Comprehensive Management Accounting Report - Unit 5 Analysis

This report provides a comprehensive overview of management accounting, focusing on its significance in organizational decision-making. It analyzes various aspects, including different types of management accounting systems like traditional, lean, throughput, and transfer pricing. The report delves into methods of management accounting reporting, such as budget reports, accounting receivable aging reports, cost managerial accounting reports, and performance reports, highlighting their roles in financial planning, control, and performance evaluation. Furthermore, it explores cost analysis techniques, specifically absorption and marginal costing, along with the preparation of income statements. The report also examines the advantages and disadvantages of different planning tools used for budgetary control. The report uses a case study of Hichrom, a manufacturing company, to illustrate these concepts and provide practical insights into their application in a real-world business context.

Unit 5 Management
Accounting

Table of Contents
Introduction......................................................................................................................................1
P1 Management Accounting and its various types......................................................................2
P2 Methods of Management accounting reporting......................................................................4
P3 Cost analysis...........................................................................................................................6
P4 Advantages and disadvantages of different planning tools of budgetary control..................7
P5 Different Management accounting system...........................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................13
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Introduction
The following report is based on management accounting. Management accounting is the
continuous process of recognising, measuring analysing and coordinating all the financial
information to the management of the organisation which pursuit to the goal of company. In this
report a company called Hichrom has been taken (Hiebl and et.al 2019). It is a manufacturing
company which produces the products of medicine and forensic. Is company is continuously
increasing their expansion and working in more than 20 countries and they have good network of
supply therefore they are manufacturing this medicine easily supplying to the retailers. This
report provides explanation of Management Accounting and also different types of Management
Accounting system for the company. This report also provides in-depth information about the
management accounting reporting. Calculation of various cost by using appropriate technique
and also the preparation of income statement using marginal and absorption costing is mentioned
in this report. Various pros and cons of different planning tool which is used for budgetary
control is also defined in this report.
P1 Management Accounting and its various types
Management accounting is one of the essential tools for the organisation. As accounting system
keeps track on various income and expenses of the company and also provides significant
information about various financial and non financial factors to the management so that they can
further make favourable decisions for the company. Management Accounting provides its
services to public company private company and also the government agencies because all these
companies need day to day information about their expenses and level of income. The main role
of management accounting is to help the management to know about the various investment
budgeting planning and create risk management so that in future, Hichrom do not have to run
short of money. Management Accounting also provides detailed information about the lower
level of accounting in the organisation as well so that management can know the various
expenses of each department. Apart from this Management Accounting helps in forecasting
budgets and also it measures the performance of various strategies which has been made by the
management in past. One of the biggest advantages of management accounting is that it provides
timely information to the management so that they can improvise all the strategies and prepared
new strategies which will provide benefits to the organisation.
Types
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There are most common Management Accounting system which present in the organisation such
as traditional cost accounting them in accounting throughput accounting and various Transfer
pricing with the organisation to track down the financial and non-financial information. So that
by focusing on that information company can make further changes in the Strategies and policies
so that their mission can be obtained.
Traditional Management accounting system
This management accounting system is one of the old process and method of Management
Accounting (Zakirova and et.al 2020). This process and technique used for border and process
costing method. The major objective of traditional Management Accounting system is to
determine and analyse how this company distribute various cost on direct materials labour and
different overheads. The main purpose of using this traditional management costing is to analyse
the overall expenses of the company so that they can recover them by earning good income. This
management accounting system is useful for big projects and also the individual projects so that
in big project company has to spend a lot of money on buying material paying wages and salary
to the labour and also they have to work for manufacturing overheads. If the name suggest
process costing distributes the overall cost pictures typically rely on various processes which is
used for producing different goods for the company as a manufacturing of this goods have to go
through a continuous procedure and therefore it becomes difficult for the company to recognise
the cost in each and every process.
Lean accounting system
This is one of the most used Management Accounting systems by each and every organisation
because it does not focus on the individual cost of the production (Sidik 2019). This accounting
system provides a proper strategy to the management so that they can minimise the cost of
production by reducing waste. Therefore this accounting system is very popular. Along with this
clean accounting system also provides financial information for making and creating decisions
by looking at value stream. This helps the management to make accurate decisions so that the
profitability of the organisation can be increased in long run. The main motive of using this
accounting system is to cut down the cost of waste and improvise the profitability.
