Management Accounting Report: Analysis for Mittelstand Business

This report provides a detailed analysis of management accounting principles and their application within Mittelstand businesses. It begins with an introduction to management accounting and its significance, differentiating it from financial accounting. The report then explores various methods crucial for management accounting, including budgeting, marginal costing, and ratio analysis. It critically evaluates the benefits of a management accounting system, such as budgeting control, marginal costing, standard costing, and ratio analysis. The report delves into specific techniques like absorption and marginal costing, comparing their approaches and highlighting their respective advantages. Furthermore, it examines methods to prevent financial problems within Mittelstand businesses, offering practical insights for improved financial management. Overall, the report offers a comprehensive overview of management accounting, providing valuable information for understanding and implementing effective financial strategies.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
PART A...........................................................................................................................................1
P1 Management accounting and its essential roles in it..............................................................1
2 Methods that are required for management accounting in the Mittelstand..............................3
3 Critically evaluates the benefits of system of management accounting...................................4
4 (a) Techniques for absorption and marginal costing................................................................5
4 b) Absorbed .............................................................................................................................8
4 c) Profit under absorption and production of reconciled statements of the profit and loss.....8
SECTION 2......................................................................................................................................9
PART A...........................................................................................................................................9
(a) Comparison of management accounting methods.................................................................9
(b) Methods to prevent financial problems which take place in Mittelstand............................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
The organisation can be develop their functions and operations to provide goods and
services to consumers. In this aspect, management accounting play very important role for
ascertain effective functions and operations. In this way, different types of plan undertake such
as short and long term profits (Nuhu, Bala Appuhamilage and Bala Appuhamilage, 2017). With
this regard, present report based on Mittelstand that deals in manufacturing of machinery,
electrical equipments and many other elements. In order to gain insight knowledge of the chosen
business, report covers management accounting system. Moreover, it includes planning tools
which can be used to make effective functions and operations at workplace. In addition to this, it
determines importance of management accounting in respect to make decisions with improve
performances.
SECTION 1
PART A
P1 Management accounting and its essential roles in it.
There are different types of accounting has been taken which assists to grow effective
results in the business unit. They are as follows:
Management accounting: Management accounting includes process in which various reports
prepares to get outcomes on time and accurate information of the statistical and financial system.
Within the Mittelstand, information assists to make short and long term decisions which enhance
profitability results in successful manner. For example, sales report generated through using
management accounting which utilise through different stakeholder in respect to gain knowledge
in systematic way. These type of report typically present the data that are related to the payables,
cash receivable, etc. (Nuhu, Bala Appuhamilage and Bala Appuhamilage, 2017).
Financial accounting: However, financial accounting include a process that develop through
ascertain financial transaction in systematic way. It is produces by financial accounting system
where different types of transaction recorded. It can be summarised in the systematic way which
could be present in well and proper format. For instance, report make for income and
expenditure calculation, balance sheet, etc. (Cullen, Tsamenyi and Gorst, 2013).
Differences between management accounting and financial accounting
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Financial accounting Management accounting
Financial accounting mainly focuses on those
activities that carried within the organisation
(Cullen, Tsamenyi and Gorst, 2013).
Management accounting focuses on the
operational reports that can be distributed in
the organisation.
There are different set of standards required
which followed in systematic way in the
financial accounting.
There is no set of any management accounting
(Bennett, Schaltegger and Zvezdov, 2013).
Financial accounting aims to determine only
the qualitative data (McLean, McGovern and
Davie, 2015).
Management accounting also provide different
types of data such as quantitative and
qualitative data.
It assists to manager to assess their financial
position within the business unit in systematic
way.
It develops assistance to the managers to make
decisions in the organisation.
Management accounting play very important role in the business for taking effective
decisions. In this way, plans are carried which develop for complete framework in systematic
aspect. Within the Mittelstand, it determines following significance to the company:
 Cost analysis: In the cited firm, management accounting determines different types of
system that help to business to perform several functions in systematic way. In this
method, Mittelstand can take decisions to sell products and services specific. Further, it
also helps to analysis cost level and extent to results as well. For instance, management
accounting system also help to take decisions through marking efforts. Manager of the
selected business has aim to make alternative decisions in term of advertisement. It helps
to assess common cost for conducting research.
 Make decision to produce or buy: Management accounting also determines effective
decisions to face several issues and problem that are related to buying goods or produce it
in systematic way. It assists to compare purchasing products and production as well.
Hereafter, it assists to take decisions at Mittelstand from several alternatives. Within the
system, management accounting of the company decide to produce cost components
which needed for buying products (Cullen, Tsamenyi and Gorst, 2013).
