Management Accounting Systems and Reporting for Caunton Engineering

This report provides a comprehensive overview of management accounting, focusing on its application within Caunton Engineering Limited, a UK-based steelwork company. It explores various management accounting systems such as inventory management, cost accounting, price optimization, and job costing, detailing their benefits and implementation. The report also examines different management accounting reports, including performance, cost accounting, inventory management, and accounts receivable reports, highlighting their role in decision-making. Furthermore, it critically evaluates the integration of these systems and reporting within organizational processes. The report includes a comparative analysis of marginal and absorption costing methods, along with financial statements prepared using these techniques. The analysis demonstrates how these techniques are used to generate financial reports that accurately interpret data for a range of business activities, providing valuable insights for business development.

Management
Accounting

INTRODUCTION
Management accounting is structure that provide assistance in preparation of executive
reports and other financial accounts in order to provide timely and regular information for
managers to make momentary and periodic decisions. It provides fiscal data and guidance to
business enterprise to provide assistance in its overall development. It is a part of organisational
structure which provide ease in conducting different business operations. Reporting through
management accounting provides a complete analysis of efficiency and performance of
enterprise (Maas, Schaltegger and Crutzen, 2016). The report provides a detailed explanation of
management accounting, evaluation of advantages of management accounting systems, basic
needs for adoption of these systems, planning tools and use of these in budgetary control in
context of Caunton Engineering Limited, UK's engineering company. It is engaged in designing,
fabricating, painting and erecting infrastructural steelwork. Company's steelwork is mainly used
in construction industry. It is reputed company in UK's steel manufacturing company. This report
also exhibits comparative analysis of organisations while discussing financial problems and role
of management accounting system in responding to such problems and some techniques to
estimate and analyse effect of financial problems.
ACTIVITY 1
Management Accounting Systems:
Management accounting is accounting which is mainly management oriented. It can be
defined as a unique combination of management and accounting structure that assist companies
by providing qualitative and quantitative information for facilitating process of making
decisions. It is a kind of accounting adopted by companies to maximise and enhance the overall
profit by organising expenses and revenue (Taipaleenmäki and Ikäheimo, 2013). Caunton
Engineering Limited using structure of management accounting to make expansion in industry.
Company also adopted more than one systems like inventory management, price optimisation,
job costing etc. of management accounting with aim to enhance capabilities and efficiency of
company in all aspects. Following is a complete discussion of different types of systems of
management accounting in respective company context as follows:
Inventory Management System: Inventory is key factors in determining organisation's
cost of product, net income and overall profitability level. This system help to develop a control

structure over inventories processes to mitigate any problems. Most of the companies are worry
about loss of theft of inventories, personal use of inventories by employees and responsible
persons and increase in unused inventory in warehouse. This system help to develop a process
that assist in controlling in and out flow of stock and goods in entity and also determine period
for reordering new inventory. Leading manufacturing organisation like Caunton Engineering
Limited also focus toward inventories because any addition in inventory cost can enhance its
project related to steel work. Company has adopted inventory management system that help
inventory managers or other managerial personnels in tracking and observing large number of
inventories very easily. It reduces excessive inventory expenses to increase net margin of profit.
Cost Accounting System: Costs are incurred by organisations in procurement of
products and in conducting operations. Profit is determined by deducting all expenses from gross
amount of income, so it is considerable factor for corporates and other business entities. Cost
accounting system help to regulate and manage different costs within organisation with an aim to
achieve higher profitability (Hiebl, 2014). Caunton Engineering Limited also using this system to
determine the cost of projects related to steelwork and filing tenders. It also help company to
minimise their expenses in manufacturing and engineering process to increase overall
profitability. Engineers and project heads with help of this systems determine and control costs
by increasing efficiencies.
Price Optimisation System: Product price is key to success for company as effective
product price can beat competitors. This system facilitates business organisation to minimise
prices of products to reduce competitive adversity. As Caunton Engineering Limited belongs to
top companies in manufacturing sector and facing tuff competition from large number of
competitors so it is important for company to maintain price of their projects at competitive
level. This system opens way for management to minimise price with same profit margin. Under
this system each financial aspect is analysed by managers that have direct impact on prices of
project. It provide help in minimising cost and expenses of different processes and reduce price
of project to maintain profit margin.
Job Costing System: This system is applied by business entities having unique products
or products which are absolutely different from each other and require different processes of
production. Under it aggregate costs are differentiated in tasks and activities, lastly assign them
to specific task and Caunton Engineering Limited applying this system for some of its sub

