Management Accounting Report: Financial Statement Analysis and Costing

This report delves into the core concepts of management accounting, focusing on its application within the context of Williams Performance Tenders, a UK-based SME manufacturing boats. It begins with an introduction to management accounting, outlining its principles, systems, and the distinction b...Read More

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
P1Explanation of management accounting and essential requirement of various accounting
systems.........................................................................................................................................3
P2. Explanation of various kind of methods of management accounting reporting....................5
TASK 2............................................................................................................................................6
P3 Costing Techniques for preparing the financial statements....................................................6
TASK 3..........................................................................................................................................10
P4 Benefits and drawbacks of different planning tools:............................................................10
TASK 4..........................................................................................................................................13
P5 Management accounting in response to overcome financial issues:....................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
In trading and business context, management accounting concerned with presenting and
circulating, organisational and business information to different related or interested parties.
Managing key task of business to generate information is main motto of management
accounting. Decision-making task of managing officials is easily done by adoption of
management accounting's different systems (Ahrens and et.al., 2017). It provide a core
framework for strategic planning and effective actions plans while achieving pre-estimated goals.
It's planning tools are used by managers to recognise fiscal issues within entity. The study
contains a discussion on management accounting's definition and systems, its principles,
reporting and planning tools in context of Williams Performance Tenders. It is a SME, engaged
in manufacturing of boats in UK. Company aims to increase its revenue by expanding business
outside its current territories . Study also evaluates role of cost, analysis of different costs,
financial planning and use of tools or techniques to sort out such problems.
P1Explanation of management accounting and essential requirement of various
accounting systems.
Management Accounting: It is a classified and systematic branch of management, which also
combines accounting with aims to presenting the most relevant and considerable informations to
stakeholders. It can be defined as cognitive processes focused on presentation of information to
provide easiness in process of planning and actioning (Bromwich, 2012).
Management accounting system: In business entities management accounting is adopted as
different systems to cover different areas of operations. These systems facilitates procedures to
attain efficiencies in organisational processes. They are frameworks which defines purpose of
each organisational process. Every task in company is classified in these different systems to
implement them effectively.
Important to integrate these within an organisation:
Organisation's processes are implemented by different department and process heads to
conduct operations. To achieve effectiveness in trade and manufacturing processes, integration
of management accounting' systems is vital. As manufacturing heads manages inventory storage,
processing and handles different variety of stocks, which sometimes seems difficult for them. So
managers integrates inventory management's system in inventory processes by collecting basis

stock information to effectively manage inventories. In Williams Performance Tenders, accounts
department operates accounting tasks and processes to provide accounting and fiscal related
informations for systems.
Origin, role and principles of management accounting:
The concept of management accounting was originated with the time of revolution of business
industries in England around 1960s. The term in initially regarded as cost accounting which is
further differentiated by different authors and committees (Origin of management accounting.
2019).
There are wide number of principles are proposed by different people but basically
principles are classified as:
Influence:
Information should be effective and must
contain power to influence organisational
processes.
Relevance:
Relevant information should be circulated in
management accounting's processes.
Values:
Results, informations and outcomes should
contain some values to business entity.
Trust:
processes must generate informations which
has creditworthiness and build trusts in entity.
Distinction between management and financial accounting:
Management Accounting Financial Accounting
It emphasises on presenting and directing the
flow of information for task of taking instant
decisions.
It emphasises on presentation of data for
different stake holder parties.
No legal formalities are required under
management accounting.
Here legals rules and procedures required to be
followed.
It focuses on qualitative and numerical or
quantitative elements.
It focuses on singly numerical terms and
elements.
Management Accounting Systems:

