Financial Analysis of Bizdaq: Management Accounting Techniques Report

This report examines management accounting, focusing on its role in financial reporting and decision-making for a small to medium-sized enterprise (SME) named Bizdaq. It details the essential requirements of management accounting systems, emphasizing their benefits for business operations, including cost control and financial stability. The report explores various management accounting methods, such as cost accounting, inventory management, and job costing, as well as different reporting systems. It also provides a detailed explanation of absorption and marginal costing, highlighting their application in financial analysis. The report discusses the importance of management accounting in enhancing profitability and achieving long-term objectives, illustrating the significance of planning tools in resolving financial issues. It also provides a comparison between marginal and absorption costing methods.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Accounting is identifies as a systematic process of measuring, classifying, recording,
interpreting, communicating and summarising financial information or data. It shows the loss
incurred or profit earned during accounting time period, nature and value of assets, owners &
liabilities, capital or equity (Al and McLellan, 2011). So, management accounting is an activity
of accumulation, measurement, identification, communication, interpretation, preparation and
evaluation of data that help managers in making particular judgement within the structure of
fulfilling business organisational objectives.
This report is based on Bizdaq which was found in the year 2015. It is a small and
medium sized organisation that has an annual turnover of £100,000. This project discussed about
the requirement of management accounting systems and its benefits to business. In calculation of
management accounting reporting, company uses different methods which are shown in this
study. Calculation of absorption and marginal costing are determined in this report. Planning
tools are described here as well that are very important and beneficial for company to solve
financials issue systematically. Management accounting tool helps the business manager in order
to sort out all financial issues effectively.
TASK 1
P1. Explanation of management accounting and essential requirements of its various kinds
Management accounting: It is known as the application of proper concepts and
techniques in projected economic information and processing historical data of an organisation
(Management accounting, 2017). It helps the administration in establishing effective plans for
acceptable objectives or goals in rational decision making with a scene towards these targets
(Albu and Albu, 2012.). It is very important and essential for company for identifying,
presenting, recording and analysing the financial data so that internal administration will use it
for the judgement making, planning, designing and monitoring of organisation.
Through management accounting, firm is capable to operate their business operations and
functions in an efficient and effective manner which assists them in enhancing the financial
stability. Manager is the main part of company’s success and growth because they play a vital
role in analysing proper accounting data which help in understanding the financial position of
firm accurately. This will also support in decreasing the risk and maximising opportunities of
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generating more profit. Therefore, accounting plays a critical duty in the development of
business for longer duration. In order to plan an effective decision about minimising the
overhead expenses and additional cost, Bizdaq needs to measure its financial execution
effectively. In this, manager is required to formulate accurate report which assist them in guiding
to gain desired objectives and targets (Arjaliès and Mundy, 2013). Administrator of the business
organisation is is emphasis on enhancing present technology and innovate the latest technology
in order to acquire good results.
Objectives of management accounting: One of the main motives of accounting is to give
accurate and right information about financial position of company. It assists the manager in
order to take better judgement for development and growth of company. There are also some
objectives of accounting that are given as below:
 Assistance in designing and articulation of future plan and policies
 To help in the understanding of financial data and information
 To help in monitoring the business performance and motivating workers
 Communicating accurate information in Up-to-data
There are different kinds of accounting systems which are needed by the manager in
controlling business functions and operations in an effective manner. These are described as
below:
Cost accounting system: This kind of system is mainly used by the manufacturers and
retailers to record manufacturing process following a perpetual inventory technique (Arroyo,
2012). Main objective of company is applying this aspect for controlling cost, ascertaining,
profitability and other different features which take place in operational and production
activities. For instance: product manager of Bizdaq uses different types of costs such as standard,
normal and actual price to analyse the expenses in production activity.
Inventory management: This system is identified as an ongoing activity of transferring
products and services in and out of a business location. Main objective of business organisation
is selecting this technique for reducing the additional cost of inventory. It is essential that
Bizdaq’s leader maintains the entire process of inventory manufacturing process (Baldvinsdottir,
Mitchell and Nørreklit, 2010). Therefore, the administrator of company needs to handle business
inventory on regular basis.
