Financial Analysis and Management Accounting Report for Nero Limited

This report provides a detailed analysis of management accounting principles and their application within the context of a software company, Nero Ltd. It begins by defining management accounting and its necessity, exploring different accounting systems like price optimization, inventory management, and cost accounting. The report then examines various methods used for management accounting reporting, including target costing, sales reports, and budget reports. A significant portion is dedicated to calculating costs and preparing income statements using marginal and absorption costing, comparing their methodologies and providing illustrative examples. Furthermore, the report delves into the advantages and disadvantages of planning tools for budgetary control and explores how management accounting systems can be utilized to address financial problems. Through these analyses, the report offers insights into effective financial management and decision-making within a business environment.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1 Management accounting and necessity of different types of system.....................................1
P2 Methods used for management accounting reporting............................................................3
P3 Calculation of cost and prepare income statement using marginal and absorption costing. .4
M1...............................................................................................................................................7
D1................................................................................................................................................7
M2...............................................................................................................................................8
D2................................................................................................................................................8
PART B............................................................................................................................................8
P4 Advantages and disadvantages of planning tools for budgetary control...............................8
P5 Usage of management accounting system to respond to financial problems......................10
M3.............................................................................................................................................11
D3..............................................................................................................................................11
M4.............................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is a profession which deals with financial terms and
helps managers in decision making process by providing accurate information. In fact all
the monetary terms and theories comes under this category which is used by
organization while estimating their future cost (Abrahamsson, Englund and Gerdin,
2011). Basically this field is responsible for managing capital of a company as well as
trying to reduce loss. Nero limited is a software company in UK having number of
branches due to which they require proper management of their budgetary system to
run their business smoothly. This assignment is segregated into two equal weight-age
for describing the necessary elements of finance for example various types of
accounting system, methods of calculating cost etc. Furthermore, it also highlighted
benefits and drawbacks of tools which is used by organization while planning process
for controlling the budget of an organization. Lastly, report also shows usage of
management accounting system in resolving various financial issues.
PART A
P1 Management accounting and necessity of different types of system
Accounts are associated with the collection of data, recording it to the books of
accounts and summarised in order to make a proper financial statements for a
company. All those informations are controlled and managed through applying effective
planning, controlling techniques. This assist the businesses entity to make more
sustainable and reliable for the coming time (Albu and Albu, 2012). Management
accounting provided business a base to plan the set objectives in more proper manner.
It mainly associated with controlling cost which are incurred during production process
of products. Some of the important techniques are lean accounting, traditional costing
and transfer pricing.
The accounting and managements are inter-connected with each other in order
to take effective decisions regarding the growth and stability of the company's
performances. For any company its financial positions are the main aspect to make
investment. It would present a complete images of a company the whether they are able
to meet out its short and long term goals. In NERO, Ltd company, they are dealing in
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various electronic items such as mobile phones, internet and other board band facilities.
They required a perfect accounting system to manage and control their financial data.
So that they business would continued into the right direction in which they wants to
operate. The main reason company's wants a perfect system is to get a perfect results
and on time (Becker, Ulrich and Staffel, 2011). So that their necessary planning can be
implemented in order to expand their business. A appropriate planning can always
originated through a well organised accounting system. It is done so in order to achieve
group goals as well as organisation goals. While, implementation of right techniques
and updated technology the company financial transactions are recorded and managed
properly. Some to the accounting systems are: Price optimisation system: It is considered to be an important accounting
system which is used in the NERO, Ltd company to control its operational
activities. It is related with the concepts that price is the most sensitive aspect for
the customers, which are decided by the company according to the capacity of
customers interest (Bennett, Schaltegger and Zvezdov, 2011). The company
need to analyse that whether customers are comfortable for the price which are
set for the product and services are fulfil the need of them. The reaction of the
customers towards various product prices are analysed through this system. Inventory management system: In this system, the management of stocks
available with the company are analysed and controlled. The managers and
concern departments are work according to the proper utilisation of company's
resources so that effective results can be achieved. There are various tools
which are used in order to do control inventories. Such as EOQ and ABC
analysis. Cost accounting system: It is necessary to evaluate those costs which are
used under the production process by the organisation. This is mainly emphasis
not only related with the costs but to manage the expenses (CallahanStetz and
Brooks, 2011). There are some costing techniques which can be helpful in order
to control the costs. Such as normal, standard and actual costing.
 Job costing system:- According to this process there are numerous of job
which are essential to be performed in an organization. Therefore it is essential
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for managers of accounting system is to estimate cost of particular job before
assigning job to any employees.