Throughput accounting
This is not used under traditional Management Accounting system but many manufacturing
companies use this accounting method (Drury, 2018). As this method focuses on recognising the
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constants within the production department of the organisation. Constants speak about
insufficient level of labour material and overheads if the labour and material is insufficient then
company can produce more goods and products. This method is used by manufacturing
companies to reduce the constraints and also increase the volume of production by minimising
the cost.
Transfer pricing management system
This is one of the Common Management Accounting systems which is being used by the
companies and manufacturers to decide the cost of goods as they go through to different
departments. Each product of the company has to go through from various channels and
departments for processing and therefore each product has different cost. Transfer pricing
management system provides different cost for different product as per their life cycle.
P2 Methods of Management accounting reporting
Management accounting which is popularly known as managerial accounting or cost accounting.
As it provides all the inside information about the financial and non financial accounting to the
organisation. Show the management accounting system generates different reports which
produces various financial and non financial information such as planning Regulation and
decision making so that management can overall measures the performance of the organisation.
Therefore various management reports are generated for bookkeeping. These reports are
mentioned below.
Budget report
Budget report plays a very vital and Critical role in the organisation because it helps the
punishment to measure the overall performance of the company. Budget report has been
prepared on the basis of size of the organisation such as small business, medium term business
and for large organisation as well. Budget report can be prepared on department wise as well
however it is important for every company to create budget so that they can know the ground
level information about their business and especially for the cost and expenses. Budget is being
created for unforeseen circumstances if uncertain situation arises in front of the organisation then
how this organisation can be stabilized and the situations do not impact the overall profitability
in production of the organisation (Chaudhry and et.al 2020). This is the main reason of preparing
budget by the companies. As management accounting report will also help the management to
provide better career opportunities to the Employees so that they do not think to switch their
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organisation apart from this by making proper budgets company can produce incentive and
various perks for the employees.
Accounting receivable ageing reports
This accounting report is beneficial for doors business and organisations who fully depend on the
credit extension in such case account receivable ageing report helpful for them (Darvishi and
et.al 2020). It cut down the remaining balance of all the clients for specific period and also helps
the management to recognise the defaulters and find out the problems the process of collection.
With this report management can know how many people are defaulters and to reduce the
number of defaulter management can prepare various policies and Strategies for bad debts.
Cost managerial accounting reports
The entire manufacturer from has to repair cost of article and cost managerial accounting reports
help the organisation prepare various cost of articles. This report provides detailed information
about the raw material which is used for the production apart from this how many overheads are
there in the organisation along with this various wages and salaries of labour is also being added
in this report (Taschner and et.al 2020). Therefore this report provides all the cost which is being
levied on the organisation. By analysing this entire coast company can produce various profit
margins for the product. This report provides a snapshot of all the ghost of production in the cost
of article so that when mint is can make for their policies to cut down the labour cost and
specially the waste of inventory so that the overall profit margin can be increased.
Performance report
The main motive of creating performance report is to review the entire performance of the
company for the accounting period. This report also prepared for analysing the performance of
employee for the accounting period. This report can be prepared on the basis of department as in
the large Corporation there are many departments work in the organisation it is very necessary
to recognise the overall performance of each and every department. Management uses this
performance report to analyse the key strategic performance and decisions for the upcoming
future of the company. With the help of performance report employee forget various promotional
opportunities and they remain committed towards the organisation. The main objective of
creating performance report is to measure the accurate performance of the organisation that is the
strategies helpful for the organisation to achieve their goals and objectives or not?
Other cultural accounting reports
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Apart from above records organisation needs to maintain various reports suggest Information
Report project report analysis of competitors report and various other small reports (Leotta, and
et.al 2017). These reports are necessary for the organisation to you know the situation of market
and how their competitors are operating in the market so that as per the competitors and market
situation management can create new strategies. This report helps the management to make
search Strategies for the organisation can produce more quality products and fulfil the demand of
the market.
