Management Accounting: Cost Analysis, Budgetary Control and Adaptation

This report provides a comprehensive overview of management accounting, focusing on cost analysis techniques and budgetary control methods. It begins by explaining management accounting and its essential requirements, including different types of management accounting systems like cost accounting, inventory management, job costing, and price optimizing systems. The report then details various methods for management accounting reporting, such as job cost reports, order information reports, performance reports, and budget reports. It also includes cost calculations using appropriate techniques to prepare income statements under marginal and absorption costing. Furthermore, the report discusses the advantages and disadvantages of different planning tools used for budgetary control, including cash budgets and sales budgets. Finally, it compares how organizations are adapting their management accounting systems to respond to financial problems, highlighting the importance of these adaptations for maintaining financial stability and achieving organizational goals. The report uses Connect Catering Services as a case study to illustrate these concepts.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK1.............................................................................................................................................3
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems. ..............................................................................................3
P2 Explain different methods used for management accounting reporting. ..............................5
TASK2.............................................................................................................................................6
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs. .........................................................................6
TASK3...........................................................................................................................................10
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control......................................................................................................................10
TASK5...........................................................................................................................................13
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................13
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Management accounting is an accounting which identify, measure, evaluate, interprets
and then communicate the financial information of company and helps manager to check their
financial position and help in achieving the organisation goals. This helps the manager to plan
strategies and formulate policies so as to manager their company's operation. It helps in
controlling the activities of management and take suitable decision regarding and use resources
alternatively and efficiently. In this report, it is shown that how the accounting manager uses
various techniques, tools and adopt different accounting system so that they can maintain, track
their financial position and can also improve ,resolve the grievances and faced by the
organisation which disturbs their financial status.
The report is about a UK based Connect Catering Services established in the year 1998
founded by its Chairman John Herring and his daughters. Its headquarters are situated at
Wallingford, UK. They provide food services, delivering quality and fresh food to their customer
with amazing taste. In this report, topic like different accounting system, calculation, usage and
benefits of budgetary tools and approaches of management accounting is been discussed.
TASK1
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.
As discussed above, management accounting is an accounting system which helps
company to measure their financial position,control their business activities by identifying,
evaluating, controlling and communicating the financial information to the managers. It helps
manger to take financial decision by using this information. It helps to increase the efficiency
and effectiveness of the operation of a company. This type of accounting generally needs to
prepare reports including the expenditure and revenue,(Masschelein,Moers,20220) cash, current
account, trade receivable and paybles etc. Such reports are need to be shown to the internal
investors of the company so that they are also aware of the financial performance and position of
the company so as to take decision related to further investment effectively.
Management Accounting is a part of financial accounting only but there is a big
difference among the two. A difference table can be helpful to see the difference which is
discussed below:

Basis Financial Accounting Managerial Accounting
Usage This type of accounting is used
by the external stakeholders so
so to see the information and
make decision regarding
investment.
This accounting is used by
internal stakeholders of the
company(Guinea,2016) to
analyse and take investment
decision as per the status or
financial performance.
Laws Management accountants work
by abiding themselves through
various laws and follow the
guidelines while analysing and
making these finance accounts.
As this type of accounting is
basically used by the internal
management of the company
and that why they don't have
any regulations to be followed
by preparing such accounts.
Content Financial Accounting carries
information related to finance
only.
It is a part of financial
accounting and contains the
financial as well as non
financial information.
Management Accounting has different accounting systems which is used by the managers
wh(Nuhu,Baird,Appuhamilage,2017ich are discussed below:
 Cost Accounting System: This system is also referred as costing system or product
costing system. It helps organization to record, evaluate and report the various cost like
fixed cost, variable and semi- variable cost. This system (Guffey,Harp,2017)helps to
identify the loopholes and focus on the improvement for that, they need to take

corrective measures to make it perfect. This also helps to analyze the profitability of
organization and also the main motive of this system is to increase the profit margin.
 Inventory Management System: It is a sequential way of placing and storing the
inventory of raw material, leftover stock, finished goods so as to use them in future. It
helps to maintain continuous flow of supply chain of goods in the organization so that
there is no shortage when there is requirement and does no affect the operations of the
business.
 Job Costing System:This system is also called as job order costing and it helps manager
to collect the information related to cost of production. This
(Nuhu,Baird,Appuhamilage,2017)type of cost includes all the expenses which is occurred
while producing and manufacturing a product. By calculating this cost manager can
analyze how much profit and losses are there while manufacturing any product.
 Price Optimizing System: It is a mathematical system which helps company to decide
the price for their product. This system help managers to make assumptions to set the
price of product. That is affordable enough and customer is (Cokins,2016)also ready to
pay the settled amount to buy it. This system helps company to increase their profit
amount.
P2 Explain different methods used for management accounting reporting.
Accounting report showcase the financial status of a company in a period of time by recording
all the business transaction so as to find out the revenue generated by company. These financial
reports keep the record of the financial information so that they can use it whenever required to
check financial position of company. The report helps to s them(Quattrone,2016) to take flexible
and strategic decision for so as to achieve the organisation goals efficiently.
There are different methods used by accountants for management accounting reporting are
detailed below:
Job Cost Report:This report depicts the total cost incurred in completing assigned work.
Connect catering services are preparing this report so that they can avoid any type wastage while
completing their task or projects and focus more towards the more revenue generating zone and

