Management Accounting Report: Essentra Packaging Financial Analysis

This report delves into the realm of management accounting, focusing on its application within Essentra Packaging. It begins by defining management accounting and exploring various systems like cost accounting, inventory management, price optimization, and job costing, highlighting their benefits. The report then examines different management accounting reporting methods such as budget reports, performance reports, inventory management reports, and accounts receivable reports. It calculates costs using marginal and absorption costing techniques, providing formulas and examples. Furthermore, the report addresses the integration of management accounting systems and reports within organizational processes. Finally, it identifies financial issues faced by Essentra Packaging, such as late client payments, and proposes strategies to overcome these challenges. The report offers a comprehensive analysis of management accounting principles and their practical application in a real-world business context.

Management
Accounting

Table of Contents

INTRODUCTION
Management or managerial accounting is an analytical tool that assists management to
summarise, analyse and prepare accounting data with help of financial and non-financial
informations which eventually helps them in planning, implementing, observing and decision
making (Abdelmoneim Mohamed and Jones, 2014). Management accounting involves various
accounts and budgets in order to reduce costs and improve performance of internal factors. For
better understanding of the management accounting process, Aon Consulting, a medium size
management and accounting consultancy firm has been chosen for providing consultancy to
Essentra Packaging which is a manufacturer of tear tapes, labels, seals and other packaging
material, founded in 1911 by Percy Philip Payne with its headquarters in Nottingham,UK.
This report contains knowledge and description of MA, various kind and advantages of
management accounting system, different technique to calculate net profit and profitability have
been used in company, importance of budgets and several ways are discussed to overcome
assorted financial issues of company. In additions it also see calculations of costs by using proper
costing method to determine the net profit.
TASK 1
P1. Various types of management accounting system.
Management Accounting: Management accounting is a process of analysing costs of
operations and preparing budgets and other accounts for the top management so that it may assist
them to make planning and decisions in order to operate the activities and workforce within the
organization. This process helps the management to achieve organizational objectives by
controlling costs, operations and employees.
Managerial Accounting System: This Accounting system is a framework that consists
preparation of various accounts and reports for the use of interior users such as production
management. This system works for recording the data and preparing the reports related to the
overall view of transactions and activities that can occur within particular time. The statements
also provides assistance to Essentra Packaging in final accounts and financial statement
preparation at the end of financial year. The establishment uses various types of managerial
accounting systems are presented below:

Cost Accounting System: This method that helps the manufacturers of the company to
record the movement of various types of cost in relation to the manufacturing of each unit. The
system of cost accounting includes approximation of various fixed and variable overheads and
costs as well, allocation of costs to their original centres and absolute cost absorption. It also
analyse and examine the deviation between current results and budgeted costs. The
administration of the selected company utilise system of cost accounting to estimate the services
and product cost and evaluate the organizational profit. The professional cost accountants can
save the valuable resources and money eith the help of this system which can be utilised in
improvement of productivity (Bagautdinova, Kundakchyan and Malakhov, 2013).
Inventory Management System: Inventory is the key factor to generate revenue in any
manufacturing firm. It is necessary to keep a proper record and control over goods produced by
the company. An effective inventory management system helps the management of the selected
firm in tracking the information related to the stock of raw material, completion degree of WIP
and availability of finished inventory in the showrooms and warehouses. Management of the
respective firm is capable to make firm decisions related to the manner that should be chosen for
the purpose of warehouse and retail inventory management. By using inventory management,
personnels of the company save time and energy which are used in other productive activities.
Price Optimisation System: Accounting system that is used for the price optimization is a
tools that is considered by the management to evaluate the reaction and behaviour of the
customers for various prices sets offered for a particular service or product. This method is
helpful in deciding optimum price for business offerings in order to recover all the production
cost and customer satisfaction may also be achieved with the desired profit. Essentra Packaging
uses this system to set the prices of various products in different situations and markets in
accordance with the customer desires and requirements. The administration of selected firm can
also identify the unwanted and unrealistic time and cost consuming processes and control them
with the help of this system.
Job Costing System: This system can be defined as a technique to calculate the cost of a
customised project or contract that is rendered by specific customer by estimating the cost related
to specific items used in that task. This costing tool determines more accuracy of estimations.
The cost accountant of Essentra Packaging take the help of this system to assess and handle the
expenditures for a customised job or project. This internal accounting system is essential as the

