Management Accounting Report: CARWOW Financial Performance Analysis

This report provides a comprehensive analysis of management accounting principles and their application within the context of CARWOW, a small-scale car sales business. The report begins with an introduction to management accounting, differentiating it from financial accounting and emphasizing its role in decision-making through financial and non-financial transactions. It then delves into various management accounting systems, including inventory management, job costing, price optimization, and cost accounting systems, highlighting their significance in controlling costs and improving operational efficiency. The report further examines different accounting methods, such as inventory control reporting, accounts receivable and payable reporting, performance reporting, and budget reporting, illustrating how these tools aid in financial record-keeping and strategic planning. Additionally, the report contrasts marginal and absorption costing methods within the context of income statement preparation. Finally, the report explores the advantages and disadvantages of planning tools used for budgetary control and provides insights into how an organization should adopt management accounting systems to meet its day-to-day financial transactions efficiently.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
P1 Management accounting and different types of management accounting systems..........1
P2 Various methods which help in accounting report............................................................3
P3 Marginal cost and absorption cost.....................................................................................5
P4 Advantages and Disadvantages of planning tool............................................................12
P5 How company is opting management accounting system..............................................14
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Accounting is simply managing, summarising and classification of financial transaction.
Management is all transaction related to finance in organisation is known as management
accounting (Ward, 2012). For all these process there is need of finance department as well as
expertise for overall transactions. It also helps company in taking effective decisions and also in
financial and non-financial transaction which help organisation in taking decision related to
investment. Company also have to do market research for investment purpose so that they can
get more and more profit from the amount invested. With the help of increasing technology there
are various software which help in easily recording transaction of enterprises. This assignment is
based on CARWOW it is a company who sells new cars and the same is a small scale business.
The same report explains management accounting and its requirement in company or various
methods used in the same are also described. Instead of this income statement is prepared by
using absorption and marginal cost. Apart from this it also through light on advantages and
disadvantages planning tools used for budgetary control. In the end, it explains how an
organisation have to adopt management accounting system so that they can meet their day to day
financial transactions easily.
TASK
P1 Management accounting and different types of management accounting systems
Management accounting is also known as managerial accounting or cost accounting.
Managerial accounting is a process of report of management and accounts for giving important,
timely and accurate management information which help in making decisions. Reports are
mainly show an available cash amount, in hand order amount, account receivable and accounts
payable, debts outstanding, inventory and raw materials (Vasile and Man, 2012). It also contains
analysis of variance and other statistics. Cost accounting main aim for mangers to help within
making decisions of a company. It is an important tool of making decisions within an
organisation by a management. It is tool for gaining planning better and control over a company.
It is for all type of companies such as sole proprietor, non-for-profit companies or governments.
Companies accounting is done on monthly and weekly basis. It is useful for external and internal
uses of a company. External users are debtors, shareholder, investors etc. and internal users are
purchases, suppliers, employees etc.
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Cost accounting is a process which help in analysing of business cost and operations for
preparing internal report of finance, records day to day transactions and help managers in making
a decisions of accounts for goals achieving of a company. Managerial accounting is a decision
making of a mangers information’s and provision of financial (Vasile and Man, 2012).
Accountants of management arrange an event finance and watch all happen activities
around organisation while looking the organisation needs. Emerge data is estimated. Data
translation and knowledge is estimated which guide in making decisions. Formulating of
management of controlling assist and strategy implementing in a company which includes
partnering of management in decision making and performance of a management systems. Some
of important requirements having various types of cost accounting systems are discussed below: Inventory management systems: It help in goods tracking from whole supply chain and
between all movements of goods and parts between. Firms see every single and small
movements of parts and goods and its operations it helps in taking investments and its
decisions. Inventory of various managers focus on various parts of chain supply with
smalls firms because they are much interested in order and supply chain ends as having a
broad scope in management of inventory costs are also broader. Management of
inventory help in inventory control and wastage of stock should be eliminated. It will
help in balance maintaining between closing and opening stock or it can manage the
supply and demand of stocks with the help of management inventory. Job costing systems: It accumulates accounting of cost manufacturing separately from
every job. Organisation appropriate is doing of production of unique products and
special orders. It is understandable that analysis of job costing systems cost as per
performance and functions. Example of a costing systems that it is an appropriate
accounting of management of a organisation event such as producing niche furniture,
producing cost are so high of air surveillance etc. costing of job tracks the cost and
revenues by job and reporting standardized enables job profitability (Van der Stede,
2011). Systems of accounting give support to job costing, allow assigning of numbers of
job to single items of expenses and revenue. Price optimisation systems: Optimization of price which is used for mathematically
analysis by company. As per behave of customers to various cost of products and
services through the various channels. It helps in determining of the cost of a company
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for meet of companies objectives such as increases in cost. Optimization of cost contains
like as operating costs, sales, inventories and historic cost. Optimization of price has
implement in organisation performance contains like as banking, airlines, insurance
industries, cruise lines, car rental, hotels, casinos, retail and airlines. Increases in return
of investment is a main motive by which they afford cost by customers (Van der Meer-
Kooistra and Vosselman, 2012).
