Analysis of Management Accounting Practices at Eagle Eye Solutions

This report provides an in-depth analysis of management accounting (MA) practices at Eagle Eye Solutions, a UK-based digital platform provider for retail businesses. The report evaluates the concept of MA, different MA systems, and reporting methods, along with their integration within Eagle Eye's organizational context. It covers essential requirements of MA systems, such as cost accounting, inventory management, job costing, and price optimization. Various MA reporting methods, including budget reports, performance reports, accounts receivable aging reports, capital budgeting, and inventory and manufacturing reports, are discussed. The report also examines the principles of MA, including compiling and designing, relevance, management by exception, and credibility. It highlights the role of management accounting in maintaining an optimal capital structure, developing a management information system, and controlling costs. The income statement preparation under marginal and absorption costing is presented, along with the reasons for differences between the two methods. The uses of financial reporting for business success and growth are explored, and a comparison of MA planning tools for budgetary control is provided, along with their advantages and disadvantages. Finally, the report evaluates the effectiveness of MA in addressing financial problems within the company. Desklib offers a variety of solved assignments and study resources for students.

5 – Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART 1............................................................................................................................................3
Understanding Management Accounting....................................................................................3
Essential requirements of MA systems........................................................................................3
Different methods used in MA reporting.....................................................................................4
Principles of MA..........................................................................................................................5
Role of management accounting and management accounting system.......................................6
Income Statement Preparation under marginal and absorption costing.......................................7
Uses of financial reporting and statement for success and growth of business...........................8
Critical evaluation of how MA accounting systems and reporting methods are integrated
within an organizational context..................................................................................................9
Benefits of MA function to Eagle Eye.........................................................................................9
Conclusion of applying MA.........................................................................................................9
PART 2..........................................................................................................................................10
1. Comparison and contrasting three planning tools used in management accounting for
budgetary control with its advantages and disadvantages.........................................................10
2. Comparison of ways in which management accounting is effectively applied within
company in dealing and preventing financial problems............................................................13
CONCLUSION AND RECOMMENDATIONS..........................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
MA is of great importance in making managerial decisions with the help of budgeting,
forecasting and in-depth analysis of business affairs. This report is based on Eagle eye solutions
which is based in UK to provide digital platform for retail businesses. Such platforms are meant
for intelligent and real time connections with customers (Vakhrushina and et.al., 2018). Within
the two parts of this report, concept of MA, types of MA systems, methods of MA reporting and
its integration within Eagle eye has been evaluated. Also, comparison of MA planning tools on
the basis of their advantages and disadvantages has been done in this report. At last,
effectiveness of MA in responding to financial problems of the company will be evaluated here.
MAIN BODY
PART 1
Understanding Management Accounting
As explained and defined by CFI (Corporate Finance Institute), management accounting involves
the process of identifying, measuring, analysing & interpreting the information and data of
financial nature. For instance, financial manager within Eagle Eye can apply MA methods and
system in their organizational context for taking sound and effective financial decision, so that
management can ensure overall efficiency in business's regular operations.
Essential requirements of MA systems
The various MA systems that Eagle Eye is essential required to apply and follow within
its organizational context for greater efficiency and effectiveness are as follows:
Cost accounting system: The system is of great importance as it is concerned with the
categorization of overall cost of the organization into direct and indirect cost (Ax and Greve,
2017). For instance, cost accounting system can be implemented within Eagle eye solutions to
determine how much cost the company is incurring towards maintaining and updating software
from time to time. Accordingly, they can determine how much price they should charge for their
software solutions which is of great importance in ensuring overall profitability of the business.
Inventory management system: This system of MA provides with various procedures for
valuing inventory of the business like FIFO, LIFO and AVCO. For instance, there are many
inventory related issues that can arise within Eagle Eye to ensure smooth flow of inventory
during the process of production. It helps an organization to avoid problems of losses due to