goods which is produced on specific customisation is delivered to the clients on an immediate
basis and can not be evaluated in any cost accounting or inventory management system.
Therefore this method is applied by the internal accountants. The mangers can also track the
productivity of the employees in order to attain their fixed goals with the help of the reports
rendered by this costing system.
P2. Different methods used for management accounting reporting.
Management Accounting Reporting: Management accounting reporting covers
evaluation, analysis and decision making process regarding reports and information delivered by
the cost management accountants. The reporting system furnished an overall image of internal
environment of the organization to the upper administration to perform the procedures, practises
and strategic policies. There are various method or reports used by the management of the
selected company in relation to develop an effective managerial system of reporting which are
mentioned below:
Budget Reports: These reports contains data which is related to the budget estimations
developed for various divisions in the organization and records related to the actual results at the
end of the particular time slot or accounting year. These budget reports are analysed by the
management to make comparison and identify the deviations of estimated and received outputs.
The top management of selected firm is liable to evaluate favourable or adverse variance with
the help of budget reports and take actions according to the situation (Bloomfield, 2015). The
managerial accountant of Essentra Packaging is responsible for calculating favourable or adverse
discrepancies under the assistance of these reports and take the remedial steps accordingly. These
detailed reports assist the company to evaluate and control expenses incurred by various cost
centres and moderate estimates in budgets if required.
Performance Reports: Performance report is created for evaluating productivity and
capabilities of specific individual or task. Performance reports include information and statistics
related to the performance and efficiency of the employees and business operations so that they
can achieve the set objectives. The person who is related to the performance report is considered
to make adequate efforts so that the one can attain the required performance level. The top
administration of selected company prepares performance report for each and every action and
employee functioning within the establishment in order to improvement of productivity and
effectiveness in its manufacturing and production process. The management is liable to provide

advanced training to its workers if their skills are not up-to the standards and rewarding the
personnels which are performing greater than expectations from them.
Inventory Management Reports: Inventory management reports are the reports that
covered all the information from purchase of raw material to finished goods sold (Collis and
Hussey, 2017). It includes shipping goods details and available goods in the stock also which
helps organizations to avoid the chances of out of stock situations. Essentra packaging's
managerial accountant prepares the inventory management report with the help of latest
inventory management software so that can trace even a single unit of product manufactured in
the organization. These reports also helps to maintain the quality of the products as well as create
satisfactory customers by solving their queries very quickly regarding products.
Accounts Receivable Reports: The companies who run their business on credit basis
have to manage their accounts receivables. Accounts receivables are those amount or payments
that an establishment will receive from its clients or debtors. Such accounting reports includes
record of due dates for receipts, over dues with creditors, contact details of creditors, interest
receivable on over dues and other information about receivables. The administration of selected
establishment creates trade receivable and debtor and update it regularly in order to maintain
details of its clients and ensure the relevancy of collection and credit policies. These statements
also render the assistance in managing necessary resources and funds within the firm in order to
aid the accountants in operating regular transactions without any hurdle.
M1. Benefits of different system.
There are various benefits of management accounting system that help Essentra
packaging's to increase overall productivity. Such as
System Benefits
Cost Accounting system  This system aid in ascertainment of cost
by controlling unexpected expenses
 Support to determine unprofitable
activity and improve productivity.
Inventory Management System  Help to Decouple and separate different
parts of manufacture process.
 It also support to survive against

inflation.
Job Costing system  The main benefit is that it help to
determine the most profitable jobs with
company.
 It is beneficial in quoting cost plus
contract.
Price Optimisation System  It support to fix the best possible price
of product.
 The main benefit of this system is to
increase customer base and increase
profitability.
D1 Management accounting systems and management accounting reports integrated within
organisational processes
Different kind of system and management accounting reports are both beneficial and
integrated within organisation process so that valuable outcome are made for better
improvement. All system are essential to prepare authentic reports that are further used to make
meaningful decision and resolving of different situation of company. In Essentra packaging's
various reports such as performance, budgets etc. are being used in order to make authentic
record of every financial and other dealing within specific period of time. In addition, account
receivable report is prepared by the manager so that detail record of outstanding payment can be
collected on time that help to increase the success of firm in nearby future.
TASK 2
P3. Calculate costs using appropriate techniques of cost analysis
Marginal costing: This costing method is basically related with the meaningful technique in
which variable cost is charged to the total unit of cost, on the other side variable cost for a specific
period of time gets write off against actual contribution during a time frame. It mainly implies the
extra cost that in included in manufacturing an additional unit of product ( Demski, 2013). The
formula to calculate marginal cost so that more reliable result for net profit can be calculated during
an accounting year.
Marginal Cost= Direct material+ Direct Labour+ Direct expenses+ Variable overheads.

