Management Accounting Report: Brightstar, Financial Decision Making

This report delves into the core concepts of management accounting, offering a comprehensive analysis of its application within the context of Brightstar, a UK-based financial consulting firm. The report explores various management accounting systems, including inventory management, job costing, price optimization, and cost accounting, highlighting their benefits and applications. It examines different management accounting reporting methods, such as budget reports, accounts receivable aging reports, performance reports, and cost managerial accounting reports, emphasizing their role in financial planning, control, and decision-making. Furthermore, the report includes a critical evaluation of managerial accounting systems and accounting reports, along with calculations of income statements using both marginal and absorption costing methods. It also covers the merits and demerits of planning tools used in budgetary control, showcasing how management accounting helps organizations address financial challenges and achieve sustainable success. This report provides a thorough overview of management accounting principles and their practical application within a financial consulting environment.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Management accounting and its system ................................................................................3
P2 Various method used for management accounting reporting.................................................4
M1 Benefits of management accounting system and application................................................6
D1 Critically evaluation of managerial accounting system and accounting reports....................6
LO2..................................................................................................................................................7
P3 Calculation of income statement by using marginal and absorption costing method............7
M2 Application of management accounting techniques..............................................................9
D2 Application of financial reports and interpretation of data ...................................................9
LO3................................................................................................................................................10
P4 Merits and demerits of planning tools used in budgetary control........................................10
M3 Use of planning tools and its application............................................................................12
LO4................................................................................................................................................13
P5 Management accounting system are adopting by organisation to respond financial
problems.....................................................................................................................................13
M4 Management accounting help to respond financial issues..................................................15
D3 Planning tools are useful to solve financial problems that lead a sustainable success........15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting plays a vital role in any organisation that helps to make effective
decision after analysing all accounts and financial information. It provides financial data and
suggestion to a company for the development and growth of the business by keeping proper
records of accounts and information (Ali and Zhang, 2015). In order to understand the need of
managerial accounting Brightstar has been taken. This is a UK based financial consultant
company that serves financial services in various sectors like as manufacturing, construction,
retail etc. The main purpose of this reports is to understand the needs of managerial accounting
and its system. This report will contain various topics such as management accounting method,
system, techniques and accounting reports. Moreover this report will also include planning tools
that helps to to control the budget and solving the financial problems. Accounting system are
also helpful to maintain a successful business (Booth,2018).
LO1
P1 Management accounting and its system
Management accounting is the essential information of any organisation that helps to
provide internal financial reports, accounts and records in order to making financial decisions.
This involves long term and short term business goals by managing proper final accounts and
information. It is useful to analysis relevant cost, audience targeting, make or buy decision,
planning, preparing budget and controlling the budget (Bui and De Villiers, 2017).
Management accounting system the method of tracking accounting activity and providing
financial information that relates to a business. For instance, Brightstar is a financial consultant
company that prepares final accounts and reports can be used internally by managers. It also can
be used by external parties such as creditors, investors, and tax authorities. Brightstar follows
different types of management accounting system that is given below-
Inventory management system: This includes software system for tracking the stock
level , orders, sales, and supply of product and services. Basically it is mostly used in
manufacturing industry that helps to make a work order, bill of raw material and other
manufacturing documents. Moreover, it is the system of keeping records of non capitalized
assets and stock items. Manager of Brightstar follow this system to maintain proper records and

