Management Accounting Report: MSD Lighting Ltd. Financial Performance

This report delves into the realm of management accounting, providing a comprehensive analysis of its principles, techniques, and practical applications. It begins by defining management accounting and highlighting its importance in strengthening financial performance and aiding decision-making within organizations. The report then explores various management accounting techniques, including price optimization, inventory management, cost accounting, and job costing, illustrating their significance for companies like MSD Lighting Ltd. It also differentiates between management and financial accounting, emphasizing the role of management accounting reports such as cost, budget, and performance reports in enhancing operational efficiency and profitability. Furthermore, the report examines specific costing methods like absorption costing and marginal costing, discussing their advantages and disadvantages. Overall, the report aims to provide a clear understanding of management accounting concepts and their impact on financial performance, offering valuable insights for students and professionals alike. This report is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

Management
Accounting

INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
LO 2.................................................................................................................................................4
LO3................................................................................................................................................10
LO 4...............................................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is also defined as managerial accounting system through which
business organisation can strengthen their financial performance and can conduct all activities
and organisational functioning with management of funds and resources with great efficiency.
Management accounting also aid an entity today to conduct decision-making while assuring
success that allows them to gain more competency (Nsor-Ambala, 2020). This system provides
leaders and managers to conduct internal decision making process while making best decisions
for company with assistance of different methods tools and techniques. Present report has been
conducted on MSD lightning Limited. In these report formative discussions has been made on
understanding of management accounting system, range of management accounting techniques
and use of planning tools in management accounting. Along with this comparison in which
company can utilise management accounting to respond financial problems effectively are also
being included in this report. Management Accounting techniques and understanding of
management accounting system concept is also being covered in this report.
LO1
Management accounting:
Management accounting is a systematic procedure in which different type of activities are
involved that are collection of monetary and non monetary terms, presentation and evaluation of
financial data and performance of company. With the help of this system an organisation can
assure various advantage in terms of strengthening their financial process and conduct daily basis
operations with higher efficiency. This system increase effectiveness of company planning,
organising, decision-making, staffing and controlling functions. In this it is essential for MSD
lightning limited to and take advantage of management accounting as to gain more competitive
advancements and long-term sustainability within industry.
Reliability:
An organisation is required to process reliable and essential information and data. With
the help of this that can not only enhance their future performance but can also undertake
decision through which they can conduct their financial functioning with higher efficiency.
Up to date:
1

Organisation managers are having responsibility to ensure that all the information that is
involved in accounting systems is up to date and accurate. This will enhance effectiveness of
making decisions and facilitate organisation to accomplish their objective in a well defined and
effective manner. By maintaining financial records in update basis, company can also assure
other benefits.
Different Types of accounting system:
Price optimisation system –
Price Optimisation system assists company to determine price of related services and
products. With the help of this MSD lightning Limited can effectively review consumer
perception on different level of pricing (Miller, 2020). This will assist organisation to ensure
sustainable advantages in respective industrial segment along with maximized competitiveness.
Entity is required to set a particular price base for their services and products in a systematic
manner. With the help of this they can serve customers accordingly while assuring higher
profitability. In addition to this it is also essential for organisation to evaluate behavioural
conduct of consumers towards services and products.
Inventory management system –
Inventory has most important aspect for any organisation through which they can conduct
their daily basis operation in an effective manner. Thus, it is essential for any organisation to
have a strong inventory management system in order to effectively utilise their resources at full
extent. With the help of this system entity can significantly reduce wastage on unnecessary
expenses and can ensure more profitability. It is important for MSD lightning limited to take
advantage of various methods and strategies of inventory management system in order to control
expenses and wastage and conduct cost-effective manufacturing process. With the help of this
they can strengthen their organisational activities while assuring hire profitability and
productivity.
LIFO – With lifo method it states stocks those who come at end place will go out in the first
basis. This indicates lifo method is last in first out.
FIFO – This methods state stock that first come get sale out first in this there is a process which
is related to first in first out.
AVOC – AVOC method included calculations of cost of inventory on average basis.
2