breakage and theft. Accordingly, ordering of stock in a required quantity become possible at the
right time (Bento, Mertins and White, 2018). Also, with the help of efficient inventory
management system, identification and responding to trends can be possible. So that, customer's
warning can be fulfilled without getting delay and facing any shortages.
Job costing system: This system involves assignment of costs that an organization has incurred
to difference job and services performed within the organizational context. For example, Eagle
eye can implement this system to allocate overall costs to difference jobs such as hardware
solutions, software solutions, etc. By doing business can determine how much profitable each
different job is and whether to continue with the job or not. The system should be such through
which it can be identified that what is the cost of materials associated with each different jobs.
Price – optimization system: This system is very useful for the companies in deciding the right
price for their products by giving consideration to the demand of the company's products and
services in the market (Pedroso, Gomes and Yasin, 2020). To determine the right price for the
products, management within the company always spend enough time towards arriving at the
right price to sell their products in quick manner. It is the strategy helps a company in reaching
at a desired profitability levels by gaining insights on how sensitive their clients are to the change
in the price of the products. Through this system of MA, variations in demand can be determined
at different levels of price along with combining cost related data with inventory related
information, so that recommendations can be made on how profits can be improved.
Different methods used in MA reporting
There are various methods within the scope of management accounting that can be used by the
accountants and finance manager of Eagle Eye are as follows:
Budget reports: This kind of reports are useful in setting benchmarks for the performance which
is known as budgeted performance for the future of the company. Through this, expected cost
that may incurred in nearer future of Eagle Eye solution can be determined, so that at the end of
the budgeted period the actual costs are compared with that of budgeted one and accordingly, the
variance between budgeted and actual can be identified (G'iyosov, 2019). For instance, Financial
management team can prepare cash budget to determine how much closing cash balance they are
required to maintain and also can create spending plan for better management of liquidity and
short term solvency.

Performance report: This report is useful in reviewing and analysing various performance
related factors of employees and different departments with the company. Like, Eagle Eye can
prepare performance report to evaluate those employees who are directly linked with the
production process to ensure higher productivity and quality of their IT solutions. With the help
of this report, requirement of providing training and development sessions can be understood.
Account Receivables ageing report: Framing credit policies become possible through this
method of MA along with appropriate cash flow management. The whole receivables balance are
first broken down on the basis of duration within which they are expected to make payments. For
managers, it is of high importance to identify that whether the company is facing any issues in
the process of collecting dues from its customers (Saukkonen, Laine and Suomala, 2018). If yes
and the majority of customers are not able to pay their outstanding balances, then this indicates
that Eagle Eye must tighten their credit policies. Time to time monitoring of account receivables
ageing report allows for looking over debts of the company.
Capital budgeting: This method of MA provides a useful insight about which project os most
profitable and appropriate for the business. For instance, to determine how to get back the
invested amount at the earliest can be facilitated by management accountant of Eagle Eye
through the application of pay back period technique of capital budgeting which is most suitable
for determining how long it will take for the business to get back their invested amount.
Inventory and manufacturing: To make manufacturing process highly efficient, MA accounting
reports can be used by Eagle Eye as these reports provides information regarding hourly labour
costs, per unit overhead costs and inventory wastes (Dierynck and Labro, 2018). With the help of
such information, manager can determine which production line needs improvements and how
bonuses can be linked with employees performance to reduce wastages and costs.
Principles of MA Compiling and designing: Accounting statements, reports, information and records along
with the evidence results related to future, past and present should be compiled and
designed in such a way to meet the needs of the Eagle Eye and resolve their problems
accordingly. Also, design of MA systems should be such that facilitate presentation of
relevant data and accounting information can also be modified to meet managerial
requirements.

 Relevance: Managers using information for the purpose of making decisions should be
relevant specifically (Vakhrushina and et.al., 2018). For this, management needs to
review organizational requirement on a regular basis to reflect the changes taking in the
business environment. For instance, budget reports must be prepared by utilizing present,
past, future, internal, external, non-financial and financial information to ensure
appropriate forecasting. Management by exception: While presenting reports and information to management,
this particular principle of MA has been followed. It means application of standard
costing techniques and budgetary control system within the framework of MA systems
(Ax and Greve, 2017). With this, the deviation of actual performance from planned
performance can be found out easily and accordingly informed to management to
understand what is going wrong and what actions must be taken by them.
 Credibility: The roles and responsibility of all the team members within different
departments must be defined in a structured form. Within Eagle eye ethical rules and
regulations must be followed to reinforce the aspects related to ethics in information
technology professionalism. In this way stake-holder's trust towards the company can be
improvised.
Role of management accounting and management accounting system
The managers of Eagle Eye Solution Ltd is need to fulfil the following role of
management accounting: Maintaining Optimal capital structure: The company need to manage optimal capital
structure within their company which involve debt, equity, loans, bonds etc. Thus it is
advisable to the Eagle Eye company to adopt optimal capital structure because it provide
them high benefits and is available at low cost of acquisition. For this, they can adopt
weighted average cost of capital model (Lyly-Yrjänäinen and et.al., 2017). Developing Management information system: Besides maintaining optimal capital
structure, the company's management also need to develop and implement management
information system. For example, with the application of systems within Eagle Eye
company, the managers are able to process its work more efficiently and error free.
 Controlling: This is basically one of the most crucial role of management accounting
department as it involve control of cost of products. It require proper communication