services which is provides to customer such as insurance policy, loan amount, and mortgage
property etc.
Job costing system: This system is used for distributing and collecting production costs
of an individual unit of output. Moreover, it involves various items that has different cost, should
be maintained properly and effectively (Ibarrondo-Dávila, López-Alonso and Rubio-Gámez,
2015). In Brightstar, manager or accountant keep track of cost of every job and maintain
financial information that is relevant for operations of the business. Jobs are assigned based on
the work that helps to manage business activities and information separately. In this system cost
are distributed according to job system that helps to maintain minimize the cost of the enterprise.
Price optimisation system: This system includes mathematical calculation by an
enterprise that helps to define the customer's responds regarding different prices of product and
services. In additional, it is used to determine the best prices of products and services in order to
make profitable organisation. Any enterprises need to set best prices of product and services that
will aid the number of customer and increase the profits of the company. Manager of Brightstar
charge reasonable interest rate or fees to its customer by providing financial and consultant
services that helps to attract customer. Customers are rapidly increasing to get financial services
in Brightstar company because it provides good quality of services and investment suggestion
that is important for each corporation.
Cost accounting: This system is maintain to control the cost occurred while
manufacturing products. It contains storing, classifying and summarizing direct and indirect
costs. In other words, this is a system which is used for estimating the accurate expense of
products for evaluating profits and controlling the cost. Managers of Brightstar follow this
system to know the actual cost spent on employee and and preparing financial plans. It also helps
to understand the where a company should invest to get maximum profits by reducing cost.
P2 Various method used for management accounting reporting
Management accounting reports are the ballpark of any organisation which includes
planning, staffing, directing and controlling the business activities. It is clear that without
following management function a business firm can not run for a long period of time. It provide
financial information that is useful for making future financial plans and controlling the cost of
the organisation (Jack, 2015). Reports can be used to know the daily, weekly and monthly
operating activities that gives a accurate information in order to make effective decisions. For

instance, Brightstar is a multinational company that prepares accounting reports on daily basis to
utilize the available funds in enterprise. It helps managers to make effective and corrective
decisions. It operates and maintain the economic condition of the company that helps to achieve
the organisation's objectives. Every organisation prepares budgeting reports that is discussed
below-
Budget Reports: This is an internal report prepared and used by manager to compare the
estimated budget reports with actual performance or budgets. Since budgets are financial goals
which is depend on estimation and future expectations. Moreover, budget reports are useful to
compare both estimated and actual financial data of enterprise. Brightstar which is financial
consultant company provides finance to different sectors, prepares budget reports on daily and
yearly basis. This reports help manager to correct problems arising in business to make the
performance more effective in context to accomplish the financial goals. Managers can evaluate
their predict information and take decisions.
Account receivable aging reports: This reports includes unpaid client invoices and
fresh credit memos. The aging report is first tool which is used by suppliers or collecting person
to define which invoices are pending for payment. Brightstar's manager and accountant can use
this reports that will help to know the outstanding receivables such as to whom financial
services are provided. It will also helps to observe the customers who are paying slowly and
make decision for further investment by giving financial services.
Performance reports: This report is also prepared by managers of the organisation that
helps to know the money spent on business activities is using efficiently or not. These reports are
also prepare by government bodies that exact gives performance evaluation information by using
money (Lachmann, Trapp and Trapp,, 2017). For instance, Brightstar make performance reports
to assess the success of project or investment that is invested by providing financial services.
Managers observed performance of employees and organisation and take correct and accurate
decision.
Cost managerial accounting reports: This report is useful to keep proper cost records
of management accounting such as raw material cost, labour, overhead and other cost. Moreover,
this reports helps to know the cost of financial planning and implementation the plan. Brightstar
company invests money in form to provide financial services and make a profitable company.

Manager of the company evaluate the cost of providing services and make correct decision in
order to make profitable organisation.
M1 Benefits of management accounting system and application
The various benefits of management accounting system are given in a tabular form as
below-
Job costing system It will help Brightstar company to estimate of all cost such as lan
given to various sector, preparing budget reports and maintaining
records of customer.
It will also help to stop the duplication of efforts as the identical
work will be repeated.
Price optimisation method Brightstar can get information about customer's attitude and
interest that is based on different prices and charges.
Helps to increase the operating profits with best prices.
Cost accounting system Brightstar can evaluate the efficiency in processes and then can
assist in bringing improvements.
It will also help the company to reduce the prices.
Inventory management
system
Managers of Brightstar company can improve accuracy of
inventory order by using this system.
Hence, Brightstar company should applied management accounting system that is a
systematic records of all transaction and system, helps to give exact and accurate information. It
also help to management accounting system are helpful for any organisation that considers
business decision that may affect manager's behaviour. Accounting system provide accurate and
exact business information that helps to run a business effectively. It help the Brightstar's
manager to maximize the rate on capital employed and make effective business decisions. By
applying budgeting and planning reports a business activities can be managed effectively.
D1 Critically evaluation of managerial accounting system and accounting reports
Types of report Integration with organisational processes
Budget reports The integration with organisational process related to Brightstar

