Management Accounting Report for Cambridge Manufacturing Ltd.

This report delves into the realm of management accounting, focusing on its application within a medium-sized financial consultancy, Marling. The report examines the role of management accounting in supporting business activities like planning, organizing, and controlling, using Cambridge Manufacturing Ltd. as a case study. It explores various management accounting systems, including price optimization, inventory management, cost accounting, and job costing. The report also analyzes different types of management accounting reports such as performance reports, budget reports, and cost managerial accounting reports. Furthermore, it contrasts marginal and absorption costing methods, providing income statements for Cambridge Manufacturing Ltd. The report highlights the benefits of these systems and their interrelation, offering insights into effective financial decision-making and cost management. This analysis aims to provide a comprehensive understanding of how management accounting contributes to organizational success.

Management
Accounting

Table of Contents

INTRODUCTION
Management accounting is the presentation of accounting information in order to
formulate the policies to be adopted by the management and assist its day to day activities. Good
management accounting consist of responsibilities to manage a broad variety of critical
management accounting information through management accounting system and techniques
like cash budget, absorption and marginal costing. It helps to management to conduct all
business activities in efficient manner such as planning, organising, staffing, directing and
controlling. To understand this, selected medium sized organisation Marling financial
consultancy company. It was established in 1988 and developed due to the trust instil in clients.
It serves clients operating in various sectors like retail, manufacturing and construction to
provide important information to making business decision. There are company provide
suggestions to manufacturing and retail company like Airdri limited, Cambridge manufacturing
and Argos, Waitrose. In this report selected client company Cambridge manufacturing Ltd. Here
in the project report apply several types of accounting system and prepare management
accounting reports. Apart from it, calculate net profit through absorption and marginal costing.
Along with, apply different planning tools and accounting tools to overcome from financial
issues.
TASK 1
P1
The management accounting system is an accounting system which is connected to the
collecting, analysing and presenting the monetary and non monetary information to the users as
per the requirement. It is considering as important part of the companies which is implement in
internal system to control business activities and execute in proper way. These systems can help
to keep proper records of accounts and make effective accounts (Arnaboldi, Lapsley and
Steccolini, 2015). There are discussed various types of management accounting system in order
to improve growth and market image. The Cambridge manufacturing Ltd use different types of
accounting system in their organisation -
Price optimization system – Every company wants to generate more profitability so they
can focus on their price structure of different products. The Cambridge manufacturing Ltd
applied particular system in order to set price of their products. There is company conduct
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market research and know perception of customers about the products as well as services. The
manager of the company apply the system in effective manner and help to maintain profits.
Inventory management system – The particular system major part of manufacturing
company to track record and manage stocks within organisation. Every manufacturing company
can be used this accounting system to keep proper records analysis of stock at each production
level. In Cambridge manufacturing Ltd apply particular system. It can assist every activities and
help to know requirement of material at different level. As a result it can reduce wastages and
help to place next order of goods and services. The company use different techniques of
inventory which is -
 LIFO – According to this method stock which come last that goes out first so last in first
out.
 FIFO – There are stock coming first and sale out first so it depends on first in first out.
 AVOC – It is calculating cost of inventory on average basis.
Cost accounting system – This system provide direction to business to concentrate on
cost and increase the profitability. There are considering systematic set of activities like
understanding, entering, analysing, categorising and summarizing the cost of products and
services. In Cambridge manufacturing Ltd implement particular system to analysis variance
through compare between actual and budgeted cost. It is mainly used by business to improve
their production level and profitability (Cost accounting system, 2013).
Job costing system – The particular system is a kind of accounting system where
analysis the cost of expenditure of revenues which happen for particular job. Through this
system get detailed information about the cost which is connected to accounting period of time.
In Cambridge manufacturing Ltd apply particular system to know about several assign job. It can
provide different types of variable information in details -
 Direct material – It is a part of variable cost which is related to production unit and track
the cost of materials during to specific job.
 Direct labour– There are tracking the cost of labour regarding to specific job where
consist of time card and time sheet.
 Overhead – At the end of every accounting period the total amount of each cost to apply
methodology regarding to allocation.
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P2.