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Price optimisation: It is one of the important and significant systems of management
accounting which helps company to identify responses of customers to various prices for its
commodity. So, in this, business entity fixes a reasonable price of products which is beneficial
for them for increasing operating profit in limited time period (Bebbington, Unerman and
O'Dwyer, 2014). It is also essential and valuable for administrator to calculate the demand of
product as well as developing promotional strategies in an accurate manner. It is used by Bizdaq
in generating maximum revenue and profit.
Job costing system: It is also followed by company in their manufacturing process where
they produced various products. It is essential for the employer to create a cost of job record for
all products and assign direct labour and material to particular job which assists in enhancing
ratio of each item.
M1. Benefits of management accounting
Management accounting is very important and beneficial for company to reduce expenses
and enhance their cash flow. It is also valuable for the manager to take an effective decision
related to business success and development (Bennett, Schaltegger and Zvezdov, 2011). Each
and every organisation uses this approach in increasing their financial returns and achieving long
term goals or objectives in limited period of time. Above all methods are necessary for the
enterprise to analyse employee’s performance and attain better outcomes. It helps the manager to
motivate and promote their workers as per their work and capability.
D1 Critical measurement of management accounting reporting and system are integrated
According to the Hülle, (2011) management account systems and reporting are integrated
with each other. Both concept are apply by the company with aim of decreasing expenses and
improving cash flow in a daily basis. These are helpful for the manger to encourage their
employees towards business operation and function as well as motivate them in achieving long
term goals and targets.
On the other hand Kaspar, (2010)management accounting is a process of making
effective decision and management system is an activity in order to managing all policies and
plans of company in systematic manner.
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P2 Different methods or approaches used for management accounting reporting
Accounting reporting is an essential part for the manager to prepare annual report of the
company in an accurate manner. These method effecting the internal and external resource of
information. This approach includes all statement such as balance sheet, cash flow,
comprehensive income statement stockholders' equity etc. So all parts are necessary for the
business success and development in competitive marketplace (Bodie, Kane and Marcus, 2014).
In this main sources of information and data is followed by financial department by using
bookkeeping system. It is important and useful for the Bizdaq because it help them in forecasting
the future needs and making the effective decision related to business development and growth.
So manager necessitate these kind of method during monthly, quarterly, monthly, yearly and
half-yearly.
Significance of reporting system: There are various important of these method for the company
to prepare accurate budget. Some are describe as below:
Effective technique in recording method: With the assist of the this system,
administrators can understand entire needs and requirement of employees. So they are known all
necessitate and determine weather they are offering their services and products in accurate way
in attaining objectives of business (Burritt, Schaltegger and Zvezdov, 2011).
Opportunities of maximising profitability: Main aim of Bizadq is to increase their
productiveness by assigning resource in an accurate and systematic way. This will build easy for
administrator to increase productivity and profitability of business.
Different types of management reporting system: There are various kind of reporting which is
applied by the company in its business operation and function accurately. All these types are
describe as below:
Inventory management system: In this approach, manager of the organisation provide
important information and data about inventories for company. It is one of the essential system
and tool that can give quick outputs about stock position in the organisation or storehouse. This
methods includes different effective tools such as inventory turnover ratio, EOQ etc. those are
essential for calculating the performance of business and employees (Cadez and Guilding, 2012).
Account receivable report: Main aim and objectives of this technique is to evaluate
entire information and data regarding unpaid bills and costume those are assigned with a specific
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period. It is identify as an effective approach which is supportive in evaluating accurate period
and amount of fund.
Performance reporting: According to this approach, accounting data are analysis as per
the collection of information from real and previous year performance of Bizadq. Financial
statement of the business organisation are evaluate by following accurate technique so that
effectiveness and productivity of the firm can be improved automatically.
Job costing reporting: These approach includes entire cost of organisation in acquitting
for the manufacture of all product and services during financial year (Callahan, Stetz and Brooks,
2011). This tool record whole information and data regarding total costs, material, labour etc.
that followed at the period of time.
Operating budget report: This kind of approach is lay on all income or profit created by
the business entity as well as accurate amount of its expenses and expenditure are been followed.
All statement are evaluate under this method so that business can achieve positive results in an
effective manner.