P2 Methods used for management accounting reporting
So as to keep up compelling control over the association execution distinctive
reports are readied which gives the points of interest of activities status and after effects
of every division. Along these lines appropriate checking should be possible and
furthermore the required restorative moves can be made in the areas which are
observed to be less proficient (Chan, Wang and Raffoni 2014.). Aside from this with the
assistance of announcing framework examination process additionally turn out to be
simple as the consequences of specific year or whenever edge can be contrast and the
past casing and as needs be measures can be set. A portion of the essential reports are
clarified beneath which are framed in the association: Target costing report – According to this archive the required measure of asset
are resolved which will be required to fulfils the given undertaking. Along with this
it turn out to be anything but difficult to keep control over the use of various
assets and it is guaranteed that financial plan don't cross as far as possible. Sales report – It is another assortment of detailing framework in which sales is
consider as a major agenda. This report gives the learning with respect to
present and past deals records so an appropriate reputation is kept up which
stick additionally used as far as possible for future targets. The effectiveness of
the business office can likewise be judged through the data gave by it and
henceforth deviations in the real and set models can be resolved. This will help in
enhancing the general execution of an organization (Chenhall and Moers, 2015). Due record report – This is another kind of records which are identified with the
sum against which administrations are given yet sum is not gotten. It is essential
that the administration keeps legitimate record of every one of those from whom
the sum is expected so that at the season of doing gathering no trouble is
confronted and furthermore along these lines no gathering is missed from with
whom the bill is expected. Aside from this information with respect to the time
traverse for which a gathering hold the unpaid sum can likewise be recorded.
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 Budget report – It is another document which is identified with setting limits for
unmistakable division. This aides in controlling the money inflow and surge as so
as to make progress the most essential instrument is that the assets of an
undertaking are utilized to their greatest farthest point. Spending causes in giving
guidelines to the diverse offices so they figure out how to complete the
undertaking with the gave assets which additionally helps in accomplishing
competitive advantage (Cullen, and et. al., 2013).
P3 Calculation of cost and prepare income statement using marginal and absorption
costing
For becoming a final output a product has to go through various stages and at
every phase few amount of cost is going to incurred which is consider as a cluster of
fixed and variable cost. Therefore for measuring the cost of a goods numerous or
extraordinary techniques are utilized which additionally shows the last reports to the
administration. Among the distinctive instruments marginal and absorption costing is the
best one. Thus, proper explanation is described as follows:-
 Marginal costing – It is an instrument that aides in controlling or leading the
choice taking procedure successfully. Under this procedure the adjustment in
cost occur because of one unit expansion in the aggregate amount of creation.
Fixed cost is that amount which stay same at each level of creation and variable
esteem comprises of those which vacillates with the units of yield (Endenich,
Brandau and Hoffjan,2011). In minimal costing the aggregate esteem is sub
separated into fixed and variable. While ascertaining the cost of items just factor
costs are incorporated and valuation of stock is finished. Cost per unit under this
framework stays consistent as just factor cost are considered for estimation. Absorption costing – Working of this technique is unique in relation to that of
the one talked about some time recently. Under this framework both the
expenses are considered while computing the cost of stock. through this
technique the net benefit is resolved subsequent to deducting the firm cost with
the variable cost as well.
Comparison between Marginal and absorption costing
Basis Marginal Absorption
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Meaning Technique which guides an
organization during decision
making process.
Supports in doing allocation
of overall cost.
Cost Recognition Uncertain is consider as the
worth of product and fixed is
taken as the cost of period.
At the time of calculating
costing of product fixed and
variable both the cost are
taken into care for acquiring
accurate consequences.
Highlights Share per factor Net Profits per component.
Statement of financial gain and failure using absorption cost accounting
Quarter 1
No. Of
units
£/unit £ £
Sales value 66.000 1 66.000
less Value of sales
Beginning stock 0 0.85 0
+Manufacturing 78.000 0.85 66.300
-final inventory (12.000) 0.85 (10.200) (56.100)
Gross profit 9.900
less Expenditure
Marketing &Management
costs
(5.200)
Profit 4.700
-Under absorption (2.800)
Profit reconciled 1900
Quarter2
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No. Of
units
£/unit £ £
Sales value 74.000 1 74.000
less Cost of sales
Opening inventory 12.000 0.85 10.200
+Production 66.000 0.85 56.100
66.300
-closing inventory (4.000) 0.85 (3.400) (62.900)
Gross profit 11.100
less Expenses
Selling &Administration costs (5.200)
Profit 5900
Statement of earnings and loss using marginal costing
Quarter 1
No. Of
units
£/unit £ £
Sales value 66.000 1 66.000
less Cost of sales
Opening inventory 0 0.65 0
+Production 78.000 0.65 50.700
50.700
-closing inventory 12.000 0.65 (7.800) -42900
Contribution 23.100
-fixed costs (16.000)
-selling &administration (5.200)
Profit 1900
Quarter 2
No. Of
units
£/unit £ £
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Sales 74.000 1 74.000
less Cost of sales
Opening inventory 12.000 0.65 7.800
+Production 66.000 0.65 42.900
50.700
-closing inventory 4.000 0.65 2.600 (48.100)
Contribution 25.900
-Fixed costs (1.600)
-selling &administration (5.200)
Profit 4700
b) fixed price is involves in various manner in both the cases. Therfore, profit deviated in
each scenario. Thus, main difference between them are stated as follows:-
For quarter 1
Overheads absorbed =(66.000×£0.20)=13,200
Full fixed cost= 16,000
Below absorption = (2,800)
For quarter 2
Absorbed Expenses =(74000×£0.20)=14,800
Whole rigid expenditure=16.000
Under absorption(1.200)
c) Reconciliation statements - Planning of this evidence is done in order to carry out
similarity between the several amount and to reconcile the income earned.
