Evaluating Business Activities: A Management Accounting Report

This report provides a detailed analysis of management accounting principles, covering various aspects such as management accounting systems, cost calculation methods (marginal and absorption costing), and financial analysis. It discusses the benefits and different methods used for management accounting reporting, including cost reports, demand reports, and budget reports. The report also includes a calculation of cost and preparation of income statements using marginal and absorption costing, along with a report showing profit under different sales scenarios. Furthermore, it interprets business activities based on these calculations, discusses the advantages and disadvantages of budgetary control tools, and explores how to adapt management accounting systems to respond to financial problems. The document concludes by emphasizing the importance of these techniques in managing and improving business performance, and students can find similar solved assignments and past papers on Desklib to aid their understanding.

Management Accounting
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Table of Contents
Introduction..................................................................................................................................4
Task 1.............................................................................................................................................5
Management accounting:..........................................................................................................5
Various management accounting systems and their requirements:.....................................5
Benefits of management accounting systems..........................................................................7
Different methods used for management accounting reporting............................................8
Integration of management accounting systems and management accounting reporting..9
Task 2...........................................................................................................................................10
Calculation of cost and preparation of income statement using marginal and absorption
costing.......................................................................................................................................10
Report showing profit when sale of 5000 units is made by absorption and marginal
costing.......................................................................................................................................12
Interpretation of business activities.......................................................................................14
Advantages and disadvantages of tools used in budgetary control.....................................15
Planning tools used and applied in forecasting budgets.......................................................16
Adapting management accounting systems to respond to financial problems..................17
Responding to financial problems by management accounting..........................................18
Planning tools for responding to solving financial problems...............................................19
Conclusion..................................................................................................................................20
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References..................................................................................................................................21
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Introduction
In the business, there are various essential requirements which are required to be
completed in relation to management accounting. For that, the report is presented in
which all of the aspects which are related to the same will be covered. There will be an
explanation which will be provided for the reports and the systems which are to be
undertaken. The manner in which cost is calculated will be understood with the
calculation for the variances also. There will be proper planning tools which will be used
by which company will be able to have the appropriate level of control. The techniques
which are required to be undertaken so that all the issues are dealt with appropriately
and also their occurrence in future can be avoided.
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Task 1
Management accounting:
In the entity, it is required that all of the practices shall be applied in a proper way so
that the managers are able to have the required knowledge which can be used by them
in the making of the decisions. For this, the management accounting is taken into
consideration in which there are various processes such as collection, identification, and
analyzation which will be performed and the results will be used in the company
(Butterfield, 2016). By the help of this, it will be possible to attain the required outcomes
by which objectives and gals will be met.
By the help of management accounting, it will be possible for the managers to make the
decisions by the use of which it will be possible to attain the required outcomes and this
will be enhancing the sustainability of the business. There is the use of financial
accounting also which will be different in certain terms form this and they are provided
below:
In the process of management accounting, there are various activities which are
performed such as planning, controlling and directing. For the carrying out of them in
the proper manner it will be required that all the requirements shall be fulfilled and in
that information will be needed which can be attained by the help of systems which are
as follows:
Various management accounting systems and their requirements:
Cost management system:
In the business, it is very much essential that proper control shall be established on the
costs which are incurred and for that this system will be taken into consideration. In this,
all of the components which are involved in the cash will be ascertained and then they
will be managed in the manner by which the reduction will be achieved in the total cost
of the company (DONIZETTI, 2016). The cost of the business will be classified as the
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direct cost and indirect cost and then in them, there will be fixed and variable elements
which will be involved and shall be determined. The cost related data will be attained
and by that all of the decisions will be made in a manner that profits are maximized.
Inventory management system:
In the processes which are performed in the business, there are various inventories
which are required and they include finished stock, inventory in the process and
different raw materials. It will be required that they all shall be managed in such manner
that all of the production is carried in a most effective manner (Viktorovna and
Ivanovich, 2016). There are several policies which are required to be followed in this
such as the just in time approach, ABC costing, EOQ, FIFO, and LIFO. By all of them,
the inventory will be properly measured and there will be proper records which can be
maintained in this regard.
Price optimization system:
In the company, the products are provided to the customers at different prices and it is
needed that the reaction of the consumers on the price change shall be analyzed. For
that, this system is used. In this, all the factors will be ascertained and then the price will
be set accordingly by the use of various strategies which are available in this respect
(Lopez-Valeiras, et. al., 2015). They include the price penetration and price skimming.
Also, the techniques in which cost is taken as the base are considered. This way the
overall development will be made possible and increase in the profitability will be
ensured.