P3 Cost analysis
Absorption costing
Absorption costing States about the method of costing which states about all the cost of
manufacturing (Le, and et.al 2019). This costing method is being used by the manufacturers so
that they can absorb the overall cost incurred on each and every product. Absorption costing
includes direct and indirect cost so that they can provide better outcome and result to the
organisation. Direct cost includes various materials labours and other which is used for
production. Absorption costing also calculates the appropriate profitability for the organisation
by each and every cost which is being levied on the organisation. This costing helps the company
to obtain a desired profitability.
Marginal costing
Marginal costing works on certain principles and which the variable cost get changed to different
cost units and the fixed cost remain attributable for the relevant period. Marginal cost which
added one additional unit to the output shaft is used by the organisation to determine the
optimum production of the company. This cost helps the organisation to cut down the
unnecessary cost of production and Manufacturing and help them to attain the higher return and
profitability.
Particulars Amount
Direct material £30
Direct Labour £40
Total variable cost per pizza £70
Fixed costs:
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Particulars Amount
Fixed production overhead £1,00,00
Total fixed cost £1,00,000
Marginal costing
Particulars Amount
Sales 495000
Less :
Direct material (3300)
Direct labour (4400)
Fixed cost 1,00,000
Marginal profit 387300
Absorption costing
Particulars Amount
Sales 495000
Less :
Fixed cost 1,00,000
Total absorption costing 3,95,000
Income statement
Particulars Marginal Absorption
Sales revenue 495000 495000
Cost of goods sols
Less : closing inventory
7700 0
Gross profit 487300 495000
Less : fixed cost 1,00,000 1,00,000
Operating loss 3873000 395000
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P4 Advantages and disadvantages of different planning tools of budgetary control
For the purpose of budgetary control organisation and its management has decreased different
planning tools so that they can help the organisation to achieve all the predetermined goals.
There are various planning tools have been used by the organisation such as budget to volume
profit analysis and various pricing strategies of the organisation so that it helps them to improve
the overall sales and revenue in the market.
Budget
As budget is a detail statement of various expected financial and non financial expenses of the
organisation. The main objective of creating budget is to analyse the overall expenses and
revenue for a defined period of time organisation. So that if the expenses are higher than the
revenue then management can improvise them within the given time period of future. Budgetary
control is a planning tool which is prepared to plant and control the overall production and sales
of product and services (Laela and et.al 2018). It also promotes the communication and
coordination of different departments and it also bring encouragement to managers so that they
can evaluate the performance of the organisation and achieve the predetermined goal.
Advantages
Budgetary report is necessary for creating healthy coordination and communication between all
the departments of the organisation. To help the management to translate the strategic plans and
in force them into action and specify the various resources and revenue different activities which
is used for strategic plan and their enforceability. It also produces and excellent record about the
different activities of the organisation. It helps in improving the coordination and communication
between the employees as well so that the match wills all the relevant information with each
other. It also improves the overall uses of resources and their location so that all the needs of
different departments can be clarified and justified.
Disadvantage
There are many disadvantages of budgetary report as well because it takes a lot of time in
research then only it can provide suitable and beneficial results to the organisation. Apart from
this sometimes projected budget to not meet with the actual result so the organisation has to face
loss as well (Mogues, and et.al 2020). It also decreases the fairness of the organisation if that do
not meet the Expectations of different departments then conflict take place among various
departments. Budget make it field when any inverse situation arises in front of the organisation
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so that in such situation it can demotivate the employees and increases the absenteeism in the
organisation.
Cost volume profit analysis
Cost volume profit analysis is also being used by various organisations to know the level of sales
and the overall cost of production so your organisation can generate better and Hike operating
profit. As the name suggests this method why do all the detailed information about the cost of the
goods which is implemented on in the process of manufacturing (Abernethy and et.al 2019). So
with the help of cost volume profit analysis management can easily know how much cost will be
implemented on each and every product so that they can generate high profit margin by selling
such products in the market. Along with this cost volume profit analysis also analyse about fixed
cost and variable cost so that management can deduct variable cost and improve the overall
profitability for the organisation.