also towards less revenue generating zone,so as to improve them more and can increase their
profits and attain their organisation motive.
Order information Report: This report is prepared with a motive of analysing and judging the
on going trends of business so that they can work by following an applying the trends to
maintain effectiveness and efficiency in the organisation. This report contain the information of
the orders which is received by the company. In context to Connect Catering Services the
management prepares a order information report so that they can keep a record of it and check
the order history if required in near future.
Performance Report: In this report, the performance of each ad every employee is been stated
to check their activities, task they are performing and monitor their performance. It helps to
improve it if they are lacking behind in some cases and take some steps to solve it and increase
the employee working efficiency to boost the overall (Phornlaphatrachakorn, 2019)performance
of organisation. Connect Caters prepare this report to track the performance of tier workers and
check their working efficiency.
Budget Report: This report helps the company entities to know, measure and control the cost of
an organisation. The budget helps in identifying the approximate income and expenses which
could be there in the organisation so that they can predict their profits for that period of time. It
also helps in improving the overall performance(Clarke,2019) of the company by using the
previous to forecast the current budget and increase their profitability. Connect Caters uses this
report so as to predict their approx income and expense and then use the resources accordingly.
By preparing these reports, it became easier for both management and accounting managers, to
have a record of each and every activity related to finance so that they can check and monitor
their financial performance of the company.
TASK2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
1. Preparing income statements:

2. a Identify which are variable and fixed cost:
Fixed cost: It is a cost which cannot be changed if there is any increment or decrement in the
rate of good and services. It remains constant.
Variable cost: It is a cost which can be changed with the increase and decrease in the production
volume.

b. Show the Break-even point using a Break-even graph.
Break-even point: It is a point in which an organisation has to face no profit no loss situation
they need to sell their product and services at the manufacturing price only.

TASK3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control
There are various tools and techniques in management accounting used by company to
take good decision. The main aim of using these tools is to planned strategies in effective
way,improve the performance of company,add values in organization procedure. Management of
a company perform different function, for this they plan, set price and control things.

There are various tools required to the management for different motives.
The managers plan different strategies for smoothly conducting their operation and maintaining
their financial performance. Budgeting is also a tool used by the managers of organization for
planning and supervising the functioning.
Budget: It is an microeconomics concept which refers to an approximation of income and sales
for a period of time. It is a financial planning which is planned so as to measure how much an
organization has incurred profit and losses in an year. It is been systematize and evaluated on
regular basis. A budget can be prepared for nation, company, any person, for any type of
businesses,and remaining all the things which includes money. If a company has surplus budget
then it is considered as profitable, and if they has deficit budget then company is facing losses.
Budget are prepared on duration basis:
1. Short term: In this the budget is prepared usually for 2 to 6 months or maximum for an
year.
2. Long term: Budget is prepared for longer duration for more than an year. Connect
Catering Services also prepare long term budget for their company.
Budget majorly has two categories:
 Operating Budget: This budget estimates the approximation of all a business expenses
and income like maintenance repairs, bills etc. which occur from the daily activities on
the routine business activity.
 Capital Budget: This budget estimates the money which is required in the maintenance
of fixed assets of a business like plant, machinery etc.
Except these, there are various budgets which is used by Connect Catering Services for
estimating their income and expenses so as to(Alyousef,Mickan,2016) measure their profitability
which are discussed as below:
 Cash Budget: It is the approximation of the cash inflows and outflows of a business
organisation for a period of time. This helps the company to identify that company has
efficient, required money to carry on their day to day operations to maintain the
productivity.
 Sales Budget: It is a financial design which help to company to allocate their resources in
such a manner that they can be able to achieve the desired sales target. The main motive
of preparing this budget is to make best use of resources in alternatively so that they can

gain more income by using less resources ad generating more sales this can lesser their
expenditure and maximize their income.
Advantages and Disadvantages of these budgets.
Budget Advantages Disadvantages
Cash budget  It helps organisation to
prevent from
overspending of money
this make money more
resourceful
 It does not involve any
additional cost and they
are accepted almost
everywhere in an part
of the world.
 This budget requires
several documents
because is necessary to
keep record of every
transaction and this can
create danger of theft.
 It limits the raise of
debt amount and this
unable to build a credit
profile of business.
Sales budget  It helps management to
plan the overall budge
of the company.
 It helps in using the
resources in
alternatively, and
allocate the resources
for all the departments
by determining the
sales.
 It requires a lot of time
and effort to know the
actual sales as it
includes
editing,modifying, and
then re work to know
the actual sales.
 Sometimes the budget
prepared by the
management can be
unrealistic which is not
accepted by the top
level or executives.