Management Accounting Report: Covent Garden Hotel Analysis

This report examines the application of management accounting principles within the context of the Covent Garden Hotel, a small UK-based hospitality business. The analysis covers various aspects, including the role of management accounting in decision-making, the different types of management accounting systems (managerial, inventory, and financial), and the methods used for creating management accounting reports (cost reports, budgets, and performance reports). Furthermore, the report explores cost analysis techniques, specifically marginal costing, to prepare income statements and assess the hotel's financial performance. The report emphasizes the importance of these tools for strategic planning, resource allocation, and enhancing the overall efficiency and profitability of the hotel. The report also focuses on budgetary tools and planning strategies for development and enhancing qualitative services of the firm.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting plays a crucial role in decision making and preparing strategies
for achieving organization's effectiveness. It is one of the great tools for effective performance of
management to reduce risks that occur at workplace. This project is on understanding
management accounting phenomenon for decision making regarding business operations of
Covent Garden Hotel. It is a small unit hotel in UK provides variety of food and accommodation
to customers. Different types of its systems including methods used for making report can be
determined. In this regard, through this study, learners will be able to learn various techniques
for making decisions based on interpreting data of last year's financial statements. Including this,
several characteristics and limitations of management planning tools for accounting information
will be understood. However, manner in which organization handles monetary problems would
be expressed through this report. Along with that, there will be study on budgetary tools and
planning strategies for development and enhancing qualitative services of the firm. Moreover,
vital role of management accounting for organization's development and improving efficiencies
will be determined.
TASK 1
P1) Management accounting and its types
General Manager
Covent Garden Hotel
Management accounting concept: - It is an essential planning tool including
forecasting and decision making for entity's development. It includes various kinds of
accounting systems for business financial and non-monetary decisions. For example;
economic, production and operation, risk management and so on. In this regard, several
strategies are prepared by the management accountants through analysing last years' financial
statements and business activities (Brigham and Ehrhardt, 2013). It remains effective for further
accounting and enhancing efficiency of the firm. In accordance with this, entire business
planning is obtained for financial and operational functions of Covent Garden Hotel. For
expansion of small size firm, management accountant and manager make decisions through
critical evaluation of monetary and non-economic structure of organization. However,
management accounting is considered as one of the greatest tools for decision making strategy
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related to enlargement and qualitative services of firm effectively. Including this, various
costing including marginal, absorption and cost-volume-profit analysis are determined through
this accounting concept that is helpful for systematic management of small sized organization.
Therefore, management accounting is the composition of all information standards to achieve
effective business performance (Clinton and England, 2016). It involves critical accounting
information including costing and reporting for company's effectiveness. Thus, management
accounting has significant role for rapid growth of entity.
Various kinds of management accounting systems: - Management accounting system
gathers financial data from business operations including inventory, cost, sales data and
information to analyze the accounting reports. Under this system, information is created for
recognizing cost efficiency to determine the price determination (Coad, Jack and Kholeif,
2015). In this regard, decisions are made for proper balance and implementing economic
accounting system. However, various systems of management accounting and their importance
can understand as:-
Managerial accounting: - In this accounting system, manager and accountant of Covent
Garden critically evaluate the management of business activities. It includes production and
distribution of goods as well as costing according to expenditures incurred by organization for
manufacturing and work in process. In accordance with this, as per the information, manager of
entity prepares strategy for implementation and product services including techniques to be
obtained for resource and fund allocation. For instance: if management accountant of firm is
going to implement the plans related to company's working efficiency then it is required for him
to analyze last year’s business performance (Contrafatto and Burns, 2013). It is considered as a
key component for him to make decisions for further activities and deciding the cost of
products.
Inventory accounting: - It is useful for optimum utilization of resources. In this
accounting system, manager of the organization makes plan for storing and using goods of firm
for creating balance between demand and supply of products. In addition to this, there is also
focus on the terms related to keeping goods in different branches such as warehouses, inventory
stores, etc. Therefore, management accountant of Covent Garden hotel identifies inventories
storing and process for adequate supplement of food and accommodation services. Moreover, it
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put a huge impact on the productivity and profitability of firm that is useful for effective
management of inventories (Feeney and et.al., 2016). Thus, inventory accounting is beneficial
for keeping goods in a systematic and safe manner as well remains effective for making
decision for production and supplement of products. It is considered as a management approach
for inventory control and adoption of technologies to be used for the expansion and better
quality products.
Financial accounting system: - It is a monetary decision making tool for planning and
forecasting to gain proper financial management. It includes funding for sources and
investments for implementing business activities. Under this accounting system, decisions are
made related to creating economic structure and making strategies for funding. Including this,
for financial accounting standard, manager analyses last year's records including income
statement, cash flow and fund flow etc. It is the basis on which forecasting and decision making
is implemented to enhance qualitative services of Covent Garden hotel. Therefore, several ideas
are generated for preparing budget related to sources and investments for economic efficiency.
It is interrelated with the entire management of business activities for producing food and
accommodation services (Finkler and et.al., 2016).