Cost accounting system –
With the help of cost accounting system and organisation can gain number of benefits for
example with the help of this entity can manage their cost and put in every activity and can
further conductor operations and cost-effective manner. It facilitates entity to gain more
profitable income and assure competitive advancement. Further, it has been evaluated that cost
accounting system organisations to operate their functioning and activities in cost-efficient
manner. It is essential for management of MSD lightning limited to take advantage of Cost
Accounting system in order to enhance their profitability while operating cost efficient
operations.
Job costing system –
With the help of job costing system organisation can affecting determine overall
expenditure that has been undertaken in the process of particular job. With the help of this entity
can conductor operations in a systematic manner, this method provides significant advantage to
mainly those organisations who are engaged in offering multiple services and products to
consumers. MSD lightning Limited offer different type of lightning product and services to
customers with the help of job costing system and it can effectively aid organisation to conduct
a particular task and can further undertake them in effective manner there are two important form
of job costing system defined below.
Direct material –
This is the most effective method in variable cost with the help of which entity can
maintain continuous track and monitoring on their manufacturing system. With the help of this
entity can engage in the process of managing operational costs which are mainly associated with
particular job.
Direct labour –
This element determined that entity is required to have regular monitoring on the specific
job through which they can effectively fulfil the task and operations in a particular framework of
time.
Overhead –
At the last ending phase of every accounting period all sum of every cost to apply
methodology linked with allocation
3

Difference Between Management Accounting and Financial Accounting
Management Accounting Financial Accounting
Management accounting process no internal
regulation as this accounting is mainly
undertaken by organisation for the internal
purposes.
According to the analysis it has been
determined that in financial accounting it is
essential for organisation to abide many laws
as it is mainly for external use.
The help of which accounting system
organisation can have detailed evaluation of
financial and non-financial and qualitative data
as well as information.
This accounting mainly involves organisational
performance overview which is mainly related
to financial information.
Management accounting process no form of
legal requirement through which entity can
easily conduct operations.
In financial accounting organisations mainly
have limited liability, as in this entity are
required to formulate financial accounts.
Management accounting reports and its importance to management
With the help of different types of Management Accounting report and Organisation can
effectively maintained record of financial informations in an effective manner and can further
utilise them for operating functioning management of accounting reports and organisation to
effectively monitor as well as manage the daily basis operations through which profitability can
be increased some certain form of system as being defined below shows which effect of increase
in operations of activities can be maximized
Cost managerial accounting report:
Is accounting report allow company to manage the daily basis expenses and cost in an
accurate and systematic manner it is essential for any organisation to have proper monitoring on
their daily basis operation show veg and expenses in cost can be reduced by taking assistance of
men cost managerial accounting report organisation can evaluate ratio of losses and profitability
4

and can have control upon expense and cost in addition to this this report also 8 and 8 to provide
services and products to consumers and cost-effective manner through which entity can a short
desirable profitable advantages
Budget report:
Budget report allows organisation to evaluate the overall amount of spending on annual
basis. Through which entity can allow entity to control unnecessary wastage as well as expenses.
It is essential for any organisation irrespective of their size and scope to monitor all the expenses
that has been made by them at the year. With the help of this they can make comparison between
actual report and budget thus, it is essential for upper management of MSD lighting limited to
undertake this budget in order to conduct their operations and functioning with proper efficiency
and manage unnecessary expenses and cause in an effective manner.
Performance report:
Performance report facilitate organisation to accomplish project in an effective manner
while assuring desirable set performance (Dobroszek Biernacki and Macuda, 2020). With the
assistance of this entity can manage their resources and can accomplish short-term and long-term
objectives with higher efficiency. By taking assistance of this report entity can undertake make
formative balance with set standards. Thus, it is essential for MSD lighting limited to take
advantage of strategy plans and policy as to effectively fulfil company goals and objectives in a
effective manner. In this performance report will aid entity to monitor and manage performance
of funds and can assure hire profitable advantages. Along with this, it has been underlined that
this report also allows entity to track their performance on continuous manner and expand their
possibility of assuring highest profitable advantages.
LO 2
5