Q1 Q2
Net income below absorption 4.700 5900
(2.800) (1200)
Net profit below marginal 1.900 4700
Practical notes
Fix=16.000
66.000×0.20=13.200
Under absorption (2.800)
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74.000×0.20=14.800
Fix=16.000
Under absorption =1.200
M1
Nero limited is a software company in which various system is going to used and
these systems are very helpful and appropriate in providing accurate information for
employees so that they can enhance their performance by implementing various
improvement sessions. Therefore they need to analyse actual cost of a product so that
they can meet the demand by utilising all the resources in a proper manner. Apart from
this it also maximizes with the use of effective policies.
D1
According to Hammad, (2010) targets which are set by an organization must be
attained by providing necessary benefits to entire association which for fulfilling the
demand of customers as well as employees. Therefore, to fulfils this assignment is
going to use accurate data and information which is available in an enterprise or which
is required in processing time. On the other hand as per Jusoh, and Yen Nee Oon,
(2010) management accounting system and reporting both are fully integrated within
process of a company due to its beneficiary and usage in budgetary planning.
M2
Management accounting methods are used by organization to identify their
hidden issues and problems which affect success of a Nero limited. Basically, main
motive of a financial tools is to help managers at the time of decision making process by
showing all the relevant facts and figures which plays a very eminent role in making
accounting report.
D2
Financial reports are designed and prepared for using during decision making
process so that proper estimation as well as future forecast may take place. Basically
financial statements shows accurate data or information which helps entire association
in resolving difficult circumstances and supports at the time of planning process.
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PART B
P4 Advantages and disadvantages of planning tools for budgetary control
Money is the most pivotal asset off any undertaking thus it is fundamental that
the same is used in a way that greatest returns are accomplished from the same. For a
similar reason utilization of budgetary systems is done as through that over all control
can be continued the practices and inflow/outpouring of back can be checked (Kihn,
2010). Through this procedure limits are set for every office so they can deal with their
exercises inside the gave subsidizes and figure out how to act according to the
accessibility of assets. Budgetary plans are set up after investigating the need of each
task and contrasting the same and the past records as along these lines the proper
guidelines can be advanced against the worry office. According to the nature, Nero
limited prepares different plans and strategies as per demand of an organization and
distribute the cost in different types of budgets which are given below:-
 Master budget
 Cash budget
 Sales budget
 Zero budget
 Operating financial plan
 Statics estimates
 Cash flow forecast report
Every single budget have its own benefits and drawbacks because business
condition is dynamic in nature and budgetary plans are set up on the premise of
expectations which can is hard to be right absolutely. Given beneath is the detail
description of distinctive favourable circumstances and weaknesses of the budgetary
control method (Klychova and et. al., 2015).
Positives Encourage control - With the assistance of this strategy successful control can
be drilled over the different elements of an organization as through this
framework limits are set against each capacity. Along these lines the entire office
work in a way that it has just the accessible measure of asset to use and thus
utilize it to its most extreme possibility (Lukka and Vinnari, 2014).
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 Incorporates effectiveness – When staff members of Nero limited have to
perform their assigned task and activities by following limitation and rules of an
organization and after that if work is not accomplished in a given time period then
higher authority of a company have the right to ask question. Thus it is essential
for employees of Nero limited to work with more prominent effectiveness to stay
free from any negative cross examination. Strengthen communication – At the season of preparing budget, connection
between higher authority and related department office is taking place which
additionally enhances the correspondence level. It is a positive move as while
speaking with each other a superior connection is set at the work put which is a
positive sign for organizations development (Nakajima, 2010). Increase worker morale – When the best specialist is responsible to formulating
budgetary plan then they interface with their subordinates which shows that each
and every individual gets a sentiment belongingness within organization. They
get themselves worth and henceforth feel spurred and as needs be give their
execution.
Weaknesses/Negatives Time taking movement – Budget have different constructive outcomes on an
associations but it also have a few impediments as well. For example to attaining
a set goals and objectives it will take maximum time. Therefore, lots of duration is
squandered if there should arise an occurrence of spending disappointment. High esteem technique – keeping in mind the end goal to detail a viable
spending administration needs to guarantee that correct individual with
satisfactory information is delegated (Salehi, Rostami and Mogadam, 2010). To
get such individual great cost must be paid which makes it a costly procedure
cost of which is added to a definitive result of the organization and subsequently
the esteem increments. Complex Operation – As different capacities are performed at the workstation
due to which it is hard to decide every last viewpoint which should be considered
while defining specific financial limit.
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