Management accounting reporting consists of different types which should be considered
by KEF Ltd. In order to maintain records of every business transactions. It assist management to
make relevant decisions on the basis of information provided through such report that will bring
profitable outcome to company near future. These reporting systems are briefly discussed as
under:
Types of reports :
Performance report : These are the reports on the performance of something . Its is
prepared to measure, evaluate, analyse the performance of the organisations as well as
employees. Performance reports are created on the routine basis produced by the government
bodies and is financed by public money in regards to show that the money is spent effectively
and usefully (Chapman, 2011). It is also a part of communication management plans. Company
like Cambridge manufacturing Ltd. should make performance report on a routine basis to
identify the current performance, differences between actual and baselines, forecasting about
future, to know about the interest of stakeholder and to determine the work of employees.
Budget report : These reports are prepared to compare the actual with the estimated
budgets. All the financial data of the company is recorded in the budget reports. Budget reports
serves as a blueprint to the companies objectives . This also helps in determining the level of
expenditure in the organisation. Cambridge manufacturing Ltd. will make budget report to
ensure that the resource allocation is properly done , it will also help them in reducing the cost of
operations and helps in determining the availability of sufficient amount of funds .
Account receivable ageing reports : It is a critical tool for managing the business . This
reports shows the amount that a customer needs to pay a company and the length of time the
amount has been obscure. It also assist the Cambridge manufacturing Ltd. to know whether the
finance department is collecting receivables slowly , their credit policies etc.
Cost managerial accounting report : This report is prepared to know the cost of amount
spent on manufacturing the article . It provides full detail about the money invested in carrying
out business operations. Cambridge manufacturing Ltd. needs to prepared this to control the cost
which unnecessarily affects the profitability of the business and to understand the exact
expenditure of the organisations so that the optimization of resources can be done properly
(Fowzia, 2011).
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M1:
There are different kind of management accounting system and each of them plays a
crucial role in the context of all kind of organisations. Cambridge manufacturing Ltd.
implements various kind of accounting systems which are beneficial not only for them but also
for their clients. Herein, below advantage of these accounting systems mentioned:
Type of accounting system Benefits
Inventory management system  Inventory management would help in
inventory balance which will help in
determining how much inventory we
exactly need. This would also help in
CM Ltd. manufacturing in accurate
planning , in tracking the inventory.
Due to this, the production process of
company will enhance due to overall
productivity will improve and work
will be accomplished in a timely
manner. It is beneficial for company to
maintain stock in proper way and
utilise resources in production process
(Bryer, 2013).
Cost accounting system  It is helpful in computing overall cost
of different operations and activities. It
will help Cambridge manufacturing
Ltd. in fixation of prices, reducing the
prices and in identify the profitable
activities and unprofitable activities.
Because of fixed price and occasional
reduction in cost, revenues of company
will increase due to increased sales. The
main purpose of this system to use cost
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in suitable manner and intensify the
cost efficiency to increase the
production.
Price optimisation  This accounting system is beneficial in
the analysing the customer's reaction on
different prices of products and
services. It will provide benefits to
Cambridge manufacturing Ltd. by
saving time, providing with the market
transparency and full control. It can
help to set price of goods as per the
requirement.
Job costing system  It is beneficial in the computing the
cost of each job which is assigned to
different activities. Cambridge
manufacturing Ltd. will adopt this job
costing system to know pricing of each
job. This system benefits in analysing
the over and under recovery of
overheads.
D1
Management accounting and reporting system are interrelated with each other in order to
assist management in making an effective decisions for the betterment of an organisation. It can
be better understand through the following example: Cost accounting system help in analysing
the total cost incurred in the production and other business activities which enable management
to prepare a budget report as these are prepared on the basis of actual financial position of
company. If business firm will not use management accounting reports and systems in an
integrated manner to perform business operations, then it will became very difficult for the
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concerned company to manage their income and financial statements in a proper manner. This
will reduce the overall effectiveness of company.
TASK 2.
P3.
COST: Cost can be anything which is measurable in terms of money . It is the amount
that has to be paid or given up in order to buy something. Cost is usually a monetary valuation of
efforts ,material, resources,time and utilities,risk incurred and a opportunities forgone while
producing a goods or services. All expenses are cost but all cost are not expenses. Cost can be
the amount of money required to do the business or to do jobs. These are of two types Marginal
cost and Absorption cost.
Marginal costing : Marginal costing refers to the increase and decrease in the cost of
producing one more unit or serving an additional customer. It is a cost for producing an extra
unit . Marginal cost is derived from variable cost as the fixed cost remains unchanged as output
changes.
Absorption costing: Absorption costing is a cost accounting methods for valuing
inventory. It includes all the cost of manufacturing a product including both variable and fixed
cost. It means all costs such as direct cost , overhead cost are used for valuing the inventory
(Absorption costing, 2018).