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 Data utilization: There are several tools and techniques in the management accounting
such as variance analysis, budget assessment and many more things which need to be
calculated to take decisions for future results (Nuhu, Bala Appuhamilage and Bala
Appuhamilage, 2017). Therefore, employees of Mittelstand take participation for
collecting information. For instance, comparing actual performances and standards with
standards to measure monetary outcomes.
 Activity based costing: In this type of technique, the chosen business assess their
activities that are needed to perform several functions and operations (McLean,
McGovern and Davie, 2015). Specific products and services could be enhance in
systematic way through information can be getting about the customer of Mittelstand.
2 Methods that are required for management accounting in the Mittelstand
Management accounting is used to enhance help to small organisation owners to monitor
company activities and performances. In continue monitoring, accounting period needed by the
client to develop effective results and functions. Mittelstand generally depend on the project that
provide effective functioning in business unit (Lapsley and Rekers, 2017). Following are
different types of management accounting system carries in the chosen organisation:
Budget and budgeting: In this aspect, every business has to prepare budget plan through
estimating expenses and income. Within the budget, managers arrange and then allocate fund to
perform several activities (Nuhu, Bala Appuhamilage and Bala Appuhamilage, 2017). It makes
smooth functioning within Mittelstand to produce effective results. It creates direction for
employees to make investment in systematic way. Therefore, budgeting tools and techniques
helps to gain more profits and revenue to make effective framework. In the chosen business unit,
it is highly possible to predict for future to make right direction. Uncertainties also determines
effective influences to make successful budgetary system. As results, it makes positive top
management functions and operations (Chan, Wang and Raffoni, 2014). As results, higher
management fails to determine appropriate amount in each department. Main advantages of this
system is that it efficient allocate the resources which helps to plan the investment. Further, it
also enables to the business management to assess various risk and assess opportunities which
provide a way to capture different types of opportunities (Cullen, Tsamenyi and Gorst, 2013).
For instance, prevention and cure from the different risks. With the help of budgetary-control
system several activities can be control which impact to the planning process. It determines
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direction that covert resources into the profitable channel. It helps to decentralised authority
without losing the control system. However, it possesses disadvantages which based the
estimation at workplace. This system also consume a lot time to make decisions in systematic
manner (McLean, McGovern and Davie, 2015).
Marginal cost: Marginal cost analysis used in the organisation to assess their pricing
strategy to determine break-even point and assessment of actual profit. In order to determine
break-even analysis in Mittelstand, actual profits and loss easily encounter that assists to make
effective results. With driving of several numbers of units, the chosen organisation can produce
effective functions for desired results (Kokubu and Kitada, 2015). Therefore, marginal costing
provide freedom in the over and under the absorption of overhead. In this way, several
advantages included in the chosen business such as it is the best system which make simple and
easy outcomes to operate effective functions (Van der Stede, 2015). It also assists to the
company to compare their cost in systematic way. It helps to the organisation to take effective
decisions. Therefore, it analysis contribution of the different products that generates more
money. Beside this, it includes the data which related to total cost. It is not providing separate
data which related to fixed and variable costs. This system not includes evaluation of the variable
overhead (Bouten and Hoozée, 2013).
Ratio analysis: This tool helps to the business to asses their performances in effective
manner. It assists to forecast, determine plans and perform so many activities together
Mittelstand. With the help of ratio analysis, information can be getting that generates more
profits and revenue within the selected business. Beside this, liquidity ratio also entails to extent
in which business has enough amount of money through they are able to meet with their current
liabilities and obligations. Ratio analysis also perform in respect to control directly and measure
expenses in the method to use performance analysis (Christ and Burritt, 2017).
3 Critically evaluates the benefits of system of management accounting
In this way, following are such benefits in the management accounting information of the
Mittelstand:
Budgeting control: In this technique, management accounting help to encourage several
people to do their work in systematic way (Bennett, Schaltegger and Zvezdov, 2013). It assists to
accomplish goals and objectives in systematic way at workplace of Mittelstand. Through
performing several activities, the chosen enterprise has opportunity to control their activities
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which could be perform in the large context. Budgetary control is the effective tool that help to
provide proper assistance. It helps to increase coordination among the employees of the business.
As results, performances level assessed according to the expectation level of management
(DRURY, 2013).