Hence, management accounting system is valuable for the systematic management of
organization in monetary and non-economic terms. However, overall development of entity
including improving qualitative services can be effective through management accounting
approach. It is the key element for making decisions to prepare budget for developing efficiency
of firm.
P2) Different methods used for management accounting reports
General Manager
Covent Garden Hotel
Including financial statements, managerial accountant prepares accounting reports such
as cost, budget and performance to present company's working efficiency. In this regard,
systematic records of business activities is obtained to run business effectively. Therefore,
information of entire organization's expenditures, revenues, budget etc are determined by
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analyzing these recorded data (Fullerton, Kennedy and Widener, 2014). However, several kinds
of management accounting reports can described as follows:-
Cost reports:- For preparing cost report, managerial accountant determines all costs of
items incurred. Under this report, systematic record is maintained regarding purchasing raw
materials, cost on manufacturing and expenses for work in process. In addition to this, cost for
raw materials, overhead and labour are recorded for production and supplement of goods and
services. Moreover, reporting related to fixed and variable cost is prepared and maintained
through this information. Thus, by analysing this cost of items, management accountant and
manager of Covent Garden hotel determines price to set for further price determination.
However, different ideas are generated for deciding hotel reports are also prepared regarding
cost incurred on its operations which help managers make decisions ford cost effectiveness and
further implementations (Guffey, 2014). Hence, by recognizing overall incurred costs, adequate
reports are also created for business operations and decision making top enhance its
productivity and profitability. Cost reports are valuable for price determination and producing
cost for further year business plans.
Budget:- According to current business performance, management accountant prepares
budget that considered as planning tool including forecasting and decision making for further
years. In this regard, decisions are made for further production and distribution of products.
Along with manager of Covent Garden hotel identifies overall business activities and further
forecasts and takes decisions for implementation and better qualitative services. Moreover,
budget is also prepared for formulating and strategies to run company effectively. It includes
comparison between last year and current year's business performance that is useful to increase
effectiveness of entity at high level. For small scale organization, it is necessary to prepare
budget related to expansion and enhancing efficiency for firm's sustainability. Under budgeting
process, manager of company analysis financial statements and further takes decisions for
further business implementation and achieving better qualitative services (Hiebl, 2014).
Performance reports:- This management accounting report is useful for presenting
balance between expenditures and revenues regarding these amounts. However, performance of
workers are evaluated weekly, monthly, quarterly and annually. Inlcuding this, by analysing
their abilities, work is segmented according to their abilities and team building for project and
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task accomplishments. Therefore, report is prepared by which various ideas are generated to
increase their working efficiencies affect contribution in team work. Thus, performance report
also involves employees' working efficiencies and their contribution level for organization's
effectiveness. Under this report, management accountant prepare and maintain records of
business activities including transaction of goods, cost effectiveness, workers' roles and
additional performances. Moreover, these reports are prepared weekly, monthly or annually for
determining company's profile and market position. Including this, effective ideas are generated
for further implementing in hotel services (Ismail and King, 2014). It presents business and
competitive strategies of entity for further business activities and enhancing efficiency of firm.
Other reports:- The additional reports to present business profile including
recognizing market research and satisfaction level of customers. However, it is interrelated with
determining position of hotel services that impacts on implementing services provided by firm.
Moreover, opportunities are obtained by analysing recorded information as well various ideas
are generated for reducing weaknesses occur at workplace regarding current and future trends
for effective business activities.
Therefore, above mentioned management accounting reports are useful for keeping
record of entire business activities including transaction of goods and qualitative services
provided by Covent Garden. Thus, keeping these records and its maintenance remains useful for
enhancing efficiency of firm. Analysing all these records are helpful for implementing further
business activities as well useful for increasing business and competitive strategies. However,
management accountant of organization keeps and maintains these records for recognizing
financial and other organizational structure (Lopez-Valeiras, Gomez-Conde and Naranjo-Gil,
2015). On behalf of this identification, various ideas are generated for getting effectiveness in
business performance of entity that impacts on its environment. In addition to this, actual
market position of hotel is determined for expansion of small size entity with proper planning
and evaluation of different strategies. It influences business and competitive strategies of
organization.
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TASK 2
P3) Cost analysis techniques to prepare income statement
General Manager
Covent Garden Hotel
Financial statement as income statement is a tool to present profit margin and balance
between expenditures and revenue of organization. Under this income statement, business
performance is obtained for maintaining balance between production and distribution of hotel
services. However, management accountant of firm prepares income statements through
different costing methods can understand as follows:-
Marginal costing method:-
Table 1: Income statement using marginal costing method
Particulars Amount Amount
Revenue from sales 21000
Less: Cost of production 6600
Gross profit 14400
Less: Variable Expenses
Production overheads (Non static) 1200
Sales expenses 600
Total cost 1800
Net profit 12600
Interpretation:- It presents gross and net profit of Covent Garden hotel that is company
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has gained 14,400 and 12,600 respectively. Where, gross profit is balance of revenue from sales
to cost of production. For determining gross profit margin through marginal costing method,
management accountant of organization obtains balance between revenue and expenses
incurred by hotel. Further, net profit is determined under which gross different between gross
profit and variable expenses is created. Therefore, it is recognized that marginal costing method
is quite simple and easy that includes only variable expenses for presenting gross and net profit
margin. In addition to this, under marginal costing technique, for decision making fixed
overhead are not included for determining net profit margin of entity to present financial
statement.
