Management Accounting Report: Eastern Engineering Co Limited Analysis

This report provides a comprehensive analysis of management accounting principles and their application within the context of Eastern Engineering Co Limited, a medium-sized manufacturing enterprise. The report begins by defining management accounting and its importance, emphasizing its role in financial decision-making, record-keeping, and performance evaluation. It explores various management accounting systems, including cost accounting, price optimization, inventory management, and job order costing, detailing their requirements and benefits. The report then delves into different methods of management accounting reporting, such as budgetary reports, performance reports, and accounts receivable reports. It presents income statements using both marginal and absorption costing techniques and interprets the resulting financial data. Furthermore, the report evaluates the pros and cons of budgetary control as a planning tool, analyzing its role in financial planning and forecasting. Finally, it assesses the adoption of management accounting systems in solving financial problems, concluding with an analysis of how organizations respond to financial challenges and achieve sustainable business success. The report includes an examination of cost accounting systems, marginal costing, and absorption costing, with practical applications and interpretations of data to improve financial performance and make informed business decisions.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Management accounting and the necessity of management accounting system...................3
P2. Methods in management accounting reporting....................................................................5
M1. Evaluate the benefits of management accounting system....................................................5
D1. Management accounting system are critically evaluated with reports of management
accounting....................................................................................................................................6
TASK 2............................................................................................................................................6
P3. Different methods of cost in preparing the income statement...............................................6
M2. Application of range of techniques......................................................................................7
D2. Interpretation of data used in producing financial reports....................................................8
TASK 3............................................................................................................................................8
P4. Pros and Cons of budgetary control’s planning tool.............................................................8
M3. Analyze the different planning tool which helps in preparation as well as forecasting
budgets.........................................................................................................................................9
D3. Evaluation of planning tool in business.............................................................................10
TASK 4..........................................................................................................................................10
P5. Comparing adoption of management accounting system in order to solve financial
problems....................................................................................................................................10
M4. Analysation of respond of organisation towards financial problem of organisation which
helps in sustainable success of business....................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
Books and Journals:...................................................................................................................14

INTRODUCTION
Management Accounting is a term which performs business activities into a numerical
manner in the form of analysation, interpretation, keeping records and data. These Management
Accounting technique and records help in decision making criteria so that the organization will
perform business practices effectively and improve the quality of performance Taking financial
decisions keeping data and records, forecasting business activities are the main part of
management accounting through which the business organisations formulate their accounts plan
and financial funding to regulate for the business activities. Therefore Management Accounting
play a vital role in all the business sectors in order to compare past and present results in an
accurate manner and evaluate the strategies according to them (Drury, 2018). This report is going
to be about Eastern engineering co Limited it is a medium size Enterprise into manufacturing
sector. It is specialised in maintenance and repairing the motor vehicles into UK. This project is
going to evaluate the essential requirement of accounting system and different methods of
Management Accounting reporting by applying it to real business practice. Also the project is
going to apply a range of techniques to reduce financial problems by showing the advantages and
disadvantages of planning tool in relation to budgetary control. So the whole work will decide
the sustainable success of business through Management Accounting practices.
TASK 1
P1. Management accounting and thenecessity of management accounting system
Management accounting can be defined as a financial statement in which information are
recorded, measured and interpreted which helps to make decisions related to finance of
enterprise. It provides direction to the managers to make rational decision which make sure the
control over budget of the business. Financial statement are the basis of management accounting
which serves every data which are related to the business operations such as where are they
getting funds and what are the areas in which they are investing those funds. It includes planning,
budgeting, and other rational decisions which ensures by the account manager of eastern
engineering company (Tappura et al 2015).
Cost accounting system:

Cost accounting system is one of the system of management accounting which supports
managers to create estimation for the cost of production of goods and services that creates
turnover for the company. It supports in the valuation of inventory and control of budget of the
business.By estimating cost helps in examination of profitable product and non-profitable
product which offered by an organisation in the market. This system helps the manager to
identify total cost which includes product as well as service. It involves both fixed cost and
variable cost. Fixed cost is those costs which are fixed in the production process and life of the
form whereas variable cost is those cost which varies in the production process with one
addition. Cost is incurred by the purchase of raw material to the end selling of goods and services
of the business and its whole process is related with supply chain management (Van der Stede,
2015).
Requirement of Cost accounting system: Cost accounting system is used on the basis of the
size of the firm.It is the advantageous to the organisation as helps in achieving economy of scale
by reducing production cost of the Eastern Engineering Company (Abdusalomova, 2019).
Price Optimisation System:
Price optimisation system is one of those functions which are constructed on the
mathematical programs and which is used to calculate prices.This system supports in
reviewingdissimilarity in demand at different level of prices. Data which are related to cost as
well as inventory level can be done by this system. The main role of the system is to control the
prices of the product and services which help in generating the required amount of profit.This
system makes firm to use their prices as a competitive advantage. It could also help the account
manager in forecasting of demand, promotion of strategies, developing price in order to serve
best to their customers (Shields, 2015).
Requirement of Price optimisation System: This system helps manager in the estimation of
cost of product and services in the production process and decide on that price which generates
profit for the organisation. This method offers quick financial solution that helps in generating
more profit for the organization and also increases price differentiation according to the level of
demand (TRUHACHEV, KOSTYUKOVA and BOBRISHEV, 2017).
Inventory management System:

To track inventory in the process of supply chain management as a whole that is from
purchase of raw material to the end result is understand as an inventory management system.
This system benefits managers in the activities such as preparing bill for materials, preparing
work order, products which are related business materials (Modell, 2014). This system functions
in minimizing state of under stock or over stock. This data is also used to collect data which
relates to inventory level in organization to avoid wastage. There is no difficulty to understand
this system and permits managers to make coordination between various activities.
Requirement of Inventory management system: This system help the business to reduce cost
of managing inventory. It also supports manager of connect catering service in the inventory
management according to the capacity of warehouse which provides stock details, satisfaction of
product and history of the product. It also helps manager to track inventory to avoid any waste of
material and inventory level (Hopper and Bui, 2016). It makes sure to control additional
purchase of raw material because it can increase the cost of warehouse.
Job order costing system:
Job order costing system can be understand as a system through which organisations take
support when they produces varieties of products and in range of units. By the use of this system
managers can identify the price of each and every product which are dissimilar and help them to
earn revenue for the enterprise. It involves information such as invoices of supplier, prices of
material, allocation of overhead to various activities as well as records of payroll. This is the
tracking in records of job which might be used in the production process of products and
services.
Requirement of Job order costing system: It helps manager to determine the cost of each and
every activities and job in the organisation. It also helps to know the profit of each and every
activity to take appropriate decisions. This supports manager to look out how companies have
fixing their assets anddifferent cost are produced for different jobs (Malmi, 2016).
P2. Methods in management accounting reporting
Budgetary report: Budget report is the report which has been used to compare the actual
performance by the planned budget.By budgeting, this report supports the manager to find out
those expenses which are high so that they take appropriate decisions to reduce the level of

expenses as per the amount of budget.Basically, this report can be defined as a tool that controls
financial budget of a company.
Performance report: This report is the report which has been used to measure
performance of the employee, department, or an organisation. This report supports manager to
recognising the employees who is working hard and in efficient manner and who are inefficient
and underperformance.With the help of this report, they offer performance appraisal to the
efficient employees and on the other hand; they can terminate or punish the employees who are
underperformance.
Account receivable report: Account receivable reports are the reports which support to
identify the clients whose payment is outstanding. If the report is showing the amount which
have to be received increases then employers need to make modifications in their policy of
collection as it led to lack of funds in the company.
M1. Evaluate the benefits of management accounting system
Management accounting
System
Benefit and application of management accounting system
Cost accounting system Cost accounting provides benefits to manager of connect
catering services as it supports in reducing the overall cost of
production and improve the profitability level of the company.
Inventory Management
System
Inventory management system assist the manager in order to
track inventory management to identify the requirements of raw
material and to avoid any wastage as excess purchasing of raw
materials can lead to increase the cost of warehouse to keeping
the raw material at the workplace (Bobryshev et al 2015).
Job order costing System In order to reduce the cost per job it is one of the useful method
in the management accounting system.
Price optimisation System In order to identify the best price for the proposing product that
can be a support in producing demand and generates the more

profit for the organisation, this method can be very beneficial.
D1. Management accounting system are critically evaluated with reportsof management
accounting
In order to reduce the extra price of the company and increased level of productivity and
profitability, the management accounting system and Management accounting reports are
integrated in the respective organisation. This method assists the organisation to bring up the
close results which are actual with the amounts of budget and it provides guarantee to control
more over the operational activities. This method also supports manager to monitor each and
every activity of the company and improve their overall performance (Alborov et al 2017).
TASK 2
P3. Different methods of cost in preparing the income statement.
income statement
quarter 1
particulars
amount
in $
sales 66000
less: cost of sales
opening inventory 0
production cost ( 78000*0.65)
5070
0
less: closing stock (1200*0.65) 7800
4290
0 42900
contribution 23100
less
fixed overhead
1600
0