 Cost accounting systems: It is a procedure of allocating, summarizing, analysing,
classifying, recording and evaluating different actions of alternative of courses for
controlling of cost. It is a framework which are used by organisations for cost estimating
oh product for valuation of inventory, cost control and analysis of profitability. It
contains the method of formal which is developing for controlling and planning of a
company’s activities of managing cost relative to long term and short time strategies. It
gives information which helps in meeting two major challenges like as competitive
position maintain in a long term and in short term is profitability. Estimation of accurate
cost of services and product is critical for profitable operations. Appropriation course of
action of goals on its cost efficiency and capability. Roles of companies of cost
management system are: competencies of a core managing so as fend off threats and
opportunities of exploit and strategies and plan are linked with an actual performance of
a company. Objectives in a short term company efficiency focused on a specific cost
such as administrative, marketing, services and manufacturing and in long term
objectives are many but focused on categories of costs like as channels of distribution,
products, suppliers and customers.
P2 Various methods which help in accounting report
Organisation like CARWOW need accounting system in their company so that they can
record their every transaction and also can recheck when there is need (Vakalfotis, Ballantine
and Wall, 2013). Whereas, accounting report is that which help owner and manager of
organisation in taking appropriate decision and also in making proper strategies so that they
generate or earn maximum profit as much as can with monitoring and controlling. there are some
methods of accounting which help CARWOW in completing their work on time in better
manner. Some methods are stated below: -
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Inventory control Reporting: inventor is the stock company have in their warehouses
and this method help in recording transaction or amount of inventory. Same will help in knowing
that warehouse of respective company is managed in proper way or not. If there is no appropriate
record then inventory control reporting help in proper transaction records so no loss will be there
in present or future for company because under and over maintaining stock is harmful (Suomala,
Lyly-Yrjänäinen and Lukka, 2014).
Application: this is the application which is very essential for CARWOW for maintaining record
of their cars in warehouse. Therefore, this also helps in managing accounts department so that
proper money transactions are maintain. Instead of this, inventory control report reduce extra
uses of resources and prevent not required production. Although these kind of things help in
satisfying customer by providing on time and better services.
Account Receivable Reporting: this generally help in making record of inflow and
outflow of cash. Furthermore, it also beneficial in maintaining records related to amount received
from party or customers in form of cash, cheque or demand draft. In account receivable reporting
include data related to customer, time, date and amount is included and this process assist in
minimising the problem related to inflow of cash.
Application- this report is very helpful for CARWOW company in knowing that their customers
paid or not amount for purchasing car and if amount is receiving in instalment then it shows
detail how much instalments are paid and remaining. The same also help in recording weekly,
monthly and quarterly as well as annually transactions also. Effectually implementation of such
process help company in their better working (Parker, 2012).
Account Payable reporting: This performing is somehow alternate of account
receivable reporting this report help respective company in maintaining records of amount
payable to customers in monolatry terms and the same also helps in maintaining good relation of
buyers and suppliers of goods and services. When amount is paid on time in proper manner this
will help in maintaining image of company in the eyes of customers and suppliers of
organisation.
Application: - CARWOW company use several techniques instead of this account payable
reporting help organisation in smooth working because of their accounts records. Accessibility of
resources is that which is beneficial for personnel to execute in finer way. hence, such script is
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that which help in maintaining or building goodwill of company in the eyes of customer as well
as in the market. Paying full and proper amount on time help organisation in building trust and
relation between their suppliers.
