Financial Analysis and Management Accounting Report: Unit 5, City Tech

This report analyzes management accounting practices at City Technology Limited. It explores essential management accounting systems like inventory management, cost accounting, and price optimization, detailing their benefits and applications. The report evaluates various reporting methods, including cost accounting and inventory management reports, and assesses the link between accounting systems and reporting. It then delves into cost calculations using absorption and marginal costing, providing income statements for each method. Furthermore, the report examines the advantages and disadvantages of planning tools for budgetary control, and it analyzes how management accounting resolves financial issues and contributes to organizational success. The report also provides a cash flow statement. The analysis includes a critical evaluation of the relationship between accounting systems and reporting, demonstrating how these elements are interconnected to achieve business goals. The report provides a comprehensive overview of management accounting principles and their practical application within a business context.

Unit 5: Management
Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
P1. Explain the essential requirement of management accounting systems................................1
P2. Evaluate different methods which are used in management accounting reporting...............2
M1. Evaluate the benefits of management accounting systems along with its applications.......3
D1. Critically evaluate that how accounting systems are linked with the accounting reporting.3
TASK 2............................................................................................................................................4
P3. Calculate the cost by using suitable techniques and prepare income statement....................4
M2. Implement the range of accounting techniques to produce financial reporting document. .5
D2. Produce financial reports that accurately apply and interpret data for complex business
activities.......................................................................................................................................7
TASK 3............................................................................................................................................8
P4. Evaluate the advantages and disadvantages of different planning tool which are used for
budgetary control.........................................................................................................................8

M3. Analyses the use of different planning tool and its applications in preparing budget and
forecast.......................................................................................................................................11
TASK 4..........................................................................................................................................11
P5. Compare how organizations follow management accounting systems to resolve their
financial issues...........................................................................................................................11
M4. Analyse that how management accounting leads to organization for sustainable success 13
D3. Evaluate that how planning tool used to resolve financial issues and leads towards
organizational success...............................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is a specialized branch of accounting which includes reviewing
financial knowledge to generate and execute a corporate strategy (Brustbauer, 2016).
Management accountants also can assist with risk management, performance measurement and
strategic management for their companies. Skilled financial managers can operate for both
individuals and organizations throughout every area of industry. This report is based on City
Technology Limited which is UK based medium size company and deals in gas sensing units
which are their specialization. This assessment based on the several topics such as understanding
of management accounting systems, different types of reporting and planning tool which are
used for budgetary control. In addition, it also includes the demonstration regarding how
management accounting systems help in resolving financial issues of the company. Management
accounting is essential for the organization and it also helps the managers to evaluate the
operational performance and build strategies accordingly to improve the overall efficiency as
well as effectiveness.
MAIN BODY
TASK 1
P1. Explain the essential requirement of management accounting systems
There are several management accounting systems which are followed by the manager’s of
City Technology Limited to evaluate their operational efficiency as well effectiveness. All are
discussed below:
Inventory management system: With an efficient supply chain, it is the technology that
lets businesses monitor their inventory level. It optimizes the full range from buying stuff with
the service provider to order fulfilment for their client, evaluating a production company's
corporate pathway (Cooper, 2017). City Technology Limited management implement this
program into their business to monitor regularly the level of inventories in warehouses. It helps
in producing goods as per customer demands. This method is essential for managing the quality
of the product or being responsible in the organization. Manager is capable of creating a
successful plan for the organization to conduct its business well.
Cost accounting system: Costing tools are implemented by manufacturing businesses that
constantly track the flow of goods through the different phases of production and assess each
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product's expense at particular points. Evaluation of the ultimate cost of the goods in the work-in
- progress and finish level is crucial. In addition, City Technology Limited executives are able to
create plans to reduce or manage costs throughout the development phase.
Price optimization system: It is the most critical accounting system because it helps the
enterprise to adjust the price of a product according to the wilfulness of the consumer which also
fulfils the goals of the organization. They want to link their net profits to earnings for City
Technology Limited, optimum retail rates are necessary and most specifically if the company's
goal is to increase profitability by retaining the same degree of consumer retention (Brewer,
Garrison and Noreen, 2015). This has become essentially crucial as price levels for individual
business units become strongly profitable. A range of organizations are already hoping to open
innovative brands including those in the consumer niche markets. Having the correct price
becomes much more crucially important in that sense or a business can end up wasting
substantial customer base itself on rivals.
Above discussed accounting systems followed by the managers of City technology
Limited in order to improve their overall operational efficiency as well as effectiveness.
Company manage their stock level, control their cost or set the suitable price for products which
meet customers and organizational objectives.
P2. Evaluate different methods which are used in management accounting reporting
Cost accounting report: In this report, managers include the several aspects such as each
unit cost, expenses of each activity which related to the production or help the organization to
maximise it demand among the customers (Fleischman and Parker, 2017). In context of City
Technology Limited, for the production of gas sensing unit management done several activities
and all are required cost to produce those items. All these information recorded in the cosy
accounting reports which help the managers or accountants to build strategic decision in respect
of the operations.
Inventory management report: Inventory control reports would also show how often
stock levels company have on their hand. Effectively trying to control stock level and makes sure
their valuable wealth has been used in the effective manner. This report helps the City
Technology Limited to customise their information related to stock such as how much inventory
are available on hand, how much used in the production and remained inventory for further use.
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Basically, this report helps the managers to make raw material orders accordingly and make sure
that company does not face the issues regarding shortage as well as wastage of goods.
Account receivable aging report: It is a management tool which may indicate that some
customers become credit risks and it reveal that organization should continue to do business with
chronically late payers customers. Accounts receivable aging has different columns
which typically divided into 30 day, 60 days and 60 date ranges. This report shows total current
balance receivables as well as previous due receivables. In context of City Technology Limited,
company follow this report to include all the defaulters and the remaining balance which they
have to recover.
M1. Evaluate the benefits of management accounting systems along with its applications
In context of City Technology Limited, manager of the company adopted several
accounting systems such as inventory management, price optimization and cost management
which provide several benefits. With the help of inventory management system, managers of the
City Technology are able to track the level of stock in the production unit and analyse the
required for the future production as well (Gray, 2015). Cost management system beneficial to
calculate the cost of each produced unit. It help the managers to reduce the overall cosy by
implementing strategic approaches and try to control the cost overall the period. In addition,
price optimization system used to set the price level for the goods & Services Company offer and
make sure that it will meet the both parties objectives such as maximise the profit for
organization and match the price level for the consumers. Applications of such accounting
systems help the City Technology Limited to maximise its efficiency as well as effectiveness.
D1. Critically evaluate that how accounting systems are linked with the accounting reporting
It has been critically evaluated that accounting systems and accounting reporting both are
linked with each others. It was critically examined that the cost management system allows the
manager to evaluate the expenditure of the good or service further mentioned in the cost
management report. This report allows managers to be using the relevant data when constructing
techniques that improve operational performance and operating cycle. In addition, for further
study, the inventory control system was used to monitor raw material supply and then further this
data reported for conscious choice taking by City Technology Limited managers in the inventory
control report. It is evaluated that documents and procedures of the accounts are interlinked. This
further beneficial for the organizations to achieve its business goals & objectives.
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TASK 2
P3. Calculate the cost by using suitable techniques and prepare income statement
Absorption costing: This costing method is used to evaluate inventories for the production
purpose. It includes not only the costs of materials and labour, but also the operational costs of
both reliant and fixed production (Gullberg, 2016). Current value is also named the utilization
rate. It defines the value of the output concerning the fixed costs. Inland Revenue supports the
absorption costing process, as inventory is not underappreciated. The costing process of
absorption is often used to plan the financial statements.
Income statement by using absorption costing:
Income statement
Using Absorption Costing Approach
ITEM Number of
units
£
P.U
.