Absorption costing: It is related with the costing methods that is also known as
managerial or cost accounting that use to include every cost that are linked with producing a
specific good and which is essential for GAAP external reporting. It includes both variable and
fixed cost that are wages, cost of raw material and other overheads that are related with
manufacturing a product as the cost base.
Marginal costing

Absorption costing

Inventory ledger record for May under the LIFO valuation method
Date Reference Purchase Issues Balance (Inventory)
Units £/
Units
£
Total Units £/
Units
£
Total Units £/
Units
£
Total
05/01
Previous
balance
(inventory)
40 3.00 120.00
05/12 40 3.00 120.00
Bought 25
units at £ 3.60
each
20 3.60 72.00 20 3.60 72.00
05/15 20 3.60 72.00
Issued 36 units 16 3.00 48.00 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20
units at £ 3.75
each
20 3.75 75.00 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.50 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
By using Average Weighted Method.
05/01 Previous balance
(inventory) 40 3.0000 120.000
0
05/12 Bought 25 units at £
3.60 each 25 3.6000 90.000
0 65 3.2308 210.000
0
05/15 Issued 36 units 36 3.2308 116.30
77 29 3.2308 93.6923
05/20 Bought 20 units at £ 20 3.7500 75.000 49 3.4427 168.692

3.75 each 0 3
05/23 Issued 10 units 10 3.4427 34.427
0 39 3.4427 134.265
3
05/27 Issued 25 units 25 3.4427 86.067
5 14 3.4427 48.1978
05/30 Issued 5 units 5 3.44 17.213
5 9 3.4427 30.9843
M2 Range of management accounting techniques.
In business scenario, range of costing techniques are used with different management
accounting system in order to deliver the best possible presentation of financial statements.
Therefore, different types of accounting methods like absorption and marginal costing which are
essential to determine the actual figure of net earning during an accounting period. Thus, both costing
methods are used by the management of Essentra packaging's to formulate income statements and
ascertain the profit for year.
D2 Financial reports that accurately apply and interpret data
There are mainly three kind of financial statements like, cash flow statements, balance sheet
and income statements that are meaningful decision as they use to display the entire and overall
financial strength and status of company (Kanellou and Spathis, 2013). From the above calculation
by using both marginal and absorption costing it has been interpreted that by using marginal costing
the profit for month may is £1050 and in June it is £5750. On the other side using absorption method
net profit for month may is £2450 and in month June it is approx £4750. There is a difference in
results of using marginal and absorption method is because of treatment of fixed cost as in marginal
method it is treated as period cost.
TASK 4
P4. Advantages and disadvantages of different types of planning tools.
Budgeting: Budgeting is detailed financial planning of income and expenditure in a
certain period of time (Maher, Stickney and Weil, 2012). It is a systematic projection that
determines the future expenditure and disbursement of money as per the plan. It is simply a
process that balance the expenditure with the business revenue. This tool is helps to an
organisation in planning the estimated data related to future. There are some different type of

budget used in order to plan the business activities such as Master budget, sales budget, variable
budget, zero based budget.
Budgeting Control: It is a internal management planning tool that evaluate the projected
budget with actual information of a specific time of period. Attentive observation on the business
activities helps to management to eliminate the differences between actual and predetermine
standards. Essentra Packaging Ltd is using this tool in term of planning the operational
activities and come closer to standard sets of data. So they can get rid of the additional cost of
primary and secondary packaging of the goods.
Following are the budgetary control tools of Essentra packaging:
Cash Budget: It is a projection of estimated cash inflow and cash outflow for an
organisation over specific time period. It determines the summery of possible income and
expenditure in subsequent period. This budget is basically prepared to know the organisation has
sufficient cash to meets it short term requirement of fund to handle the activities. Essentra
Packaging prepares this budget to figure out the cash sufficiency in business to managing day to
day operating activities.
Advantage:
It helps to improve the efficiency to handling the short term resources. Essentra
packaging is stay touch with reality of cash flow system and it can be quickly identified latent
deficits of the organisation (Malinić and Todorović, 2012).
Disadvantage:
Cash budget can limit the spending power of the Essentra Ltd. It is totally based on the
forecasted income and expenses that is nor actual. It is not reflect the overall profit of the
business.
Flexible Budget: This is the projected budget that flexes with vary in sales volume. It is
a financial plan that varies as per the organisation needs (McLaren, Appleyard and Mitchell,
2016). This budget figure out the various levels of expenditure for variable cost, depends on the
changes in the sales revenue. This is multi-volume budget that being prepared for various
activity level of production to differentiate the variable and fix cost. Flexible budget can be
modified for actual level of sales, production and any changes in business operational activities.
The flexibility to adapt the changes of this budget helps to head of production of Essentra Ltd.
Advantages: