Management Accounting Report: Hospitality Sector Analysis

This report provides a detailed analysis of management accounting principles and their application within the Oakwood Guest House, a small business in the UK hospitality sector. The report explores essential requirements for various management accounting systems, including inventory management...Read More

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
Table of Contents.............................................................................................................................1
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Explaining management accounting and analyse about the essential requirements of
various systems in the Oakwood guest house..............................................................................1
P2Explain various types of management accounting reporting..................................................4
TASK 2............................................................................................................................................5
P3 Income statement preparing using marginal and absorption costing.....................................5
Differentiate among marginal or variable as well as absorption costing approaches..................7
P4Explaination on advantages and disadvantages of various types of planning tools of
budgetary control.........................................................................................................................8
TASK 4..........................................................................................................................................10
P5 Different kinds of tools and systems of management accounting for reducing financial
problems within Oakwood guest house.....................................................................................10
CONCLUSIONS...........................................................................................................................11
REFERENCS.................................................................................................................................12

INTRODUCTION
Management accounting is the key aspect of each business entity which helps to the
entrepreneur for make the firm more successful and fulfils several objectives which are framed
while existing in the industry. It is a system or process at where the management department can
prepare several kinds of the reports, make interpretation, analyse as well as conclude. By this
different types of appropriate decisions are to be adopted along with framing effectual plans. The
current case study is explained about the management accounting by taking base to a small
business firm which operates in the hospitality sector of the UK. The small firm chosen is
Oakwood guest house which provides food and accommodation both the services to its
consumers. The study helps to the reader to understand concept of management accounting and
its different tools and systems. Moreover, different reports are to be analysed in the current study
which are used by the selected business in order to management accounting reporting. In
addition to this all, marginal and absorption costing techniques are to be explained through the
reports which are adopted to prepare profit and loss statements. In the third task different
techniques of tools of budgetary control are to be shown in this report. At the ending part of it,
those kinds of systems are analysed which are most supportive for the Oakwood firm in order to
reduce financial constraints from the workplace.
TASK 1
P1 Explaining management accounting and analyse about the essential requirements of various
systems in the Oakwood guest house
In the financing and accounting area, there are many types of concepts are available
which are used by the company for run the overall business in smooth way. In this there are key
concepts of the accounting which are mostly used by companies are like as management and
financial. These both are used by the Oakwood firm to analyse business performance but for the
internal and external purposes (Cheng, 2012). Management accounting is the key concept which
is the mostly used for the internal purposes and objectives. At the workplace of the firm different
types decisions has to made by the management which are taken with the help of respective
aspect of the accounting process. It is the most significant for the selected entity to take decisions
that within the manufacturing and operating process there are what is necessary to buy or which
kinds of materials has to make. Moreover, higher the use of management accounting aspects the
business entity can forecast those types of data as well as informations which are the highly
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necessary for the future FY. Each and every firm whether it is of the hospitality industry or any
other make always investment in any project or avenue. In this concept when the company such
as Oakwood guest house make the investment then able to assess rate of return of the sum of
money which is put at the initial level with the help of management accounting systems
(Richardson, 2012).
In the management accounting concept many types of systems are there which supports
to the Oakwood company for run and operate the overall entity in effectual manner . According
to the current study the chosen business entity uses some management accounting systems which
are described such as follows:
Inventory management system- The method and system in which the Oakwood entity uses the
stock level in highly effectual manner for improving sales and revenue level. It is the system and
process of moving and converting the raw materials into the finished products and services
(Cohen and Karatzimas, 2013). It is highly compulsory for every organisation to manage as well
as control over the inventory to make the business profitable. When there are higher the stock
level is available then it leads to reduce total stock turnover ratio which is negative and adverse
situation for it. There are various kinds of methods which are available in the stock management
criteria which are like as just in time, total quality management, six sigma, lean management etc.
On the basis of just in time method the Oakwood entity can produce the services of
accommodation and food products at the right time and before deadline. In continuous to this,
along with right time production it can manage stock level and deliver the services as well as
products at the right time in the appropriate quantity.
Apart from this all it is necessary to calculate value of the stock which it has in the firm
currently for which there are some methods and ways are available in the management
accounting. The methods which are implemented by the Oakwood guest house for evaluating
stock value are such as weighted average technique, last in first out (LIFO) and first in first out
(FIFO). By using such kinds of all the techniques actual value of the inventory is identified and
further decisions are taken for utilising it (Kastberg and Siverbo, 2013). Optimum as well as
higher the utilisation and uses level of the inventory supports the Oakwood to make more sum of
profit. When there are higher the stock level is available then it leads to reduce total stock
turnover ratio which is negative and adverse situation for it. There are various kinds of methods
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which are available in the stock management criteria which are like as just in time, total quality
management, six sigma, lean management etc. On the basis of just in time method the Oakwood
entity can produce the services of accommodation and food products at the right time and before
deadline. In continuous to this, along with right time production it can manage stock level and
deliver the services as well as products at the right time in the appropriate quantity.
Price optimisation system- Other system which is also the best for Oakwood guest house
organisation is price optimisation which relies from the management accounting systems. When
talking about the prices of accommodation services, breakfast and food products the firm uses
various parameters and criterias to determine its selling prices. Higher the prices of products are
impact on the entity in both positive and negative ways. The system relies with the market
demand and on the basis of situation, trend and condition of the market and industry prices are
assessed to sale food items and guest house services (Renz, 2016). In the market if there are
demand level is higher and in that condition charges or prices will be high because the
management know that at any cost consumers will purchase the products. On the opposite side,
in the economy if there are fewer consumers are available and demand is low to use Oakwood’s
services and food items then it will charge lower amount. Hence, it can be said that as per the
respective management accounting system the entity take pricing decisions.
In the price optimisation system there are many kinds of strategies and techniques are
available by which the Oakwood guest house entity decide selling prices of food dishes as well
as services like as accommodation. Different pricing strategies and techniques are like as cost
led, market led, competitive, value added, skimmed etc. Most of businessmen use and implement
cost led pricing method for adoption of the prices of products and services. The reason behind
using such kind of method is that it covers overall cost of the operation and production (Kraus
and Strömsten, 2012). There is not matter that it is direct, indirect or variable, semi variable and
fixed. After adding whole amount of expenses percentage of the margin are used and price is
determined.
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P2Explain various types of management accounting reporting
Management accounting are majorly focus on the information that are received through
financial accounting that are majorly used for the purpose of controlling, decision making and
also make planning. Thus, it is majorly rely upon the various financial statements that are
majorly involve in it are the balance sheet, cash flow statement and balance sheet. Apart from
this, there are various other types of management accounting reports that helps in analysing
firm's information. The Oakwood Guest House consider various management accounting reports
that are budgeted reports, performance reports, product cost reports, sales reports that are as
described below-
Sales reports- It is that type of report in which there is a detailed information are
included in it that are regard to sales of products or services during an accounting period. The
sales reports are majorly involve in it are the cost arise regard to selling as well as promoting
products and sales volume regard to group of items (Clinton,and White, 2012). For this sales
reports of a company in which they able to measure the performance of sales persons and also
determine sales revenue for the future time period. Apart from this, the firm can able to finding
out the sales team performance that are majorly done for the purpose of improvement in
company's sales. Therefore, they can easily finding out the future expectation of sales by make
comparison with the previous as well as current sales figure. Thus, any deviation that are in the
firm performance they can take remedial action for the purpose of improvement in sales for
future.
Budgeted reports- It is one of the most important management accounting reports
through which can measure the deviation or variance that are arise among the actual number with
the budgeted number. Thus, this deviation can be improve for the future time period that leads to
enhance the company financial performance (Grabner and Moers, 2013). It is a internal report of
a company that are majorly used by the management for the purpose of make effectual
comparison between the actual performance that are achieved at a particular time period and
budgeted projection. It can be explain in other words the budget report which can be designed for
the purpose of make comparison among the the actual number with the budgeted number.
Performance reports- The management accountant used the performance reports of a
company for the purpose of determine the outcome of particular activities that are done by
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company over a particular time period. It can be explained through example it is a company
annual report regard to performance that are majorly produced for each staff workers of a firm. It
can be summarise and organise the obtain data by performance of individuals work performance
information. It shows the performance of stakeholder in which there is recent status of worker
and project that are majorly planned against its performance.
Cost accounting reports- Cost accounting reports are used by the cited company for the
purpose if determining ratio to make comparison efficient usage of material and labor to make
production of products or service within the standard situations (Contrafattoc and Burns, 2013).
The management accountant use for the purpose of assessing variation by adopts variance
analysis. The usage of traditional cost accounting is helps in allocating costing that are highly
based upon the machine or labor etc.
TASK 2
P3 Income statement preparing using marginal and absorption costing
In the accounting system there are different tools as well as treatments are used for framing
and preparing statement of profit and loss. In this reference, there are marginal and absorption
tools are used which and then respective financial statement is framed which is stated as below:
Formulating the statement of profit and loss according to absorption method:
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Formulating the statement of profit and loss according to marginal method:
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Analysis of income statements
As per the marginal tool of cost analysis Oakwood firm able to earn 9300 GBP at the end
of an accounting year which shows real facts and figures to the management. In context to the
net profit figures the chosen entity is more efficient and productive and shows that it utilize
financial resources in the optimum way. It can be interpreted that the financial managers and
employees are know that how to control costs and improve the position and sales (Grabner and
Moers, 2013). It has been clearly ascertained that marketing manager is also frame and use
highly effectual advertisement strategies by which sales enhance and which result is generating
positive profit. In reference to this, as per the absorption method total amount in terms of profit
generate by Oakwood is worth of 9600 GBP. Moreover, there is net profit amount is calculated
different because of adopting different ways while making income or profit and loss statement.