company and budget reports make helps to create a path for
concentration on enterprise activities.
Account receivable aging
report
This is coordinated with Brightstar's activities in order to achieved
objectives through making efforts against outstanding receivables.
Job cost Brightstar's activities need to be manageable for accomplishment of
cost objectives and cost reports that helps to make pricing strategy.
Performance reports This is also integrated with enterprise process that will help
Brightstar to provide management with analysis of tracking the order
of clients.
Management accounting system are helpful for any organisation that considers business
decision that may affect manager's behaviour. Accounting system provide accurate and exact
business information that helps to run a business effectively. It help the Brightstar's manager to
maximize the rate on capital employed and make effective business decisions. By applying
budgeting and planning reports a business activities can be managed effectively. Hence,
Brightstar's manager can make better business decision by following management accounting
system. It will also help to utilize the cost and prices of enterprise. Hence, Brightstar's manager
can make better business decision by following management accounting system. It will also help
to utilize the cost and prices of enterprise a business efficiently.
LO2
P3 Calculation of income statement by using marginal and absorption costing method
Marginal costing: This includes variable cost such as labour and material and fixed cost
such as administration overhead and selling expenses. It helps to increase and decrease the cost
of production and that evaluate payment capacity of company (Makrygiannakis and Jack, 2016).
Absorption costing: It includes calculation of all manufacturing cost by including fixed
and variable cost. This is also known as full costing method that help to define accurate cost of
organisation while manufacturing products.
Income statement by absorption costing method

Sales £25 £250,000
cost of sales £14 £140,000
gross profit £110,000
less: selling, admin, general cost
fixed selling & admin
variable selling /admin cost £30,000
£30,000
Net profit £50,000
Income statement by marginal costing method
Sales £25 £250,000
cost of sales £10 £100,000
prod. Contri. margin
£150,000
Variable selling \ admin cost
contribution margin £30,000
less; total fixed cost £120,000
fixed manufacturing overhead
fixed selling & admin £40,000
£30,000
Net profit £50,000
Financial reporting document with material and labour variance
Labour price variances
(Budgeted price- Actual price)*Actual HOURS
( 5- 5.20)* 3400
-680 unfavourable
Labour usage variance
(Budgeted hours – Actual hours) * Budgeted

price
(3000-3400)*5
-2000 Unfavourable
For packaging boxes
Material price variances
(Budgeted price- Actual price)*Actual usage
(10-9.5)*2200
1100 Favourable
Material usage variance
( budgeted use – actual use)* budgeted price
(2000-2200)*10
-2000 Unfavourable
Budget and variances
Flexible Budget £ £
5000 units 10000 units
Sales 125000 250000
cost of sales 50000 100000
prod. Contri. Margin 75000 150000
Variable selling \ admin cost 15000 30000
net contribution margin 60000 120000
less: total fixed costs
fixed manufacturing OH 40000 40000
fixed selling & admin 30000 30000
Net profit -10000 50000
Working notes*

Calculation of sales (25*10000) - 250000
Calculation of cost of good sold - 140000
(Direct material + Direct labour + fixed manufacturing overhead + variable manufacturing
overhead – 50000+ 30000+ 40000+ 20000)
Selling and administrative expenses: (30000+30000) = 60000
(Fixed selling and administrative overhead + variable selling and administrative over
heads)
M2 Application of management accounting techniques
From above discussion it has been considered that accounting technique such as marginal
costing and absorption costing helps to calculate accurate cost and define the profits of the
company. Each company prepares financial documents such as trading and p&l, balance sheet,
inflow and outflow statement etc. with the help of accounting technique and reports. Accounting
tools provides financial data that helps to prepare financial reports. Brightstar company prepare
financial statements and documents by using financial tool and method. It helps manager to take
better decision by reducing profits of the company.
D2 Application of financial reports and interpretation of data
It can be observed that financial reports are the essential part of any organisation that
helps to define the profits and losses of an enterprise. Financial reports provides various financial
data that creditors and investors can use this to know the enterprise's financial performance. Any
business can not underestimate the financial statements because it gives accurate and appropriate
information (McLaren, Appleyard and Mitchell, 2016). In Brightstar, managers prepares
financial reports such as change in equity, cash flow statement and balance sheet that helps to
define the financial position of company. It also helps to take further business decision and steps
that should be taken by reducing the cost.
LO3
P4 Merits and demerits of planning tools used in budgetary control
Planning tools are devices that helps to guide and give suggestion what actions should be
taken to make a profitable organisation. This is management accounting instrument that defines
how to manage budget and financial information in order to minimize cost and maximize profit
margin. Where as budgetary control is a process that helps to define financial and performance