fixed and selling expenses 5200
21200
Net profit 1900
Quarter 2
particulars
amount
in $
sales 74000
less: cost of sales
opening inventory (12000*0.65) 7800
production cost( 66000*0.65)
4290
0
less: closing stock(4000*0.65) 2600
4810
0
contribution 25900
less:
fixed overhead
1600
0
fixed and selling expenses 5200
21200
Net profit 4700
Reconciliation
working note Q1 Q2
Variable costing profit 1900 4700
opening inventory 0 7800
closing inventory 7800 2600
absorption costing profit 4300 3100
opening inventory 0 10200
closing inventory 10200 3400

M2. Application of range of techniques.
Marginal costing: Marginal cost is the cost of one extra unit of production. This method
is used to consider the quantity of production for organisation where cost are considered as the
least price to produce extra.
Absorption techniques:Absorption technique can be understand as a method which adds
extra proportion of the direct cost and production overhead to the cost of production. This
includes the cost of inventory which involves the full price of production for a product
manufacturing (Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021).
D2. Interpretation of data used in producing financial reports
It has been analysed from the above calculation that quarters of opening inventory from
marginal costing is not more than an absorption inventory. There is also difference between net
profits of the company. 1900 pounds are the net profits from abortion costing while 4700 pounds
are derived from marginal costing.
TASK 3
P4. Pros and Cons of budgetary control’s planning tool.
Budgetary control:Budgetary control is a financial terminology for dealing revenue and
expenses. In order to identify the actions are required or not in managing income and expenditure
is means of budgetary control;some of them are as follows:
Zero based budgeting: Zero based budgeting is one of those approach with supports in
the preparation of budget that starts from zero. This budget is prepared for every New Year not
on the basis of previous year. It is vital for managers to validate several expenses before this can
be applied in official budget. Preparing zero based budgeting is a process which includes
recognition of objectives to prepare budget.It may also include the recognition of several ways to
accomplish those goals.It helps employers to access several ways to get financial funds for the
company and support in prioritising funds on the basis of cost and availability (Maas, K.,
Schaltegger and Crutzen, 2016).

Advantage of zero-based budgeting:
 It helps an organisation in preparing budget which help them to control access cost of the
company.
 It is intended to reduce cost of the company with improved profitability level of the
organisation.
 It supports employees by serving information that relates to use of funds in the business.
 Managers of connect catering service supports and organisation to create budget and
reducing the cost of operation.
Disadvantage of zero-based budgeting:
 It is an expensive tool that managers need to invest their time and efforts.
 As it is not connected with intangibility it delivers information relates to all department of
the organisation but there are some information that should be bound to expose in front of
managers of the company.
 It is a complex tool that manager required preparing zero based budget for every New
Year as it is not based on the performance of the last year (Nielsen, Mitchell and
Nørreklit, 2015).
Variance analysis: Variance analysis is a process of analysis of difference between actual result
and the estimated performance of the organisation.It supports manager to assist the planning
whether the company is getting over performance or underperformance. The variance analysis
can be acknowledged in making differences between actual cost of business as well as the
standard cost of business. This method is used to calculate both quantity of labour, material,
overhead and prices of thecompany. It will also help manager to identify the issue in the
operations of the company and make them to prepare strategies that can improve the overall
performance.
Advantage of Variance analysis:
 It provide competitive advantage to the company that helps to capture the market.
 Helps employees to accomplish the desired objective and it also helps in managing the
strategies for business.

 It helps in identification of risk which supports managers to solve problems for the
business.
Disadvantage of Variance analysis:
 It can be the reason for delaying in completion of task.
 Sometimes it may be difficult to identify the cause behind variance to company.
 This method is not suitable of managers of connect catering service as it gives the reason
of delaying and in getting result of the task (Weetman, 2019).
Operating budget: Operating budget is one of those budgets which involve both expenses and
profit which are generated by the company. This budget is mainly focus on the expenses of
operation of the business which includes cost of goods sold which is directly linked with the
production process and also it include cost of direct material and labour. Operating budget
involves all the cost and administration overhead which is related with the production process of
the company.
Advantage of operating budget:
 It helps in the requirements of long term planning which assist them to allocate funds in
several activities which has to be conducted in the business.
 It allows flexibility in budget preparation.
 It is helpful for managers of connect catering services as it offers right information.
Disadvantage of Operating budget:
 Operating budget is difficult for business as it does not facilitate changes and flexibility.
 Operating budget discourage information which is not right for the development of the
company
M3. Analyze the different planning tool which helps in preparation as well as forecasting
budgets
There are various tools and methods for planning that can be used to control actual result
of the organizational activities. The company may use various tools and techniques such as zero
based budgeting, operating budgeting and variance analysis. Variance analysis is a method which