among the departments regarding cost related information (Abernethy and Wallis, 2019).
For this, managers of Eagle Eye company need to adopt variance analysis tools to
identify the gap between actual and standard income and expenses.
Income Statement Preparation under marginal and absorption costing
Sales in Kg 40,000 kgs
Units produced 35000 kgs
Sales price €15 per kg
Closing stock 5000 kgs
Variable manufacturing costs € 5 per kg
Fixed manufacturing costs € 70000 per year
Variable marketing & administrative expenses € 2.5 per kg of sale
Fixed marketing & administrative expenses € 100000 per year
Cost structure under absorption costing
Variable manufacturing costs + Fixed manufacturing cost
€5 + €70000/ €35000
€5 + €2 = €7
Income Statement under Absorption costing
Sales (40000 kgs* $15) 600000
Less cost of goods sold
Variable cost of goods
manufacture (35000 * $7)
245000
Less closing stock (5000 kgs
*$7)
-35000 (210000)
Gross contribution margin 390000
Less variable marketing & -87500

administration expense (35000
kgs* €2.5)
Contribution margin 302500
Less period expenses
Fixed marketing &
administrative expenses
100000
Net Operating Income 202500
Income Statement under variable costing
Sales (40000kgs * 15) 600000
Less variable cost
Variable manufacturing cost
(35000 * €5)
175000
Variable marketing and
administration expense
(35000* €2.5)
87500 -262500
Gross Profit 337500
Less Fixed manufacturing cost 70000
Less Fixed marketing and
administrative expenses
100000 -170000
Net Profit 167500
Reason of difference between marginal and absorption costing
The gap arises between net profit under marginal and absorption costing is because of
only one reason and that is fixed cost of production. In marginal costing, the fixed cost of
production is fully charged by company from contribution and not from the cost of operations
(El-Shishini, 2017). But on the other hand, in absorption costing the fixed cost of operation is
charged from sales by converting them into cost per unit.

Uses of financial reporting and statement for success and growth of business
The financial statements and reporting basically provide real-time analysis using ratio
analysis tool to the Eagle Eye company with the help of which the company can determine its
profitability and liquidity performance. The financial reports is also used by the management of
the company to identify and gauge liquidity position of the company. For example, currently the
Eagle Eye company acquire funds from only equity financing which does not allow them any tax
benefits (Botes and Sharma, 2017). So, if the company really wants to earn more profit with tax
saving they have to adopt the debt financing and equity financing both in 2:1 ratio.
Critical evaluation of how MA accounting systems and reporting methods are integrated within
an organisational context
Both MA systems and reporting methods are helpful for Eagle eye in making better decisions for
enhancing business efficiency. It helps in understanding position at present and analysing it for
identifying future business opportunities. Through integration of inventory management systems,
Eagle eye can determine how much inventory level they should maintain (Bento, Mertins and
White, 2018). For example, Unilever by using JIT method for managing its inventory became a
largest retail company in UK. Also, job cost report are helpful in identifying cost associated with
different jobs to eliminate the one which is not profitable for the business. However, it is always
advisable to first consider the business objective prior to integration of any MA systems or
reporting methods as poor integration may leads to non-accomplishment of goals and also
financial loss for the company.
Benefits of MA function to Eagle Eye
The following are benefits of adopting MA tools and techniques within organizational system:
 Marginal analysis is useful for Eagle eye in determining profits from generating revenue
by offering software solutions to customers.
 Break-even analysis is useful in determining the minimum level of sales to avoid losses
in business and also helps in setting margin of safety (Pedroso, Gomes and Yasin, 2020).
 To identify and report the causes of variance in actual and planned performance to the
management, variance analysis is very necessary.