6

7

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Absorption costing- In this technique, the overall level of costs of the organization can
be identified clearly and the different approaches can be used so that the estimation of these costs
can be made correctly (Cooper, Ezzamel and Qu, 2017). By making its use the firms are able to
find out the level of overheads which are there on the various departments and the actions which
can be taken to reduce them effectively and efficiently. Thus in this way this technique is very
helpful in the determination of profits in the correct manner. As MSD Lighting Ltd. is a
manufacturing company it makes use of this technique so that it can determine its costs clearly.
Advantages-
 When the use of this technique is made it ensures that the segregation of the overheads is
done clearly (Hiebl and Richter, 2018). Thus in this way an advantage is created for the
management of MSD Lighting Ltd.
 By using this method the profitability level of the organizations can be determined more
clearly. Therefore in this way this creates a benefit for the managers of MSD Lighting
Ltd.
 When this method is used an organization can account for the different production costs
clearly. Thus in this manner the management of MSD Lighting Ltd. Can ensure that an
advantage can be created for the company.
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 Using this method can lead towards tracking of the overall level of profits. In this way the
management of MSD Lighting Ltd. Will be able to ensure that the profitability level can
be determined more clearly.
Disadvantages-
 When this method is used it can lead towards skewness in profit or loss. Thus in this way
this can lead towards a disadvantage for the management of MSD Lighting Ltd.
 The use of this method can influence the operational efficiency of the organizations.
Therefore in this manner the managers of MSD Lighting Ltd. Face a disadvantage.
 When this method is used it does not helps the managers of MSD Lighting Ltd. To take
suitable decisions. Thus in this way an overall impact can be created on decision-making
skills of the managers.
 The use of Absorption Costing technique can create a disadvantage for the managers
because it is not helpful in Cost Control. Thus in this way this creates a disadvantage for
the management of MSD Lighting Ltd.
Marginal costing- In this technique, the level of profits of the organizations can be determined
clearly so that it can help in the computation of Break-Even Point (Hopper and Bui, 2016). This
is a point where there is neither profit nor loss. Thus in the context of MSD Lighting Ltd. It can
make sure that the managers of the company are able to ascertain the overall level of profits
clearly.
Advantages-
 This technique is quite simple to use for the organizations (Maas, Schaltegger and
Crutzen, 2016). Thus in this way this can it helps the managers of MSD Lighting Ltd. as
they can use it effectively for the purpose of profit determination.
 This technique is very helpful for the purpose of decision-making. Therefore in this
manner it can be quite helpful for the management of MSD Lighting Ltd. so that they are
able to take decisions which can help them in the future.
 The relationship between various types of costs can be explained more clearly when the
use of this technique is made. Thus in this way this can help the managers of MSD
Lighting Ltd. To ascertain this relationship clearly.
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 With the use of this method it becomes quite easier for the organizations to determine
their Break-Even point. In this way the managers of MSD Lighting Ltd. Will be able to
ascertain this point effectively and efficiently.
Disadvantages-
 In this method, an easy segregation of the costs cannot be made effectively. Therefore in
this way the managers of MSD Lighting Ltd. Are not able to divide the costs when they
use this technique.
 In this technique, it becomes quite difficult to determine the degree of variability clearly.
Thus in this way the managers of MSD Lighting Ltd. Are not able to identify the
deviations and variances.
 In this technique it is very difficult to control the costs effectively. Thus in this way the
management of MSD Lighting Ltd. Face a disadvantage.
 The use of this technique requires a better understanding of the Marginal Cost Technique.
Thus in this way a disadvantage can be created for the management of MSD Lighting
Ltd.
LO3
Use of planning tools used in management accounting
Budget plays most essential in an organisation which allows entity to manage their all
expenses and activities in a systematic manner (Mohamed and Jamil, 2020). It is an essential
element through which company can manage their funds with proper efficiency and can
accomplish activities accordingly. It is essential for MSD lightning limited to frame efficient
budget in order to manage that different expenses in an effective manner. With the help of this
entity can reduce the risk of uncertain situations which is related to shortage of funds. Mentioned
below there are two forms of budgeting defined below:
Budgetary control:
This is a form of system that allows monitoring processes within an organisation which is
related to operating and non monetary budget. Main aim of this budget is to offer organisation