helps to reduce differences between actual and estimated performance. Operating budget mainly
focus on reducing cost of operation and try to increase profitability of business. Zero based
budgeting is one of those tools which ensure control over every activity of the organization
(Amara and Benelifa, 2017).
D3. Evaluation of planning tool in business
Planning tool supports business to ensure control over actual performance of the
organisation. It supports manager to reduce differences between actual and estimated
performance which can be result in increasing profitability of the business. Such planning tools
can be very helpful to solve financial problems that might be occurred in the business which also
increase the period of sustainability. Managers may use these tools and management accounting
system to solve the problems of business which also helps in ensuring control over each and
activity of the enterprise.
TASK 4
P5. Comparing adoption of management accounting system in order to solve financial problems
Financial problem:Financial problems are those problems which makes a company
unable in paying off their debts whether it is short term or long term. There are many problems
of finance which might be faced by an organization such asnot getting payment from
debtors,inefficient working capital,bad cash flow management, increasing debtand many more.
Connect catering services are financial problems which are mentioned below:
Bad Cash flow management:Bad cash flow management is one of the financial problem which
happen when company is unable to meet the requirements of business. And, this type of situation
in company may face rapid change or increase in the expenses with no returns of cash.
Increasing debt: Increasing debt is a situation in which company is depends for conducting their
business operations by borrowing money. Such type of situation will decrease the
creditworthiness of the company and does not allow to raise their funds in their operational
activities.
Managers may use different tools to identify financial problems that has been occurred in
the business; such are as follows:

Key performance indicator: Key performance indicator is one of the quantifiable
method which may help business in determining the overall performance organisation. It support
manager to compare their performance with success indicator their company.
Benchmarking: Benchmarking is one of the best tool that helps a manager to identify
problem by comparing actual performance of the company with another existing organisation
relates in same industry. It helps in measuring performance of the business quality, time as well
as cost.
Corporate governance: Corporate governance refers to a mixture of rules and the
process which has been adopted by a company in their operational activities. These may include
external and internal factors which may affect stakeholder of business and it includes suppliers,
shareholders, customers, employees and the management.
Connect Catering service Penni Black Catering service
Financial problem It is related to bad cash flow
management which affects the
operation of a business.
It is related to increasing that
which develops burden of
interest.
Techniques To solve such problems
company main use KPI tool that
is key performance indicator.
To solve such type of problems
benchmarking is an effective
method.
Management accounting system Problem of bad cash flow
management; a company may
use job order costing system
which may allow business
manager to recognize cost of
single unit.
In this, managers may adopt cost
accounting system to solve
problem related to increasing
debt on the business.

M4. Analysation of respond of organisation towards financial problem of organisation which
helps in sustainable success of business
It supports manager to identify financial problems that are already exists and helps them
to prepare improved strategies to solve such problem. Managers use various tools and techniques
to identify financial problems such as key performance indicator, benchmarking, and corporate
governance. Management accounting system also supports in solving financial problem and
reducing the cost of business with increased profitability (Angonese and Lavarda, 2014).
CONCLUSION
From the above report, it has concluded that management accounting is essential to fulfil
the requirement of business financial funding and keep in updated record into a very effective
manner. As, the report has shown that there are several requirement of Management Accounting
for price Optimisation inventory management and job ordering system. Therefore there are
different method of accounting report such as budgetary performance and account receivable.
These reports are significant in their own way for different departments. Also the report has
covered benefits of accounting for business by a critical evaluation in order to enhance overall
performance. o that the organisation is in need for proper planning tools to reduce the issues
arriving into financial decisions full stop this has explained by undertaking the advantages of
zero based budgeting operating budgeting and variance analysis. It has shown that please
planning tools are different in working and require concentration for best practices. In order to
assist and Organisation effectively Management Accounting plays the best role.

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