Conclusion of applying MA
To enhance motivation among employees and profitability of business, adoption of MA
systems and reporting methods is necessary. The tools, functions and benefits of MA and its
implementation within Eagle Eye has been evaluated in this report. Also, MA helps in improving
reliability and cost transparency within Eagle eye along with building brand image and
expanding to global level.
PART 2
1. Comparison and contrasting three planning tools used in management accounting for
budgetary control with its advantages and disadvantages
Planning tools of management accounting (MA) helps the Eagle Eye solution Ltd to
solve its financial issues with the preparation of budgets and forecast. The various planning tools
available to the Eagle Eye company are as follows:
 Budgetary Control: This is a planning tool which is used to plan and control the
production and selling of goods and services of company. The main purpose of budgetary
control is promoting communication and coordination among departments along with
motivating managers and evaluating performance (Sedevich-Fons, 2018). For example,
the Purchase department of Eagle Eye solution Ltd need to continuously communicate
with the Production department in order to know about the quantity of raw material and
equipment required to purchased. This require preparation of budgets such as cash, sales,
purchase, production budgets etc.
Advantage and disadvantage of Budgetary control
Budgetary Control
Advantage Disadvantage
 This tools is helpful for companies to
maintain coordinates activities among
various departments.
 For example, if all the departments of
the Eagle Eye company clarified and
justified request of each other by using
 In case if the application of budgets
within the Eagle Eye company are
done rigidly and mechanically than it
causes major problem to the company.

this tool, than their resources
allocation will automatically get
improve (Sedevich-Fons, 2018).
 It is also helps in enhancing
communication with the employees
and the impact of which the specific
resources, revenue and activities
required to carry out business are get
to know by company managers.
 Sometime the lack of employees
engagement in the preparation of
budgets cause demotivation.
 For example, while preparing budgets
if managers of Eagle Eye company do
not provide information about
particular expenditures to employees,
than they will not be committed to
them.
 With the help of reallocation tool the
managers of the company take proper
and appropriate corrective actions.
 Their may be chance of increase in
perception of unfairness and rigid
budgets create difficulty to company to
obtain money from any new source
and ideas (Sedevich-Fons, 2018).
 Cost Volume Profit analysis: This is basically most significant management planning
tool that help the company in analysing the effect of sales volume and product cost over
its operating profit (Abernethy and Wallis, 2019). For example, Eagle Eye solution
company with the help of cost volume profit analysis can estimate the income and
expenses figure and than compare it with the actual one. The variance and break-even
analysis is a tool used for computing the gap between standard and actual amount and no
loss and no profit sales point.
Advantages and disadvantage of cost volume profit analysis
Cost Volume Profit Analysis
Advantages Disadvantages
 It is very easy to calculate the
estimated figures using the standard
 The disadvantage of the break-even
analysis tool is that it assume that all

formulas which get easily changes as
per the change in variables.
 The variance among the estimation
and actual are also easily analysed by
the managers of Eagle Eye company
with the use of this planning tool of
management accounting (Abernethy
and Wallis, 2019).
their fixed cost remain fixed all over
the time.
 But it is not possible in reality because
there is no fixed cost in real world.
 The break-even analysis helps the
Eagle Eye company in planning their
future sales which they have sale for
earning profits.
 For example, in case if the company's
sales are not increasing than they need
to make changes in their products and
service prices using pricing strategy.
 The accuracy of this planning tool is
not 100% correct because it is based
on the assumption that variable cost
remain constant all level of sales level.
 This is not correct and along with that
sometime separation between variable
and fixed cost is became difficult for
company (Abernethy and Wallis,
2019).
 It is also helpful for the company to
calculate the margin of safety where
the company's contribution is higher
than its fixed cost.
 With this, the managers of Eagle Eye
company can adopt strategy to reduce
its fixed as well as variable cost.
 Pricing Strategy: The pricing strategy is a planning tool which require adoption of
appropriate pricing policies such as value-based, premium, penetration and skimming
pricing (Lyly-Yrjänäinen and et.al., 2017). This further help the company in achieving its
pricing and business objectives such as survival, high quality product and service,
maximizing profit and market share etc. For example, the main objective of Eagle Eye