with the benefit of coordinating all the functions according to organisational objectives. With the
help of budgetary control and take and developed guidelines and can utilise resources according
to expectations.
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Operational budgetary control:
With the help of this process entity can manage their financial goal and performance in
an effective manner. Furthermore, it has been determined that is also allows in making
comparison of budget with actual set standards which is defined as budgetary control. In addition
to this, this form of budget allows managers to underline organisational objectives and further
contribute efforts in order to accomplish them with higher efficiency.
Advantages:
 Main aim of this is to maximize profitability of organisation while assuring coordination,
it also facilitated towards measuring performance and make reduction in cost which is
associated with process of manufacturing.
 Most important advantage of this is that it increases productivity of organisation while
maintaining cost margin. Along with this it also facilitate in making introduction of
incentive schemes of remuneration.
Disadvantage
 Irrespective of many advantages major disadvantage of this is that it may increase
number of conflicts among departments as different managers of different departments
are having distinct perceptions.
Variance analysis:
It is defined as study of derivations of actual behaviour against plan behaviour in
budgeting. Furthermore, it is also determined as quality detective investigation of difference
between actual behaviour and planned behaviour (Jaafar and Noordin, 2020). In addition to this
there are to distinguish variance such as variable overhead variance and purchase price and
labour rate.
Standard costing:
This is basically used by managers in order to formulate difference among actual and
desired cost in order to produce goods. Within this cost which is being used to produce goods are
known as standard cost.
Fixed Budgets:
With the assistant of this managers of an organisation can allot funds to conduct activities
and functioning in fixed manner. It provides a formative direction through which function can be
done in perfect time frame. This does not allow manager to make any further changes in budget
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as this can lead to make fluctuations in other activities. This budget facilitates company to
operate their functions in a systematic manner.
Advantages:
 Fixed budget allows organisation to fulfil their short-term and long-term goals and
objectives in a fixed manner without making any fluctuations in allotted funds.
 It allows entity to fulfil their different activities in a systematic manner.
Disadvantage:
 Main disadvantage that has been possessed by using fixed budget is that it not allow
organisation to make any changes in allotted funds due to internal and external changes
that can affect many organisational functions and can lead entity towards downfall.
Cash Flow Budget: In this MSD Limited it is determined as total consumption of outflow of
inflow of funds in a particular period of time.
Advantages: It allows entity to effectively monitor cash in order to conduct all the
operations in a effective manner.
Disadvantage: Major disadvantage of cash flow budget is that it lacks in flexibility but
for the lead towards consuming more time.
Capital budgeting:
This is mainly defined as a cost which is being undertaken to decide capital structure in
organisational devices. With the assistance of this process company can identify cash inflow and
outflow while assuring pre-established return in an effective manner. It has been evaluated that
this methods of budgeting are discounted, cash payback analysis and throughput.
Advantage:
 With the help of the identification of risk can be done in an effective manner.
 This will allow increasing stakeholders and further undertake advantage of efficient
control upon a necessary expenditure.
Disadvantages:
 With the help of the organisation can not conduct their short-term investments as it is
mainly devise for long-term decision.
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NPV: This is mainly defined as net value present value of project it allows entity to evaluate best
price for their project. Along with this it also facilitate company to choose efficient profitable
investment for entity.
ARR: Annual rate of return used by organisation to take decision making related to make
investments of money. This is basically a percentage rate of return which is mainly expended on
investment.
IRR: IRR ( Internal rate of the return) It is basically defined as rate of return at which IRR is to
NPV to effectively evaluate effectiveness of investment. It has been evaluated that is internal rate
of return significantly exceed then in the situation and it is required.
Payback Period:
It is mainly a period that depicts initial investment cost can be effectively earned in the
particular period. In addition to this, it is mainly a recovery of cost that undertake during starting
period. Organisation take advantage of this method as to identify when it will start providing
profit over cost for the investment.
LO 4