TASK 2
P3 Calculation by using absorption and marginal costing
In each and every organisation, money is very important part of the business development
and success. Fund are used by manager in its all activities such as manufacturing process,
resource allocation, etc. so, it is necessary for the organisation to do their all operation and
function in an accurate manner (DRURY, 2013). Costing is identify as systematic procedure of
classifying, summarising, examine and recording accurate activity for monitor entire costs. It is
determine into different parts such as fixed, variable, semi variable, direct and indirect cost. All
these are essential and necessary part in order to calculating net profit and income of business
organisation in accurate way. It has been observe that cost accounting scope is thin as compare to
other system. In this, main role and duty of administrator to set desired objectives as well as
make approximation regarding total expenses and cost. There are different tools and techniques
of measuring business cost but Bizadq mainly follows marginal and absorption costing. All those
are describe as below:
Marginal costing: It may be identified as the tool of showing the cost data or information
where in fixed and variable costs are present particularly fir managerial judgement-making. It
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should be know clearly that marginal costing approach is not a aspect of costing i.e. job and
process costing. It is very simple and beneficial method for the company to evaluate cost data for
the direction of administration which try to analysis affect on business profit due to variation in
the output volume.
Absorption costing: It is identified as an effective approach of measuring the cost of
goods or organisation by proceeding into account of indirect overheads and direct costs (Fourie,
and et. al., 2015). It is determine as a income statement approach which is essential for the
company to produced large number of products in operational process. It can be identified that
COGS (Cost of good sold) in stock is added to fixed and variable cost, direct labour and
material. In this approach, fixed cost are bot classified into the certain products which
manufactured already.
Difference between marginal and absorption costing
BASIS OF COMPARISON MARGINAL COSTING ABSORPTION COSTING
Meaning A decision-making tool and
aspect for finding the entire
production cost is called
marginal costing.
It is identify as an approach of
evaluating production cost by
possessing into account of
direct cost and indirect
expanses.
Cost Recognition In this variable cost is
observed as the product value.
In this fixed cost is understood
as a period cost.
In this both, variable and fixed
cost are observed as a product
cost.
Categorization of overheads In this approach both variable
and fixed cost are classified
(Herzig and et. al., 2012).
In order to evaluate net profit,
business entity divided their
cost into various aspects such
as selling & distribution,
production and administration.
Profitability Difference between closing
and opening inventory does
not effects the per unit cost of
In this, difference between
closing and opening stock
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output. influence the per unit of cost.
Highlights In this method, calculation is
highlights as per the
contribution unit.
In this approach, measurement
of the business profit is
highlighted as per the net
profit unit.
Cost data In this cost is gathered by
outlining the entire
contribution of all products.
Cost is assembled through
clients way to present the cost
data.
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As per the above measurement of income statement through absorption and marginal costing, it
is identified that, net profit from both tool provides various outcomes. With the help of marginal
costing, business organisation observed price per unit. In this fixed cost not observed because it
increase and decrease per unit cost production. While, absorption costing approach is not
emphasis on product per unit cost. It only includes how much amount of funds and raw material
which are considered in production process.
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Absorption costing approach is accurate in analysing cost which is paid by the
organisation in making finished products. It can be observe clearly in above measurement that
total profits through absorption costing is £9600 and marginal costing £9300.
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M2 Range of management accounting
tools
Management accounting is very essential and important for the business organisation in order to
evaluate net earning (Hülle, Kaspar and Möller, 2011). In this Bizadq use absorption and
marginal costing because they provide relevant and accurate information regarding financial
statements. So it is essential for the organisation to achieve long term and desired objectives in
limited time period. It also help manager to enhance employees performance on the basis of its
work and experience. Both method are highlighted as the contribution and net profit per unit.
D2 Financial reports that properly apply and interpret data
Financial report is essential and beneficial for the organisation to prepare annual report
(Kotas, 2014). Bizdaq is applying both technique such as absorption and marginal for evaluating
the net earning and profit of them if they adopt marginal costing approach, earning of 7500 while
applying absorption costing they earn 7800. Variance between is 300 which is not high for the
organisation to attain desired goals and objectives in limited time. In order to make effective
judgement, approach of marginal costing is reliable and accurate for the business.
TASK 3
P4 Advantages and disadvantage of planning tools which is used for budgetary control
Budget is determine as a vital element by which Bizdaq measure their future plan of
investment. It will assist them to identifying the total expenses and cost assumption. It is identify
as a planned way of assemblage for a specific time (Macintosh and Quattrone, 2010). So it is
famed as an effective and complete framework of business strategies and operations that are vital
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