Inventory Management System: It supports the whole process of inventory holding or
storage of stocks. In Williams Performance Tenders, inventory's of boat manufacturing process
is managed applying this system (Chapman and et.al., 2016). Company can assess the actual cost
of inventory at any time using this systems and can determine the effect of excessive inventory
on its profitability. It find out the root cause of increase in inventory cost and reason for
excessive holding period of inventories.
Cost accounting system: Different costs or expenditures are considerable variables in
profit evaluation. Particularly in manufacturing companies like Williams Performance Tenders
are always trying to decrease their price per product unit in order to attain targeted profitability
level. Cost accounting systems are used primarily by organizations to perform a thorough cost
analysis to guarantee profitability by effectively projecting costs linked to various operations.
Price-optimization system: It develops and creates a basis for keeping the price of
products or services at specific point where consumer demand is considerably highest (Chenhall
and et.al., 2018). In Williams Performance Tenders, it determine the price of boat manufactured
with aim to increase level of profitability and demand.
Job Costing Systems: Accounting and handling products that are completely distinct in
nature and in other variables is a challenging task, but adopting a job costing scheme can ensure
smooth recording and organizing of tasks associated with these products. This system effective
for manufacturing businesses such as Williams Performance Tenders with a variety and
differentiated products.
P2. Explanation of various kind of methods of management accounting reporting.
Presentation of financial information:
All the reports of management accounting are needed to provide different customers with
facts and figures within the business entity. Information must hold consistency, relevance and
reliability as it used by people who are not belongs to financial and accounting sectors. Below
presented are required financial information's characteristic:
 Information require to provide creditworthiness in presented reports.
 Information must be compatible with different users and departments in business entity.
 Presented information should be up-to date and relevant for managerial and stakeholders'
use (Corbett, 2018).
Manner of presentation of information:

Presentation of information using report must be in a manner which is favourable for
users and easily understandable to all users. Some users are not comfortable with technical or
fiscal terms so reports is required to be presented in compatible manner. Such informations and
relevant facts should provide comparable figures for momentous and quick decision process.
Management Accounting Reports:
Report preparation and presentation is vital elements of management accounting. Reports
are major way of communicating informations within and outside the business organisation. At
the end of managerial processes reports are prepared and circulated to ensure effectiveness in
process of making decisions (Hansen and et.al., 2017). Preparation of reports and making
representation of these formulated reports called as reporting process. Here is a discussion on
various reports prepared under management accounting systems, as follows:
Inventories Report: This report is formulated to trace the occurrence and procurement
of inventories, ultimate usage and movement of inventories. In Williams Performance Tenders,
inventory heads prepare inventory reports which includes inventories like raw items required in
manufacturing of boats, any processes inventories, finished goods etc. This report help to
evaluate costs of inventories with to maximise unit profit.
Performance Report: The performance of an organization is directly depends and
related to the performance of staff, employees and workers, so it is important to evaluate and
asses employee's performance to obtain targeted performance (Hopwood and et.al., 2014). This
report supports treatment of employees as per their skills, qualities and performance. In Williams
Performance Tenders, employee reward and policy system is formulated by using performance
report of all its employees and workers.
Cost report: It consists of all analysis and essential details of costs incurred during a
specific period. As Williams Performance Tenders is manufacturer of boats and other related
equipment, so company apply this report to determine the cost of selling items and minimise
expenses to reach at targeted profit level. This report is being also used to manage the unwanted
expenses due to which company is not able to focus on other important activities such as
incentive policy.