Marginal costing: This type of costing assists to the chosen business to control over the
cost level at large aspect. Within the marginal costing, allocations of the fixed cost can be
ignored. Along with this, it is the easiest method which determines several numbers of units that
offered by the Mittelstand. When the chosen business exceed their level, the business will able to
accomplish effective profit margin. This type of technique helps to make effective relationship
among the cost and volume of profit margin (Bennett, Schaltegger and Zvezdov, 2013).
Standard costing: It determines as the tool to prepare, control, manage and ascertain cost
management performances. It includes estimation of the cost of material and other elements
which required in the production process (Bebbington, Unerman and O'Dwyer, 2014). For
example, setting of the standards includes in the money which required for product process for
specific item. Main advantages of the standard costing is that it reduce various cost that assists to
control different types of expenses. Further, it helps to manager to determines several types of
decisions in the production process. However, it also includes different types of disadvantages
such as it taking more time and costing system also needed regular updates. Due to requirement
of the several resources costing system needed labour, time, etc. This system of the costing is
quite expensive (Johnson, 2013).
Ratio analysis: Ratio analysis is the another important aspect which assists to promote
facts and figures which present in the financial assessment. It also includes observation in the
income statement which assists to identify cost and evaluate cost of the production in systematic
way. It can be develop enterprise performances which assists to frame objectives and goals
(Ratio Analysis, 2017).
4 (a) Techniques for absorption and marginal costing
Absorption costing: There are several names in which absorption costing has been
determines. In this way, several types of the costs has been taken in the account which names as
fixed and variable cost (McLean, McGovern and Davie, 2015). Along with this, variable
expenses can also gather that changed continuously and observed in the manufacturing of
products and services. In the present analysis of costing, different types of things demonstrates
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for absorption for the specific job at production place. It creates major attention with distribution
including varied sort of expenses in business unit.
Quarter 2
No. Of unit £/units £ £
Sales 74000 1 74000
Less Cost of sales
Opening
inventory
12000 0.85 10200
+Production 66000 0.85 56100
66300
-Closing
inventory
-4000 0.85 -3400 -62900
Gross profit 11100
Less Expenses
Selling and
distribution
expenses
-5200
profit 5900
-1200
Under
absorption
profit
4700
Quarter 1
No. Of units £/Units £ £
Less Sales 66000 1 66000
6

Cost of sales
Opening
inventory
0 0.65 0
+production 78000 0.65 50.7
50.7
-Closing
inventory
12000 0.65 -7800 -42900
Contribution 23100
-Fixed costs 16000
Selling and
administration
-5200
Profit 1900
Quarter 2
No. Of units £/Unit £ £
Sales 74000 1 74000
Less Cost of sales
Opening
inventory
12000 0.65 7800
-Production 66000 0.65 42900
50700
-Closing
inventory
4000 0.65 2600 -48100
Contribution 25900
-Fixed costs -1600
-Selling and -5200
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administration
Profit 4700
Marginal costing is the important method that assists to calculate cost which used by the
account manager in the chosen business unit. This is the method where different variable
expenses taken in the consideration for choosing right product and services of Mittelstand.
Different types of variable cost defines expenses that get changed with alteration to produce units
in the manufacturing plant. It must be develop after the pursuing of calculation of variable cost
according to per unit that remains constant (Nuhu, Bala Appuhamilage and Bala Appuhamilage,
2017). Beside this, when unit increasing, variable cost and expenses change over the time.
Marginal costing defines technique which used by the manager to analysis their break-even
point. It is the best approach that used to sold to cover cost of the production. According to the
present results, it is the crucial method that identifying number of units which need to be sold to
cover the cost of production.
4 b) Absorbed
In this assignment, profit calculated with using several types of methods that are known
as absorption and marginal costing. It is the best way which has been observed for different types
of amount of profit. Absorption costing is the best method which creates profits in quarter 1 so
that profit will be increases continuously. Mittelstand using two types of approaches in their
business to undertake profits and revenue. There is wider difference in fixed and variable
expenditure (Cullen, Tsamenyi and Gorst, 2013). With evaluating the different approaches, it can
be stated that there are some reasons due to differences comes in the profit. It can be computed
with using absorption and marginal costing method. From the following aspect, it can be
calculated in systematic way.
= 66000*£0.20 = 13200
Total fixed cost = 16000
Under absorption = -2800
4 c) Profit under absorption and production of reconciled statements of the profit and loss
Q1
4700 – 2800 = 1900
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Fixed = 16000
66000*0.20
Under absorption -2800
Q2
5900 – 1200 = 4700
74000*0.20 = 14800
Under absorption = 1200
Different types of the budget
Table 1: Reconciliation statements under the marginal costing
Table 2: Reconciliation statements under the absorption costing
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