Advantages
The key advantage of Cost volume profit analysis is that it is very easy to calculate and
management can easily use this method to know the overall profitability of the product. Apart
from this Cost volume profit analysis do not consider more rules regulations and Standards
therefore most of the organisation uses this method because it is very easy to implement within
the organisation as management do not have to follow many rules and regulations. This method
also assists management to create various strategies policies and plans for the organisation and
also to enhance the profitability of the company. This method helps the management to cut down
the unnecessary cost of production of the product so that the overall profitability can be
increased.
Disadvantage
This method is very time consuming and takes a lot of time to provide productively result to the
management (Osim and et.al 2020). So that sometimes by using this method organisation can use
various good opportunities to increase the sales and revenue. It also sometimes brings
miscommunication within the organisation and employees so that the entire process of
production can become lengthy and when the production gets lengthy then it is unable for the
company to fulfil the market demand. It is very necessary for the organisation to maintain the
overall supply in the market so that their loyal customers do not get switch to other companies
and especially to the competitors. Therefore this method can become little expensive for the
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company because it takes a lot of time to produce quality results which will put negative impact
on the profitability of the organisation.
Pricing strategies
Strategy for pricing is one of the important tool for the organisation because the overall
profitability totally depends on the pricing strategy of the company. Company can’t charge
higher prices from the consumers if the company charge higher prices compared to their
competitors then the survival of the company will become very difficult. As no one consumer
wants to spend a lot of money on goods and services if they get same products at cheaper prices
so if the company has adopted high pricing strategy then they may face loss in the future. On the
other hand if the company set very low prices as compared to their competitors then it becomes
very difficult for the company to attain predetermined objective and profit.
Advantages
The management of the organisation has set a great pricing strategy for the company then
company will get in men’s growth and also increase the profitability for accounting period (Hung
and et.al 2019). But on the other hand if the pricing strategy of the company is not fruitful and it
is not working in the favour of the company then and it becomes very difficult to survive and
give the competition to the competitors because no one consumer will buy similar products at
Higher or cheaper prices. With the help of pricing strategy company can the price of each and
every product.
Disadvantages
Pricing strategy has a lot of disadvantages as well because consumer wants every product at
cheap prices and therefore to attract new consumers sometimes company provide cheap products
which will hamper the profitability and overall goal of the company.
P5 Different Management accounting system
Each and every organisation uses different accounting system so that they can predict the profit
and also recognise all the issues which are concerned with the financial and non financial factors.
Financial factors are those which greatly impact the financial aspects, profitability and financial
decisions of the company. And non financial factors are related with the human resources and
other resources of the company.
Solvency ratio
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Solvency ratio is a valuable tool which used to determine the overall quality and capacity of the
organisation to meet all long term obligations of the company (Emrich, 2020). The main
objective of using solvency ratio is that management want to determine do the company has
proper cash flow or not so that with help of proper cash flow company can meet all its long-term
liabilities and obligations. Solvency ratio States about the overall financial health of the
organisation and it also mitigate the chances of default.
Profitability ratio
Profitability ratio is measures the financial sector in the organisation and it also measures the
ability of the company to generate earnings. Profitability ratio also considers operating cost
various revenues equity of shareholders and all the data which is related to the revenue of the
company for specific time duration. It can be compared with the efficiency ratio of the company
because profitability is also measured how a company is able to generate revenue and income by
using their assets properly.
Liquidity ratio
Liquidity ratio refers to the current ratio of the company. This ratio talks about the current assets
of the company these ratio current assets of the company should be properly managed so that
organisation can repay short term liabilities with the help of current assets. Apart from this if the
current ratio of any company is a strong then they can manage working capital effectively (Laela
and et.al 2018). Every organisation needs sufficient working capital so that they can’t prepare to
their apart from this working capital is necessary to make payments of labour and also their
wages. If the working capital is in good position then the organisation can easily get fund from
different sources because if the organisation has trumpeting capital then they can easily repay
their short-term as well as long-term obligations.
Non financial factors
Managing human resources
The overall management of human resources is very necessary for the Welfare and development
of the. As human resources are the one who work effectively in the organisation therefore the
company can attain its predetermined goals and objectives. So organisation must abide that
human resources are the valuable asset for the company. It is the duty of organisation that they
must provide all the training and learning opportunity to the Employees so that they can enhance
their knowledge and skills and produce more quality products and work within the organisation.
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