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Benefits of management accounting systems
All the functions which are undertaken in the company will be carried in the best manner
if the management accounting will be taken into use in the business (Kerzner and
Kerzner, 2017). There are various policies which are followed under this and by that
several benefits are received which are as follows:
 By the help of them, all the information will be collected and that helps in the
making of the best plan which will be followed by the company. This way all
operations will be performed in the most efficient manner and also the
performance of all can be measured and evaluated by the use of this.
 The decisions will be made after considering all of the factors which affect the
business and by that chance of the errors will be reduced and the results will be
improved due to this.
 All of the data will be taken from the various sections of the company and there
will be proper flow which will be ensuring the appropriate coordination among all
of them. As there will be coordination so control will also be managed in a proper
manner.
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Different methods used for management accounting reporting
The reports will be made by the business so that they can be used in various aspects
and they are explained below:
Cost report: The cost which will be determined will be used and the report will be made
in which all of the information which related to the same will be entered. There will be
proper cost allocation which will be made and this helps the company to manage the
cost by the making of the required decisions (Sullivan, 2018). This will be maintaining
the level of the cost and also the proper distribution of the funds will be made to all the
segments as the requirements will be identified in advance.
Demand reports: It is required that the products which are required I the market shall
be identified and also the quantity in which they will be needed. There will be evaluation
which is to be made of the demands which are prevailing and the new choices. They will
be used so that production is carried in such manner by which the proper stock will be
maintained and no issues are faced. All of the data will be recorded so that it can also
be considered in the future.
Budget reports: In the making of the plan it is required that all the expenses which will
be incurred shall also be estimated and the report in which they will be recorded will be
known as a budget. This will be described the manner in which all the operations shall
be performed and also the resource allocation is made by the help of this as the needs
will be identified (Klychova, et. al., 2014). They will be managed in such manner that the
company will be able to make the best use of the resources which are available.
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Integration of management accounting systems and management accounting
reporting
The process which is involved in the making of the decisions requires the use of both
the reports and systems and due to this they both are called to be integrated. There will
be the management accounting systems by the use of which there is the collection of
the data which is needed in the company. Then the reports which are to be made will be
undertaken with the help of the information and this shows that both will be requiring
each other. As the performance of their business will be improved due to this it is also
considered to be integrated with them.
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Task 2
Calculation of cost and preparation of income statement using marginal and
absorption costing
In the process of calculation of the cost, there are various methods which can be used
and they involve absorption costing and marginal costing (Aurora, 2013). The treatment
under them is different and so the two costs will be determined which will then be used
in the making of the income statements which are provided below:
Calculation of cost and income statement in marginal costing:
Particulars Amount
(£)
Direct Costs:
Direct Material 5
Direct Labour 3
Variable Manufacturing
overhead
2
Total Cost per unit 10
TSR Pvt. Ltd.
Income Statement
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*10000) 250000
Cost of Sales
Opening Inventory 0
Add: Cost of Production (10*10000) 100000
Less: Closing Inventory 0 100000
150000
Less: Variable distribution and
distribution costs:
Administration 30000 30000
Contribution 120000
Less: Fixed Costs
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Fixed manufacturing overhead 40000
Fixed selling and administrative expenses 30000 70000
Net Profit 50000
Calculation of cost and income statement in absorption costing:
Particulars Amount
(£)
Direct Costs:
Direct Material 5
Direct Labour 3
Variable Manufacturing
overhead
2
Fixed Manufacturing
Overhead
4
Total Cost per unit 14
TSR Pvt. Ltd.
Income Statement
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*10000) 250000
Cost of Sales:
Opening Inventory 0
Add: Cost of Production (14*10000) 140000
Less: Closing Inventory 0 140000
Gross Profit at Normal 110000
Less: Distribution and Administration
Costs:
Variable Administration and selling cost 30000
Fixed selling and administrative
expenses
30000 60000
Net Profit 50000
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Report showing profit when sale of 5000 units is made by absorption and
marginal costing
TSR Pvt. Ltd.
Income Statement
Absorption Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*5000) 125000
Cost of Sales:
Opening Inventory 0
Add: Cost of Production (14*10000) 140000
Less: Closing Inventory (14*5000) 70000 70000
Gross Profit at Normal 55000
Less: Distribution and Administration
Costs:
Variable Administration and selling cost 30000
Fixed selling and administrative expenses 30000 60000
Net Loss -5000
TSR Pvt. Ltd.
Income Statement
Marginal Costing
Particulars Amount
(£)
Amount
(£)
Sales Revenue (25*5000) 125000
Cost of Sales
Opening Inventory 0
Add: Cost of Production (10*10000) 100000
Less: Closing Inventory (10*5000) 50000 50000
75000
Less: Variable distribution and distribution
costs:
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