Differentiate among marginal or variable as well as absorption costing approaches
Method of marginal and absorption are adopted by the organisations while framing
financial statement such as profit and loss account. According to the marginal costing level of net
income and expenses both differs from the absorption costing method. Very main difference is
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accumulation of kind of costs and different expenses. The marginal tool which is known as
variable also and comprises with only direct kind of costs and other those which varies as per the
production level. On the other side the method and tool of costing which comprises with whole
available and associated expenses while manufacturing and cooking food items (Corina, Alina
and Cristina, 2014). Apart from this, at the time of using marginal tool of the cost accounting in
the company all the stock level must sold out at the end of each financial period. If in the entity
stock level remains and managers cannot sale all the products and services which are produced
then Oakwood guest house not able to implement marginal costing. In opposite to this, at the
time of adopting absorption costing the respective kinds of features are not necessary. In any
business condition the Oakwood entity can use it for making profit and loss financial statement.
P4Explaination on advantages and disadvantages of various types of planning tools of budgetary
control
The budgetary control can be stated as that these are used by the management as they
effectively utilizing the firm budgets for the purpose of controlling and monitoring the cost. It
control financial cost through frequently make comparison among the budgeted results an d
actual numbers. It is used by the company for the purpose of make comparison with the actual
performance and expected performance so, they can make the effective measure to make further
improvements. Apart from this, it also assists the management to make coordination of various
activities of the company. There are various benefits of budgetary control as they can helps the
management to make planning regard to future as they can make a detail plans so, they can attain
the target accordingly for each department. It helps the manager to make day to day operation so,
they can effectively gives direction to the organisation so, they can attain their objectives in most
effective way (Clinton and White, 2012). Furthermore, the other benefits from the budgetary
control are that they can effectively make coordination and communication. Budgetary control is
a yardstick as they can effectively used for the purpose of measuring and assessing the
performance of a company. Thus, it can control the company performance through make
comparison among the actual and expected results. They categorise the budgets through finding
out the main reason that bifurcated into two factors are controllable and non-controllable factors.
Thus, when the variance emerge than they can enables the remedial action and it also motivate
the employees through participate to set the target for budgets and it also enhancing the
allocating of scare resource and it also finding out the main problem of variance. There are
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various types of planning tools that are used by Oakwood Guest House which have both merits
and demerits that are as described as follows-
 Variance analysis- It is one of the important planning tool of budgetary control through
which an organisation used for the purpose of make variance that are arise among the
actual and expected results. Thereafter, that is used by the company for the purpose of
make comparison with the actual performance and expected performance so, they can
make the effective measure to make further improvements. Apart from this, it also assists
the management to make coordination of various activities of the company. It can be said
that the variance analysis is the quantitative investigation that helps the company to
finding out the planned and actual performance of a company so, they effectively
maintaining various activities over the business (Grabner and Moers, 2013). It has been
also analyse that it majorly includes all type of investigation and finding of the major
difference. Thereafter, that is used by the company for the purpose of make comparison
with the actual performance and expected performance so, they can make the effective
measure to make further improvements.
Advantages
 It can assist the company to effectively make coordination and communication.
 When the variance emerged than they can enable the remedial action.
 It can effectively measure variance to make further improvements.
 It helps the manager to make day to day operation so, they can effectively gives
direction to the organisation.
 It also motivate the employees through participate to set the target for budgets.
 it also enhancing the allocating of scare resource.
Disadvantages
 The variance analysis process helps the company to effectively finding out
deviation but the main disadvantage is that the whole process is too much
lengthy.
 The another demerits of variance analysis is that it sometimes develops the
demotivation for the employees.
 It requires a higher expertise so, they can effectively done the job in a desired
manner.
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 Responsibility accounting- It is states as that these type of accounting is majorly used
in that there is an individuals who are majorly responsible to prepared report that show
firm’s day to day performance that are needed to each departments. It has both
advantages and disadvantages that are as follows-
Advantages
 It establish the firm’s performances so, they can able to improves firms performance in
most effective way.
 It can easily attain the objectives through make comparison among actual and expected
numbers.