Performance Reporting: this is used by every kind of organisation for maintaining
performance of employees and staff (Otley and Emmanuel, 2013). The same is used by
CARWOW for improving performance of employees so that respective company achieve its
objective and goal in appropriate manner for better future and growth. The same also help in
increasing productivity and in generating revenue as much as can. If carrying out work is
monitoring and controlling or on the basis of employees performance rewards are given then this
will result in encouraging personnel’s to do work more effectively.
Application- this process is beneficial for respective company in increasing productivity and also
in generating revenue. If performance of employees is recorded on daily basis, then they try to
gives their best as much as they can. The same will help in finding solution of many barriers or
problem through which CARWOW is going on.
Budget Reporting: every organisation starts their work after deciding budget and
dividing amount in department according to their requirement. If company work as per their pre
framed budget, then this will result in minimum use of funds and will less expensive for
CARWOW thus this is beneficial in comparing actual and standard budget. This report
moreover, help in managing fund effectively and the same also help in making proper decisions.
Application- CARWOW is the organisation which use their available funds in appropriate way
and the same also help in doing things in correct outlook and usage can be done where needed.
funds available in company help them in make effectual judgement and strength in the mind of
employees so that they work in proper manner so organisation can achieve its objective and goal
in effectual manner.
P3 Marginal cost and absorption cost
Accounting system includes income statement which have all types of types of cost in
their statement which help in finding revenue and sales occur in organisation. So that CARWOW
mange and prepare their budget according to that for generating more and more revenue and also
help in minimising extra expenses occur in production of additional product. Below mention are
some methods which help in making income statement are as follows: -
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Absorption cost: it is management accounting cost method which is mainly used with
selling and administration expenses the same itself include income statement. This includes
direct cost which occur while producing a product whereas expenses occur in this are wages of
labour, utility cost, overhead cost these all are used in production of goods. Absorption cost
includes all the direct expenses come out in producing products. This cost help in bringing
accuracies in the accounting transaction of inventories related to every year and also calculated
higher net income when it is compared with variable cost. Instead of this it is beneficial in
decision making and also in minimising wastage or over utilisation of resources. This is used
earlier at the time of traditional accounting (Macintosh and Quattrone, 2010).
Marginal costing: this cost includes additional production cost of product. This is also
used in decision making because this also principle costing technique main reason of the same is
marginal cost approach permit management department of organisation to focus on modification
because they effect decision making. Contribution of this cost is calculated by subtracting sales
price from variable cost. Although marginal cost is that which is related to raw material and
labour used in producing additional product.
Basis Marginal Cost Absorption Cost
Meaning This method helps in decision
making process in organisation
so that they can take
appropriate decision on
producing additional product.
The is mainly used in selling
and administration expense
which is included in income
statement.
Highlights Contribution in marginal cost
was done on the basis of per
unit.
In Absorption cost net profit is
being used on per unit basis.
Overheads Also known as fixed cost as
well as variable cost.
Absorption cost includes
selling, distribution and
administration in it.
Cost Data Therefore, the same is being This is used to existing the
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presented with the contribution
of production of every product.
accepted thing in complete
manner as well.
Profitability This help in measuring that
how much profit volume ratio
company have.
In Absorption cost the fixed
cost is enclosed and it also gets
effected and this can be done
in awful way.
Cost Reduction Product cost in included in
marginal cost and fixed cost is
also called period cost
In this cost which is totally
different from variable cost
and marginal cost and fixed
cost all two are considered in
goods cost.