TASK 2
P3 Costing Techniques for preparing the financial statements.
Cost, its types and cost analysis: It means money or consideration that business entities
pay for acquiring something, producing something, or operating company operations and
functions. Costs are crucial element in determining the profitability of trade enterprise.
Analysing costs assist in determining the factors causing increment in expenditures.
Particularly companies engaged in manufacturing of products, analysing costs is
important to enhance graph of profits by reducing expenses. Williams Performance
Tenders analyse its boat manufacturing and other costs to prepare budgets and achieve set
tagetes. Costs are summarised by company as variable, semi variable and fixed.
Cost-volume profit: This assessment is implemented by executives in Williams Performance
Tenders products, which involves analysis and assessment of the connection between the
quantity of manufacturing and expenses to determine the impact on the net gain of the
organization.
Flexible budgeting: It known as variable budget, it used in business of Williams Performance
Tenders as it offers flexibility in evaluating efficiency and net income at various levels and
manufacturing units. At varying production level, it sees differences in net revenue.
Cost Variances: By assessing the impact of variations and variance in distinct operating fields,
this technique or is used by Williams Performance Tenders to recognize the weak and dull
operating regions within the business.
Absorption and marginal costing:
Management uses marginal costs to asses contribution amount related to each unit and
net income under marginal costing. Marginal costs is simply a sum of all direct and variable
costs such as direct expenses, direct material, overhead variable, etc. In this approach, only fixed
costs are shown individually, whether or not they are linked to manufacturing, in revenue
statements as period expense (Horngren and et.al., 2012).
All manufacturing costs (including both variable & fixed costs) are absorption costs in
absorption costing technique. It does not divides cost as fixed and variables to compute the net
profit's amount.

Cost allocation: This is simple task of costing process which summarises the cost as per their
nature and element quality and includes assigning of costs to particular product. In this regard
different costs are discussed below:
Fixed Costs: These are regarded as period costs that stay the same as changes made in
units of manufacturing or ultimate outputs.
Variable Costs: These are expenses and factors which are extremely affected by changes
in units of manufacturing or ultimate outputs.
Normal Costing: It is traditional and easy costing method that is used by Williams
Performance Tenders to calculate manufacturing cost of each equipment and in price
determining. Simply consider real material, labor and other expense or overhead costs when
setting price and each product's cost are regarded in this technique.
Standard Costing: In this technique, Williams Performance Tenders incomes are computed
by formulating comparative analysis of standard and actual result.
Activity-based costing: This method summarises costs based on different activities and tasks.
Costs are specifically assigned to different tasks for better accountability in calculation of cost
and income.
Inventory Costs: Inventory and stock costs in income statement are determining element
as it affects organisation's amount of net profits. In trading account change in inventories is
specifically recorded to asses gross or operating income. Williams Performance Tenders
records inventory costs like logistic expenses, managing costs, storing costs, warehouse
costs etc. It is advantageous for company to control these costs to increase amount of
profit (Types of inventory cost. 2019).
Inventory valuation methods:
LIFO Method: This method focus on recording of different items of inventories as last
purchased item would be issued at first.
FIFO Method: Whereas this method records different items of inventories as first
purchased items are issued first.
Cost variances: It is tool which is adopted by cost accountants to assess any variation in
budgeted, standard and actual figures of costs to address the any problems in cost process.

Overhead costs: These are all company's all expenses by not includes manufacturing expenses.
These expenses can also be divided in fixed, semi variable and variable expenses.
Statement of profit or loss for January 2019 by using Marginal costing.
Particulars PER UNIT Budgeted
80000
Sales Revenue 1 80000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 52000
Opening Inventory 0
Less : Closing Inventory 0 52000
CONTRIBUTION 28000
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 6800
Particulars Actual- Q1
Sales Revenue 66000
COST OF SALES
Cost Of Production: Variables
Direct Material 50700
Opening Inventory 0
Less : Closing Inventory 7800 42900
CONTRIBUTION 23100
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 1900

Particulars Actual- Q2
Sales Revenue 74000
COST OF SALES
Cost Of Production: Variables
Direct Material 42900
Opening Inventory 7800
Less : Closing Inventory 2600 48100
.
CONTRIBUTION 25900
Fixed Overheads 16000
Fixed selling and administration costs 5200
Profit 4700
Statement of profit or loss for January 2019 by using Absorption costing.
Particular PER UNIT Budgeted
80000
Sales Revenue 1 80000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 52000
Fixed Overheads 0.2 16000 16000
Opening Inventory 0
Less : Closing Inventory 0 52000
CONTRIBUTION 28000
Fixed selling and administration costs 5200
Profit 6800
Particular PER UNIT Actual- Q1
Sales Revenue 1 66000

COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 50700
Fixed Overheads 0.2 16000
Opening Inventory 0
Less : Closing Inventory 10200 56500
CONTRIBUTION 9500
Fixed selling and administration costs 5200
Profit 4300
Particular PER UNIT Actual- Q2
Sales Revenue 1 74000
COST OF SALES
Cost Of Production: Variables
Direct Material 0.65 42900
Fixed Overheads 0.2 16000
Opening Inventory 10200
Less : Closing Inventory 3400 65700
CONTRIBUTION 8300
Fixed selling and administration costs 5200
Profit 3100
TASK 3.
P4 Benefits and drawbacks of different planning tools:
Preparing a budget: Evaluation of future performance is essential task for company as it
determines strategy of company in near future. So budgets are prepared by managers for making
a realistic forecasting of performance of company. It contains all existing expense and incomes
along with projections which is lastly applied by manager to form a strategy and decision plans.

Different types of budgets: Following are some key considerable budgets prepared by
Williams Performance Tenders, as follows:
Capital Budget: It is a kind of run term budget which defines company's long
term decisions. It is an extended version of change in equity statement as it also shows
any fluctuation in capital employed. It also contains figures which help to determine the
practicality and viability of projects and investments. In Williams Performance Tenders,
this budget is proposed to know the viability of tenders of boats and other investments.
Advantage: It is beneficial for company to evaluate any long-term capital
investments.
Disadvantage: A wrong assumption in capital budget can affect performance and
growth of company in long run.
Operating Budget: It emphasises on managing the small operative and routine
expenses to asses company's future operating efficiencies (Kaplan, 2014). In Williams
Performance Tenders it is prepared by accountants to assess the future operating
effectiveness. It considers all current operating expenses and incomes to make
forecasting.
Advantage: This budget helps from the primary streamline to avoid unproductive
and other inefficient operations and expenses.
Disadvantage: As it is formulated generally on daily basis so in SME firms like
Williams Performance Tenders it does not have so much usefulness or relevance.
Alternative methods of budgeting:
Cash Budget: It is similar to cash flow analysis as it contains all cash incomes
and expenses along with projections of such cash expenses. This budget alters about
possible negative flow in organisation and manage cash flow. It determines company's
liquidity position in near future that assist in decision making.
Behavioural implications of budgets:
Williams Performance Tenders asses its entire performance by preparation of
different budgets, following discussed are merits of preparation of budgets:

 Budget enables keep the minimum money required for the daily operations to be
carried out.
 Its manages funding structure to grab the future opportunities.
Along with this merits following are some demerits of budgets, as follows:
 Budgets restrict the organisation to expenditure boundaries and prevent loan
profile advantages.
 Some times reflection of budgets may be wrong due to wrong assumptions which
can lead to miss opportunities (Libby and et.al., 2016).
Pricing strategies: It means action plans and strategies that companies such as Williams
Performance Tenders use to set companies different items or product's price with a goal of
increasing product's demand and benchmarks of profits.
Penetration: Reduction in product value or price to reduce is main theory in this strategy to
increase demand and attract customers.
Premium: Increase in product's values is main theory of this strategy when company has
monopoly or gaining competitive advantages.
How competitors determine their prices: Most companies like Williams Performance
Tenders adopt competitive pricing as strategy to set prices that help in minimize competitive
impacts.
Supply and demand considerations: These refers to determining facts or elements which
impact's supply and demand graph such as foreign rates, inflations, statutory polices, new
competition etc.
PEST analysis:
Political
Some political variables such as legislation,
policies and government-imposed processes
affect the quality and operational work
efficiencies of Williams Performance Tenders.
Economical
Economic variables for example foreign
exchange rates, rates inflation, labor rates and
other financial variables directly affect
Williams Performance Tenders 's inner pricing
policies.
Social Technological