TASK 4
P5 Different kinds of tools and systems of management accounting for reducing financial
problems within Oakwood guest house
In the business process of Oakwood guest house there are many types of problems are occurs
which are faced by the management. Such kinds of problems and constraints are can be related to
any business aspect and department such as financials, human resources, information technology,
production and operation, research and development etc. For reducing and resolving such
problems the companies use several techniques and then give response in the favourable
direction to associated constraints (Clinton and White, 2012). In the current scenario of case
there is discussion is going about the financial trouble and for giving response to them Oakwood
guest house use different techniques which are mentioned as below: Key performance indicators: The aspect and system which is one of the most effective
for analysing performance direction of an entity in the industry where it doing economic
activities and generate money is KPI. Each and every firm use the key performance
indicators for know that company is up to which level able to fulfil its financial
objectives within specific period of time. Through this, the liable factors are identified
and then such aspects are abolished from the business procedure. In this several factors
are consisted and then its performance is derived which is little typical for new
employees. While measuring performance of Oakwood guest house through KPIs then
different bases are used such as quality, profitability ratios, market share in the hospitality
industry of UK etc. For instance, at the previous years profitability and liquidity ratio is
lower and it enhance in the current or future periods then it can be clearly said that
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Oakwood company performing efficiently at the workplace (Contrafatto and Burns,
2013). Hence, by this financial problems are determined along with liable aspects and
then strategies for remove are framed according to respective direction. Benchmarking: Apart from key performance indicators there is benchmarking is also
effectual technique for analysing financial condition or position and then strategies are
framed from overcome this. By using the current technique the firm set out particular
target or follow the industry standards as well as benchmarks associated with the
financial department. For instance, according to the industry standards the firms of
hospitality must enhance income by 14% in next year. In this if the Oakwood guest
house not able to grab the respective benchmark or standards in the further FY then it can
be said that it perform poor. Further, after analysing cause of occurring conditions such
financial problems reduces and strategies for attracting customers are prepared by
management.
CONCLUSIONS
Summarizing the whole report it has been concluded that Management accounting are
majorly focus on the information that are received through financial accounting that are
majorly used for the purpose of controlling, decision making and also make planning. Thus,
it is majorly rely upon the various financial statements that are majorly involve in it are the
balance sheet, cash flow statement and balance sheet. Apart from this, there are various
other types of management accounting reports that helps in analysing firm's information. It
has been also analysed that Cost accounting reports are used by the cited company for the
purpose if determining ratio to make comparison efficient usage of material and labor to
make production of products or service within the standard situations. The management
accountant use for the purpose of assessing variation by adopts variance analysis. The usage
of traditional cost accounting is helps in allocating costing that are highly based upon the
machine or labor etc. Furthermore, it has been also analysed that management accounting is
the key aspect of each business entity which helps to the entrepreneur for make the firm
more successful and fulfils several objectives which are framed while existing in the
industry. It is a system or process at where the management department can prepare several
kinds of the reports, make interpretation, analyse as well as conclude. By this different types
11

of appropriate decisions are to be adopted along with framing effectual plans. The current
case study is explained about the management accounting by taking base to a small business
firm which operates in the hospitality sector of the UK.
REFERENCS
Cheng, M. T., 2012. The joint effect of budgetary participation and broad-scope management
accounting systems on management performance. Asian Review of Accounting. 20(3). pp.
184-197.
Clinton, B. D. and White, L. R., 2012. The Role of the Management Accountant: 2003-
2012. Management Accounting Quarterly. 14(1). pp. 40.
Cohen, S. and Karatzimas, S., 2013. Has IFRS adoption affected management accounting
systems? Empirical evidence from Greece. International Journal of Accounting, Auditing
and Performance Evaluation. 9(3). pp. 268-285.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting Research. 24(4).
pp. 349-365.
Corina, G., Alina, A. and Cristina, C., 2014. The current status of management accounting in
Romania: the accountants' perception. Accounting and Management Information Systems.
13(3). pp. 537.
Grabner, I. and Moers, F., 2013. Management control as a system or a package? Conceptual and
empirical issues. Accounting, Organizations and Society. 38(6). pp. 407-419.
Kastberg, G. and Siverbo, S., 2013. The design and use of management accounting systems in
process oriented health care–an explorative study. Financial Accountability &
Management. 29(3). pp. 246-270.
Kraus, K. and Strömsten, T., 2012. Going public: The role of accounting and shareholder value
in making sense of an IPO. Management Accounting Research. 23(3). pp. 186-201.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
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Richardson, A. J., 2012. Paradigms, theory and management accounting practice: A comment on
Parker (forthcoming)“Qualitative management accounting research: Assessing deliverables
and relevance”. Critical Perspectives on Accounting. 23(1). pp. 83-88.
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