Cambridge manufacturing Ltd. may use marginal costing method is it shows more
revenue on the financial statements. It can easily attracts large number of shareholders. On the
other hand, absorption costing method can also be used which provides them accurate
information about the financial position of company (Garrison and et. al., 2010)
Income statement for the month of May (Marginal costing)
Particulars Amount (in £)
Sales
Less- Marginal costs
Less- Opening inventory
Add- Closing stock
15000
(6400)
-
3200
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Gross profit
Less- Fixed cost:
Less- Sales commission
11800
(10000)
(750)
Net profit 1050
Working note:
Calculation of sales amount (300x50) = 15000
Calculation of marginal cost: (Direct material cost+ direct labour cost+ variable production
overhead: 8x300+ 5x500+ 3x500)= 6400
Calculation of fixed cost: (Fixed selling expenditures+Fixed administration
expenditures+ Fixed production cost- 4000+2000+4000)= 10000
Income statement for the month of June (Marginal costing)
Particulars Amount
Sales
Less- Marginal cost
Less- Opening stock
Add- Closing stock
Gross profit
Less- Fixed cost
Less- Sales commission
25000
(6080)
(3200)
1280
17000
(10000)
(1250)
Net profit 5750
Working note:
Calculation of sales amount (500x50) = 25000
Calculation of marginal cost: (Direct material cost+ direct labour cost+ variable production
overhead- 8x380+ 5x 380+ 3x 380)= 6080
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Income statement for the month of May (Absorption costing)
Particulars Amount
Sales
Less- Absorption costing:
Direct material cost- 4000
Direct labour cost- 2500
Variable production cost- 1500
Fixed production cost- 3000
Less- Opening stock
Add- Closing stock
Gross profit
Less- Fixed cost:
Fixed selling expenditure- 4000
Fixed administration expenditure- 2000
Less- Sales commission
15000
(11000)
-
5200
9200
(6000)
(750)
Net profit 2450
Income statement for the month of June (Absorption costing)
Particulars Amount
Sales
Less: Absorption costing:
Direct material cost- 3040
Direct labour cost- 1900
Variable production cost- 1140
25000
(9880)
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Fixed production cost- 3800
Less- Opening stock
Add- Closing stock
Gross profit
Less- Fixed cost:
Fixed selling expenditure- 4000
Fixed administration expenditure- 2000
Less- Sales commission
(5200)
2080
12000
(6000)
(1250)
Net profit 4750
Budgeted and actual cost of metal used in
producing Product A
Budgeted material cost
per unit of the product 2kg at £10/kg
Actual output 1000 units
Actual material
purchased and used 2200kg
Actual material cost £20,900
Actual material cost 10450
May.1
Opening
Inventory of 40
units @£3 each 120 10570
May.12
Bought 20 units
@ £3.60 each 72 10642
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May. 15 Issued 36 units 118.8 10523.2
May.20
Bought 20 units
@3.75 each 75 10598.2
May. 23 Issued 10 units 34.5 10563.7
May.27 Issued 25 units 86.25 10477.45
May.30 Issued 5 units 17.25 10460.2
M2
Several techniques which can be used by Cambridge manufacturing Ltd. Are marginal
and absorption costing method. It will makes easy for accounting manner to frame decisions and
plans through forming a budget. It motivates members of an organisation to reduce unnecessary
cost which further enhance their financial position in the market.
D2.
Financial statements includes profit and loss a/c, cash-flow statement, balance sheet etc.
which shows the accurate financial condition of an organisation thus it is essential for the
manager to decide which costing methods they prefer to adopt which can retain the trust and
loyalty of their shareholders. In the present report, different costing methods are used i.e.
marginal and absorption costing. In the may month' s income statement by marginal costing
method, net sales amount is of £15000. As well as total marginal cost is of £ 6400 and closing
stock is of 3200. So overall, net profit is of 1050. Additionally, in the month of June sales is of
25000 and total marginal cost is of 6080. So net profit is of 5750. Apart from it, in absorption
costing method net profit is of for 2450 month of May and in month of June is of 4750.
TASK 3
P4
Budget: Budget is a pre-planned agenda of revenue and expenditures. It is a prediction of
expenditures and income that may generated within a particular time period (Lachmann, Knauer
and Trapp, 2013).
Budgetary control : It is an activity of examining the expenses and income with the
budgeted figures for an organisation in future period of time and accordingly comparing the
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