labor 750000
Less: Fixed overhead 600000
Total expenses
190000
0
Profit for the year
146000
0
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Statement of income under Absorption costing
Particulars Amount
Sales
360,000 @
10.50 3780000
Less:
Cost of sales
closing stock 40000 @ 4.75 190000
Less: Variable
expenses
Direct material 550000
Direct labor 750000
Less: Fixed overhead 600000
Total expenses 1900000
Profit for the year 1690000