products which are of different nature and assist in completing steel work projects. This system
help to increase accountability in production process.
Management Accounting reports:
In present business world, companies are effectively managing and controlling the useful
operation by making valuable reports. These reports are mainly provide the entire and clear
picture of overall performance of company and determine weak area of business so that they can
be improved. Different reports are crucial elements of management accounting which support the
responsible manager at different level to take effective decision to attain the future goals (Cui
and et.al., 2015). The main purpose behind preparing several reports is to deliver an authentic
picture of different operations, process and element of business. In Caunton Engineering
Company, manager at various department use to prepare reports which enables them to take
decision in order to accomplish predetermined goals. Some of these reports are discussed
underneath:
Performance report: The main concept behind preparation of this report is to analyse
the total performance of employees and operation of company. Manager use to set the
measurements and desired results and compare the actual performance of worker so in case of
any problem improvement can be completed. In respective company manager use to formulates
this report in order to measure the overall performance of worker involved in different operation.
They also evaluate the performance of different machinery included in various business activities
so that future decision are made regarding improvement in production level. Such as manager
use to set the benchmark and fix measurements for worker like they have to work for 8 hours per
day and deliver best efforts in production and then they compare the actual level of production to
measure the performance.
Cost accounting reports: In companies the main motive of manager or any other
production member is to reduce the cost and overall expenses. Thus they use to prepare proper
and timely cost accounting reports that use to maintain a systematic records of total cost that
have been spent by companies on various activities with organisation. With the help of this
reports manager are able to examine the variation between predicted and current cost which
further support to control unwanted expenses or any unprofitable activity. In Caunton
Engineering Company, this report support to improve the probability and efficiency by reducing
the additional expenses and maximise the spending on only valuable services. Cost accounting

report also support in analysing the productivity of operation, set the suitable price, make
decision in order to reduce cost and make decision to spend more on profitable activities that
ease to attain the desired results.
Inventory management report: This report is mainly prepared by internal manager or
production department head to keep a detail record of total inventory present within organisation.
Inventory report help in increasing sales volume as it directly increase the level of production as
per the availability of finished goods. It is an elaborate report which contain information about
total finished good that are ready for sales, raw material available for production and actual
quantity that is part of WIP (Laudon and Laudon, 2015). In respective firm, with the help of
inventories report manager are aid to keep a record of total raw material required for production,
degree of work in progress and total stock that is ready to be deliver as per demand of market. It
also support to improve the supply chain of company as enabling Caunton Engineering Company
to provide goods on actual demand of customer and resolve any issues related with finished
goods.
Accounts receivable reports: The main motive behind preparing this report is to keep an
appropriate record of outstanding amount that is needed to be recover from customer on a fixed
date. In order to maximise the sale figure or meet the sales target companies use to sale goods on
credit basis and setting the suitable date for customer to make payment. This report mainly
describe the name, date and amount to be paid by customer and help support team of company to
give time to time intimation which reduce the chance of late of miss payment. Accounts
receivable report provide strength to credit policy of Caunton Engineering Company and making
easy for customer to fulfil their need and requirement by purchasing subsequent goods.
Benefit of management accounting system:
Different accounting system Benefits
Price optimisation system  In Caunton Engineering Company with the help of this
system manager analyse the attitude of customer
regarding assorted price of product.
 It enable manager in exploding total operational profits
while keeping most considerable prices.
 It aid in making proper differentiation of customers as

per their behaviour regarding price level.
Job costing system  It forecast assorted expenses associated in entire
manufacturing process.
 It represents number of efforts as the same kind of job or
task is eliminated
Cost accounting system  This scheme helps to classify the effectiveness of
distinct production operations in Caunton and then helps
to make improvements.
 It determines the cost of each business item and changes
the current price to boost suitability.
Inventory Management
System
 It supports Caunton Ltd in raising quality of products in
a more appropriate way to fulfill client needs.
 It intensify the efficiency in management of inventory
and save time & money.
Critically evaluation of how management accounting systems and management accounting
reporting is integrated within organisational processes:
Every organisation has large number of functions and processes, that provide numerous
kind of information to increase the effectiveness of systems and reporting under management
accounting. For intense sales and administration department provide information and details
about sales, purchase and administration expenses (Mao and et.al., 2016). Managers by using
such information prepare account receivable report, sales report, cost reports etc. and increase the
efficiencies of management accounting systems.
Costs using appropriate techniques of
cost analysis to prepare an income statement using marginal and absorption costs:
Marginal costing method: It is technique of costing to prepare income statements under
which managerial personnels provide specific classification of expenses in variable costs and
fixed costs. All fixed costs or expenses whether related to manufacturing process or not, are
assumed to be period costs. Variable expenses are allocated to each unit cost.

Absorption costing method: It is most acceptable approach as it calculate cost of goods
sold more reliably by considering all cost related to manufacturing and production including both
fixed and variable expenses (Plumb and et.al., 2017).
ANNEX (A)
Income statement by marginal costing method:
Working note:

Income statement by absorption costing method

Working notes:

Correctly use of techniques of management accounting and generate financial reporting
documents:
Various methods and techniques like marginal costing, absorption costing etc. are applied
by cost accountants and managerial employees to prepare financial statements. These techniques
provides a more true picture about organisation's performance over a particular period (Turban,
Volonino and Wood, 2015). Management usually apply both marginal and absorption approach

to make a batter differentiation in organisation's efficiencies to make profits. These also help to
analyse the annual financial budget to determine viability of decisions taken.
Produce financial reports that accurately apply and interpret data for a range of business
activities:
From the financial reports prepared in Annex A and B it has been analysed that results
from different costing techniques are different due to varies in assumptions used in approaches.
Income calculated using absorption costing is 721000 and 150000 for product, A and -40000 and
186500 for product B in both quarters respectively. Where as in marginal costing these figures
are 721650 and 154000 for product A, -37150 and 185400 for product B in both quarters
respectively. The difference in figures is due to varies in treatment of fixed cost and variable
cost.