Financial Problem- Financial Problem refers to a situation under which the
organizations face financial pressure due to the impact on the overall finances (Messner, 2016).
Therefore in this manner MSD Lighting Ltd. Also faces financial problems like other firms. The
following types of financial problems which the company is facing are as follows-
Improper management of job orders- In MSD Lighting Ltd. The job orders are not
being managed properly. Thus this is creating an impact on the financial situation of the
company as this affects the profits which it earns due to job orders.
Setting of wrong price- In MSD Lighting Ltd. A wrong price is being set which is
affecting the level of profits. This is creating an impact on the profits because the profits which
can be earned by the company by setting a right price are affected as a result.
Techniques to solve financial problems-
KPIs- KPIs refer to Key Performance Indicators (Otley, 2016). Their use can be made in
the organizations so that they are able to use metrics clearly to solve the financial problems. By
making the use of KPIs the management of MSD Lighting Ltd. Will be able to solve the problem
of job orders as by setting a metric the deviation and variations in the job orders can be clearly
identified by the company which will help in solving them.
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Benchmarking- Benchmarking refers to setting of standards (Turner and et.al., 2017).
Their use can be made so that the organizations can make sure that the performance is according
to the standards. MSD Lighting Ltd. Can make its use so that the company is able to solve the
problem related with price as by setting a benchmark of price the deviations and variations can
be identified clearly and actions can be taken effectively.
Balanced scorecard- Balanced scorecard is an overall parameter through which the
performance level of the employees is ascertained, evaluated and monitored regularly. Therefore
for the managers of MSD Lighting Ltd. It is very important to use it so that they can solve the
problem of job orders as they can identify the problems and issues being faced in the fulfilment
of the job orders.
Activity-based costing- Activity-based costing is a method through which the level of
costs can be identified clearly by assigning them to the different activities. Its use can be made
by the management of MSD Lighting Ltd. So that they are able to make sure that the costs of job
orders are identified by ascertaining the activities which are associated with them. In this way
they will be able to achieve a higher-level of efficiency and effectiveness.
Financial Governance- Financial Governance is a method through which the financial
data, facts and information are organized and managed in a clear manner which helps in
maintaining of the financial discipline. In the context of MSD Lighting Ltd. It is therefore
important that the use of this method is made so that the company is able to solve the problem of
price because by using it the prices can be set according to the forecasts.
Comparison of organizations-
Basis Morrisons Sainsbury's
Financial problem In the company the managers
are facing the problem of
excessive overhead costs.
In the firm the managers are
facing the problem of
mismanagement of inventory.
Management accounting
system used
The company is using the Cost
accounting system to solve the
financial problem.
The company is making the
use of Inventory management
system to solve the financial
problem.
Application of the system The system can be applied by This system can be applied by
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ensuring that the costs can be
identified quite clearly and
thus in this way the reduction
can be made in them
effectively and efficiently.
making sure that the stock
level is identified clearly and
thus in this way the
management of inventory can
be done in the right manner.
Thus from the examples of Morrisons and Sainsbury's the management of MSD Lighting
Ltd. Can make sure that the use of Management accounting system can be done to solve the
financial problems. It can make the use of Job costing system to solve the problem related with
job orders and can use the Price optimization system to solve the problem related with prices. In
this way it will be able to ensure that by making the use of these systems the company is able to
enhance the overall level of efficiency and effectiveness without facing problems and issues
which will contribute towards an enhancement in the level of profits which it is earning in the
right manner.
CONCLUSION
According to the above mentioned report it has been concluded that management accounting
proves to be an essential system that not only allows organisation to operate their organisational
performance with proper budgeting and accounting tools but it also facilitate them to undertake
decisions through which organisation can ensure higher success. It is essential for any
organisation irrespective of their size and scope to maintain their financial data in an effective
manner, in this management accounting system can provide number of benefits through which
entity can ensure more competitive advancements within industry while are assuring higher
profitability and growth.
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