Absorption costing:-
Table 2: Income statement using absorption costing method
Particulars Amount Amount
Revenue from sales 21000
Less: Cost of production 6600
Gross profit 14400
Less: Variable Expenses
Variable production overheads 1200
Variable sales overheads 600
Total variable expenses 1800
Less: Fixed Expenses
Production overheads (Non static) 2000
Office expenses 700
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Cost of sales 600
Total fixed expenses 3300
Total expenses 5100
Net profit 9300
Interpretation:- Absorption costing method is quite different from marginal costing in
context for obtaining net profit margin. Therefore, management accountant of Covent Garden
hotel determines gross profit as 14,400. Further, net profit margin is obtained that is balance
between gross profit and variable including fixed expenses. However, as per recognition, it is
determined that total variable expense spent as 1800 and overall fixed expense company spent
is 3300. Therefore, sum total of variable and fixed cost occurs as 5100 that is differentiated with
gross profit and resulted to gain net profit margin as 9300.
Thus, above mentioned cost analysis method as marginal and absorption costing are
different approaches to present income statement. In accordance to this, there is only a
difference between two analyses for obtaining net profit margin is that absorption technique
includes fixed expenses. Therefore, net profit are obtained different for calculating costing
through both techniques. Both cost analyses are valuable for presenting income statements that
represent financial position of Covent Garden hotel. On behalf of which management
accountant and manager of the organization make decision for further business activities. It
emerges proper idea for creating balance between expenditures and revenues in the future.
However, income statement is prepared and maintained for implementing economic profile of
entity that is useful for enhancing business profile at high level. Including this, it is considered
as effective technique for enlargement of small scale organization for increasing services of
hotel entity affects its productivity and profitability.
Marginal vs. absorption costing:
Table 3: Marginal vs absorption costings method
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Bases Marginal costing Absorption costing
Profitability Net profit is measured using
profit volume ratio.
Profitability affected because
of inclusion of fixed cost.
Emphasis It sets vision for selling and
pricing aspects.
Focuses on production of
goods.
Belief It is believed that only variable
costs are appropriate for
decision making regarding
financial statements.
It is considered in absorption
costing that fixed overhead are
needed to take decision for
further business activities.
Time periodicity Suitable for short term
managerial decisions.
Appropriate for long term
management accounting plans.
The main difference between marginal and absorption costing is inclusion of fixed
overhead. Both costing methods have different beliefs to determine income statement that is
under marginal costing, net profit is obtained only by using variable cost. While, absorption
costing approach believes that fixed cost is essential to present its economic position. Moreover,
marginal costing is valuable for short term decision making decision while absorption costing is
for long term decisions. However, under absorption costing fixed overhead are involved
therefore specific decisions are taken by management accountant. In comparison to absorption,
marginal costing includes only variable costs and obtains gross as well net profit margins
(Noordin, 2016). Thus, both costing have different approaches to present but similarly both are
useful for preparing and maintaining income statements that present financial position of
Covent Garden hotel. However, cost analysis leads to make income statement which affects on
management accounting plans.
TASK 3
P4) Advantages and disadvantages of different types of planning tools used for budgetary control
General Manager
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Covent Garden Hotel
It is considered as a tool for controlling over business operations to gain effectiveness.
Under this technique, management accountant of Covent Garden hotel analysis financial
statement and additional business activities (Otley, 2016). On behalf of which budget is
prepared for planning and proper management of organization. However, various techniques are
involved under budgetary control approach such as; variance analysis, simulation, cash and
capital budget, Zero Base Budgeting (ZBB). In this regard, variance analysis is useful to
compare last year's and current business performances that detes minimize the utility of
budgetary control system. Moreover, responsibility accounting is also budgetary control
technique that creates cost, investment and profit centers. Therefore, effective performance of
business organization is achieved. Including this, zero base budgeting is helpful for creating
balance between production and distribution of goods that involves situation of no profit no
loss. There is any transaction of products get adjusted. Thus, various budgetary planning tools
are useful for implementation and creating effectiveness of organization. In this regard, its
favorable and unfavorable aspects can be described as follows:-
Characteristics:- Budgetary control techniques are useful for analyzing actual business
performance including financial and other business activities. It generates different ideas for
systematic management and expansion of organization. However, fix targets are presented to be
gained that remains helpful for preparing strategies. It provides tools and techniques for
planning and controlling over business activities. In this regard, cost effectiveness and proper
balance between production and distribution of goods is gained to increase profit earning
capacity of firm. Moreover, budgetary control technique considers as supportive for reducing
cost of production by eliminating wastage expenditures (Quattrone, 2016). Therefore, optimum
utilization of resources is obtained for economic and overall development of organization.
Various advantages of budgetary control tool can express as below:-
 Useful for analyzing actual business performance.
 Helpful for adequate resource and fund allocation.
 Several ideas are obtained for expansion and enhancing qualitative services of firm.
 Usable to gain better coordination among departments of entity.
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