Below mention is calculation of marginal costing for three years which help organisation in
taking appropriate decision related to budget of various department: -
Incomes statement by using marginal costing
Particular Year1 Year 2 Year 3
Sales 2600*85 221000 297500 272000
Opening stock 27000 36000
Variable manufacturing cost
Direct material 3500*13 45500 49400 47450
Direct labour :3500*10 35000 38000 36500
Variable overheads: 3500*7 24500 26600 25550
105000 114000 109500
Less: Closing stock 900/3500*105000 27000 36000 49500
Contribution 78000 105000 96000
Less: Fixed costs 92000 92000 92000
Gross profit 51000 100500 84000
Less; Distribution expenses 24000 24000 24000
Administrative expense 89000 89000 89000
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Interest expenses 1100 114100 1000 0
Profit before tax(PBT) -63100 100500 -29000
Corporate tax 0 0 0
Net profit -63100 -13500 -29000
Income statement by using absorption costing
Particular Year 1 Year2 year3
Sale 2600*85 221000 297500 272000
Opening stock 0 50657 65053
Variable manufacturing cost
Direct material 3500*13 45500 49400 47450
Direct labour :3500*10 35000 38000 36500
Variable overheads: 3500*7 24500 26600 25550
Fixed costs 92000 92000 92000
197000 206000
Less: Closing stock 900/3500*197000 50657.14
65052.6315
8 91089.04
Gross profit 74657.14 105896 96536
Distribution expense 24000 24000 24000
Administration expenses 89000 89000 89000
Interest expense 1100 1000 0
PBT -39443 -8104 -16464
corporate tax 0 0 0
Net profit -39443 -8104 -16464
Working notes:
Calculation of closing inventory in units by using FIFO methods:
Year Sales Production Closing inventory as
per FIFO method
1st 2600 3500 3500-2600= 900
2nd 3500 3800 (3500-900)=2600-
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3800=1200
3rd 3200 3650 (3200-1200)=2000-
3650=1650
From the above income statement, it is concluded that absorption cost is more effective in
organisation compare to marginal costing. Absorption method will be used by CARWOW
company because it shows better results. This will help in effective decision for further
development and growth in organisation.
P4 Advantages and Disadvantages of planning tool.
Budget is amazing document which include elaborated detail of data related to company
within the particular period by implementing real facts and figures of business research. Simply,
it is being used to determine the several expenses and cost occur and organisation is investing on
quality product and services which they are producing. It is a all-inclusive criteria of functional
administrative division and it also design a plan for the capital investment so that they can
generate revenue as much as possible (Lukka and Vinnari, 2014). Instead of this, it is basically
framed for particular one year and this has to be implemented by CARWOW company so that all
the department work according to the same manner and although the same can be reframed as
per need and desirable outcomes so that required target should be desired. Specifically, the
designed sales and income is thus involved in producing the goods and monetary value, expenses
etc. are all embroiled in producing the products and services in healthier way.
Budget Control: This is to the highest degree critical method which is mainly used for
governance day to day activity of business which also help in achieving target are: (cooperation,
planning and assessment instead of these there are many more). This is being connected with the
various business sections and these are classified into the several parts same as budget centre.
The suitable procedure for such action are as follows:
 Suggestion for concern managers: - this is important for managing top level department
or financial department so that records can be maintain in proper manner. If organisation
have proper data related to cost than it will results in minimising extra cost and losses.
 Implement Effective suggestion: - There are many suggestions and feedback
organisation have if these will have implemented in organisation in effective manner then
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there will be better outcomes compare to present. Instead of this help in finding solution
of the problems or generate more and more revenue (Kotas, 2014).
Advantages of budgets
 With the help of budget, it becomes easy to bring control over the inflow and outflow of
cash in business which further helps in marinating minimum cost of the firm.
 Budget helps in evaluating the performance of different organisation.
 It helps in preparing budget of different department and in managing resources as well
funds in appropriate manner.
Disadvantage of budgets
 It restricts flexibility in the firm
 It limits the capacity of organisation to adapt quick changes.
Planning tool: - planning is necessary factor required in every kind of organisation so that they
can pre decide their path to work on that and achieve company goal and objective. This can be
for future as well as for present and can be modified according to requirement. The same is
divided into two parts forecasting tool and Scenario tool
1. Forecasting tool: this tool is totally based on practical hypothesis and the same is
encourage by management skills, effective decision and learning.
 Advantages- Furthermore it is necessitating to determine the goals and the same also
assist the managerial social unit which is state anticipate the actualised sum of costs and
sales which is take for the coming period.
 Disadvantages- if there is absence of estimation of various expenses which can be
incurred in future and budget manager is not aware of that. If all these expenses are more
than total cost, then these will result in affecting organisation goal.
2. Scenario tools: respective company CARWOW used their substitute products according
to demand in this Scenario tool. Simply during operational, functional and planning.
Advantages: - generally with this method various idea implementation, planning and selection
are needed in organisation for its smooth flow.
Disadvantages: - there is lack of accuracy in this method which will result in many problem
through which company is going on (Kihn, 2010).
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