goals with budgets and compare the actual results with budgeted results. For instance, Brightstar
is a financial consultant company that prepares budgets every year by using planning tools. It set
financial and performance objectives with budget, make comparison with actual results and
manage the business activities as it is required.
Advantages and disadvantages of planning tools in budgetary control
Contingency planning: Every organisation should have contingency planning that helps
to sought out the incident events. It means a company need to focus on distributing finances and
resources that help to cope up with suddenly incurred losses. Brightstar is a financial services
provider company who prepares financial statements every year, it also makes contingency
planning that will help to bear the future losses that may be occur or not. For example, Bright
star has given a loan to a manufacturing industry for a certain period of time, at the time of
repayment of loan manufacturing industry did not pay loan amount as result it will treated as bad
debt (Mokhtar, Jusoh and Zulkifli, 2016). To cope up with this situation Brightstar can use
contingency planning that will help to cover bad debts situation.
Advantages:
 Contingency planning tool helps to hold steady business, even in disaster
situation. Such as Brightstar can maintain and continue operation activities by
happening an unwanted situation.
 It helps to reduce the time by making contingency planning that helps to cope
with critical situation. Manager of Brightstar company makes contingency
provision by testing plans and if they found worst happened then managers can
use contingency plan that helps to save time.
Disadvantages:
 It is very complex for organisation because it require more funds to make
contingency planning and its application is also difficult. Manager of Brightstar
company has many clients who has taken loan. Hence, it is not easy to predict the
future contingent provision.
 This is reactive not proactive planning that means it based on the future
happenings or nor. In this situation managers of Brightstar company can not get
actual cost of company.

Scenario tool: This tool is used to calculate the budget by using spreadsheet and
financial information. Every organisation prepares budgets with the help of planning and
budgeting software that gives a expected results on investment. Basically scenario tool is a
estimated structure of budget which is prepared by the managers of the organisation to know the
potential outcomes investments (Rieckhof, Bergmann and Guenther, 2015). Brightstar gives loan
and other financial services to various sector and make a scenario tool with the help of excel
spreadsheet by analysing all expenses that helps to give expected result as manager wants.
Advantages:
 Scenario tools are flexible that can be change or adjust according to particular
situation. In Brightstar company managers use this tool to get changes in budget if
it is required and take corrective action.
 It helps to maintain the coordination between client and managers that gives
number of customer. Coordination and communication is necessary in every field
in order to make profitable organisation. Managers of Brightstar communicate
with client and understand their need and provide finance that helps to increase in
customer because a happy customer suggest to others.
Disadvantages:
 It may be difficult and time consuming practices that takes too much time to make
scenario planning because it involves various financial information. In Brightstar,
managers can face this situation to build scenario planning that is full day activity.
Forecasting tool: This tool is based on advanced excel application that give a valuable
forecasting budgets. It helps to find future possibility or challenges budget that may be occur or
not. In additional, it is a technique to get potential future outcomes like as further growth and
profits of company by making future planning (Salterio, 2015). In Brightstar manager focuses to
prepare forecasting budget that helps to give business information and can take decision
regarding business should be continue or not.
Advantages:
 This tool helps to take effective and corrective business decision by using
financial information that gives possible outcomes. In Brightstar, Accountant
prepare forecasting budgets by comparing previous year's financial data that
gives a idea and suggestion what action should be taken to make profits.