living values and facts, cultural facts, density
of population, ratio of sex etc. are social
variables impact company's revenues.
A faster changes in technology and
mechanisms innovation can extremely
influence the survival ability of company.
SOWT Analysis:
Strengths
Williams Performance Tenders's iconic
boats manufacturing quality and unique
trade idea is considerable strength of
company.
Weaknesses
Poor funding structure and excessive cash
outflows is weaknesses which can leads to
adversity in liquidity position.
Opportunities
Recent grant and donation polices of
government for manufacturing SME's is
opportunity for company.
Threats
Increasing interest of large companies in
company's business sector which creates
threats for company's performance.
TASK 4
P5 Management accounting in response to overcome financial issues:
An organisation like William Jet tenders is dynamic and an open entity whose main deal
is to adhere to the external environment. Being in an ever changing environment, William jet
tenders can succumb to the dangers of financial problems which creates the situation more
critical for the business. The only determinant which runs a business is money. The common
reasons owing to which financial problems occur in an organisation are :
Delayed payments : Often debtors of the firm delay in the payment of the dues, Either
they do it knowingly or unknowingly. But, the end result is that the firm looses its liquid position
, the moment debtors fail to comply to the payment conditions (Otley, 2014). Other reasons for
financial failure in an organisation are NPA, stock demolition , theft of funds, inflation etc. All
these events can lead to the death of the business.
Unforeseen expenses : Contingent liabilities may occur any time like the natural
calamity. These unforeseen happenings can flush out funds which were kept for the budget. Or
these events can wash away the surplus profits which were to be utilised later on for any crucial

deed. This leads to a situation of financial disruption in the organisation. However there are few
measures used by William jet tenders to solve financial problems. These are :
Benchmarking : Organisations often set the versatile management practices as a
benchmark to measure and monitor its business conduct. They thrive to reach to the level of the
benchmarked parameter. This technique motivates the executives and the employees to perform
best till they attain the benchmark. After that the management sets further benchmark which are
already attained by a business firm.
Key performance indicators : These are the 'key' cursors which acts as a stimulus to the
system. These key factors set various small breakthrough for the business to be achieved in the
full work cycle. They are measurable and quantifiable missions which every business sets for
its various units which are required to be achieved , and they acts as a benchmark to the
organisational achievement.
Financial governance : It is a principle of handling important financial data judiciously
and saving financial data from getting threatened by any possible predator. It comes under the
aegis of corporate governance. All the financial data like balance sheet, income and loss
statements and any other data set related to funds of the firm shall be used with the principle of
prudence to safeguard it from the possible misuse (Scapens, 2015).
Comparison
William performance tenders Stitchland
It is suffering from liquidity crunch because of
unnecessary cash outflow which is directly
affecting its working capital balance.
Here, the issue is of the improper management
of the stocks which in turn is deteriorating its
profit margin by increasing stock handling
costs.
Cost accounting system is adopted by the
management to secure the business from
demise.
Inventory management system is used by the
business to reciprocate overcome the situation.
The system benefits the company by
suggesting ways to reduce revenue and capital
expenses which are the reason for cash
outflow.
This system helps in efficient management of
its raw material, inventory and final products.
It secures extra buck by minimising inventory
handling costs.

Characteristics of an effective management accountant:
 Required viable oral or composed relational abilities which assist managerial personnels
of Williams Performance Tenders to take care of different issue in the work place.
 Accountant needed the capacity to work within a whole team that increases the efficiency
or efficiency of the job that further helps to solve the issue.
CONCLUSION
It has been founded from above debate that management accounting assists the
organisation in implementing multiple methods that further improve operational operations.
Accounting, finance and reporting scheme helps managers assess their own performance to
accomplish company goals and goals. Furthermore, the planning tools and other managerial
techniques includes multiple techniques that assist the company to regulate the budget. In
addition, systems are used to solve the company's economic issues affecting long term objectives
and decisions.