AMOUN
T £
AMOUN
T £
SALES 7,300 55 401500
Direct Material 7,300 9.5 69,350
Direct Labour 7,300 15 109500
Variable Expenses
7300
(7300*2 =
14600
machinery
hours)
2 29,200
Fixed indirect production cost 7,300 6 900,000
Total Production Cost 1,108,050
Total Production Cost 1,108,050
Gross Profit: sales – COGS -706,550
Admin Salaries 13,800
Admin Overheads 4,500
Profit Before Interest & Tax (PBIT) -724,850
Interest Expenses 355
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Profit Before Tax [PBIT-interest] -725,205
Tax @19% 220
Net Profit: profit before tax - tax -725,425
Marginal costing: In this costing method, every additional cost associated with creating an
output unit that can be calculated on the basis of the operational costs allocated to one unit. The
total value makes manufacturing costs easy to calculate and track. Mangers can focus on
maintaining and establishing clear and comprehensive production revenue by trying to avoid the
arbitrarily defined allocation of corrected overhead costs.
Income statement by using marginal costing:
ITEM Number of units £ P.U. AMOUNT
£
AMOUNT
£
Sales 7,300 55 401500
Direct Material 7,300 9.5 69,350
Direct Labour 7,300 15 109500
Variable Expenses
7300 (7300*2 =
14600 machinery
hours)
2 29,200
Total Variable Cost 208,050
Total Variable Cost 208050
Contribution 193450
Admin Salaries 13,800
Fixed overheads 900,000
Admin Overheads 4,500
Profit Before Interest & Tax (PBIT) -724,850
Interest Expenses 355
Profit Before Tax [PBIT-interest] -725,205
Tax @19% 220
Net Profit: profit before tax - tax -725,425
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The same amount of profit is reported under absorption costing and marginal costing as the
production is equal to sales.
On the basis of above calculation, it has been observed that net loss of the company by using
absorption costing method is -725,425 and the other side, company face the loss by using
marginal costing method that is -725,425 (Harrison and Lock, 2017). Net loss of the company by
using both methods is same because sales units in both cases are also same. The different is
occur because in marginal costing method fixed cost are deducted which create the huge
difference. Absorption costing method is beneficial for the company to evaluate its profit.
M2. Implement the range of accounting techniques to produce financial reporting document
Cash flow statement:
Particulars
Januar
y
Febr
uary
Ma
rch
A
pr
il
M
ay
Ju
ne
Ju
ly
Au
gus
t
Septe
mber
Oct
obe
r
Nove
mbe
r
Dece
mbe
r
Cash
receipts (A)
Sales 50000
5000
0
50
00
0
50
00
0
50
00
0
50
00
0
40
00
0
400
00
5000
0
600
00
6000
0
6000
0
Bank loan 70000
Total Cash
receipts (A) 120000
5000
0
50
00
0
50
00
0
50
00
0
50
00
0
40
00
0
400
00
5000
0
600
00
6000
0
6000
0
Cash
payments
(B)
Purchases 6000 6000
60
00
60
00
60
00
60
00
50
00
500
0 6000
650
0 6500 6500
Machinery
purchase 200000
Investment 150000
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Repayment
of loan 1500
15
00
15
00
15
00
15
00
15
00
150
0 1500
150
0 1500 1500
Purchase of
cleaning
equipments 2000
Long lasting
products 1500
15
00
15
00
15
00 1500 1500
Rent 6000 6000
60
00
60
00
60
00
60
00
60
00
600
0 6000
600
0 6000 6000
Cleaner
salary 800 800
80
0
80
0
80
0
80
0
80
0 800 800 800 800 800
Supervisor
salary 1500 1500
15
00
15
00
15
00
15
00
15
00
150
0 1500
150
0 1500 1500
Withdraw 3000
420
0 4200
420
0 4200 4200
Total Cash
payments
(B) 370800
1580
0
17
30
0
15
80
0
17
30
0
15
80
0
16
30
0
190
00
2150
0
205
00
2200
0
2050
0
Net cash
(A-B) -250800
3420
0
32
70
0
34
20
0
32
70
0
34
20
0
23
70
0
210
00
2850
0
395
00
3800
0
3950
0
By using above data, it has been evaluated that cash flow statement prepared from the
period of January to December. Cash flow balance in the month of January was negative that is -
250,800; in February it was 34200, 32700 in March, and 34200 in April, 32700 in May etc. In
the month of December, cash balance is 39,500 which mean company have enough liquidity to
perform their daily basis operational task or achieve business goals & objectives.
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D2. Produce financial reports that accurately apply and interpret data for complex business
activities
Balance sheet:
Liabilities Amoun
t
Assets Amoun
t
Equity 6,900 Accounts receivables 6,100
Long term debt 2,000 Equipment 615
Accounts payable 150 Bank account 2,050
Other liabilities 1,465 Closing stock 1,750
10,515 10,515
First In First Out (FIFO):
Date Particulars Units
Amount
(£) Date Particulars Units
Amount
(£)
Purchases @ 75 17 1,275 Sales @ 75 10 750
Purchases @ 95 5 475 Sales @ 75 3 225
Sales @ 75 4 300
Sales @ 95 2 190
Closing stock
@ 95 3 285
1,750 1,750
From the above table, it has been observed that value of balance sheet is £ 10,515 which
indicates that company’s equity is £ 6,900 and short term liabilities are £ 1,615 and the other
side, value of account receivable is £ 6,100 and bank balance is £ 2,050. In addition, according to
the FIFO report, valuation of inventory will be done and the remaining closing stock units are 3
which valued at 95 each and the overall value is £ 285.
TASK 3
P4. Evaluate the advantages and disadvantages of different planning tool which are used for
budgetary control
Budgetary Control: It is the procedure which is used to ensure that the appropriate income
and expenses of an organization reported in the financial plan. The program usually entails
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setting specific targets for budget based administrators, along with a series of incentives that will
be activated until the goals are met. Additionally, estimate and real assessments are regularly
given to those in possession of a line item of property; action is then required to be taken to
remedy any unfavourable variances. By using several planning tools, manager of City
technology limited able to control their budget and predict the operational expenses and income
for better outcomes.
Planning Tools: These tools that direct the measurements of corporate action relevant to an
plan, program, or activity. They will give comprehensive explanations of the action strategy for
the district, and how it has been created. Planning is essential towards meeting goals, if it’s a
corporate entity, an instructional body or perhaps an individual, setting goals and trying to reach
them is an important aspect (Hoque, Parker, Covaleski and Haynes, 2017). It may be various
goal types with differing degrees of significance and time periods. But one thing that stays
popular is to formulate a program that is sufficiently effective to help accomplish such goals.
City Technology Limited can accomplish goals by using an appropriate planning tool. There are
several planning tools which help the organizations as well as managers to take strategic
decisions to maximise company’s earning. Some of them are as follow:
Capital budgeting: It should be viewed as a budget related to evaluating the viability of
long-term investments in businesses such as on vehicles, plants, equipment etc. Department of
Finance provide valuable suggestions which concerns on the premise of this expenditure plan to
allow long-term investments. In relation to City Technology Limited, this planning tool used by
the experts to evaluate the effectiveness as well as profitability of the spending into any project.
Before considering this budget for decision making purpose, managers should evaluate
its benefits and drawbacks those are discussed below:
 Benefits: In this budgetary control method, investment appraisal will be carried out
using various investment calculation methods such as Net Present Value (NPV), rate of
return (IRR), payback time etc. Organization makes their investment related decisions on
the basis of low recovery period and positive NPV (Kenyon and Kenyon, 2016). Higher
NPV or IRR are the ways of selecting any project to invest and managers of City
Technology Limited followed it in well manner to maximise overall operational
efficiency and earnings.
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