Management Accounting Report: TSR pvt Ltd Financial Analysis

This comprehensive management accounting report, prepared for TSR pvt Ltd, delves into various aspects of financial planning and control. The report begins with an introduction to management accounting, defining its role in policy formation, planning, and control, and outlines essential requirements of different management accounting systems. It then explores methods of management accounting reporting, including budget reports, performance reports, and account receivable ageing reports, highlighting their benefits and applications within an organization. The report further examines profitability statements using both marginal and absorption costing methods, providing a critical evaluation of how management accounting systems and reporting integrate with organizational processes. It also discusses the advantages and disadvantages of different planning tools used for budgetary control, along with their application in preparing and forecasting budgets. The report concludes with an evaluation of the adaptation of management accounting systems in response to financial problems and how management accounting can lead organizations to sustainable success, offering insights into planning tools for solving financial challenges. The report includes tables, and financial statements to support the analysis.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1. Management accounting systems...........................................................................................1
definition of management accounting and essential requirements of different management
accounting systems.................................................................................................................1
methods of management accounting reporting.......................................................................2
Benefits and applications of management accounting system in an organisation..................3
LO2..................................................................................................................................................5
Preparing profitability statements using marginal and absorption costing method...............5
Critical evaluation of how management accounting systems and management accounting
reporting is integrated with organizational process................................................................8
LO3..................................................................................................................................................8
Advantages and disadvantages of different types of planning tool used for budgetary control.
................................................................................................................................................8
Application of different planning tools for preparing and forecasting budget.....................11
Evaluation and adaption of management accounting system in respond to financial problems.
..............................................................................................................................................12
How management accounting can lead organization to sustainable success.......................14
How planning tools helps in solving financial problem and lead to organization sustainable
success,.................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is concerned with the presentation of professional knowledge and
abilities to reveal accounting in policy formation, planning and control for the undertakings. The
present study is based on TSR pvt Ltd and further explains the requirements of management
accounting. The budgeting tools and techniques, their uses and applications.
LO1. Management accounting systems
definition of management accounting and essential requirements of different management
accounting systems
Management accounting is the branch of accounting and is prepared on the basis of the
accounting information so that effective strategies and policies can be formulated by the
managers that helps in the functioning of the day-to-day operations of the organisation. It assists
in planning, organising, directing and commanding the work of the company. It also enables the
TSR pvt. Ltd in focusing on three different areas that includes performance management,
strategic management and risk management.
There are various management accounting systems that plays an important role in maintaining
the management accounting optimally.
Inventory management system- TSR pvt. Ltd make use of inventory management system as
the management accounting tool that helps in attaining the optimum utilisation of resources. It
enables the firm in taking the decisions regarding the purchasing of raw material, and keeping
the record of the handling cost. It is a software that is adopted for controlling the investment in
the inventory.
Cost accounting system- It is a system used by the company in recording the manufacturing
activities using a perpetual inventory system which continuously updates records for costs of
materials, goods in process and finished goods inventories. It also provides information about the
manufacturing costs per unit of product.
Job costing approach- It is essential for the TSR pvt. Ltd to assign and accumulate the
manufacturing cost of the each product so that an activity in the premises can be identified. The
task and the job for which the cost are collected comes under the purview of this identifiable
activity. Contract costing is the type of job costing in which a contract constitutes a unit of cost.
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Optimisation system- it enables the business in choosing the cost effective approach so that the
product can be produced with no wastage or less wastage and with low cost. A mathematical
analysis is done regarding the price and the demand of the product. A particular price is set at
different levels to obtain the best price that increase the profits and the demands of the customers
are known so that product is prepared as per the customer specification and a large customer base
could be achieved.
methods of management accounting reporting
Various methods of management accounting reporting that facilitate the information regarding
the budget, accounts receivables, cost accounting and the performance of the operations of the
business. The methods are as follows-
Budget report- TSR pvt Ltd prepares this report in measuring the overall performance of the
company. It is made on the basis of previous experiences that the organisation has faced. An
efficient budget is one that is framed to meet the uncertain events in the future. It is useful in
determining the incomes and expenses of the company so that expenditure can be controlled and
the profits can be increased.
Performance reports- This report is created to review the performance of the company so that if
there any gap exist then corrective measures can be taken by the TSR pvt Ltd so that goals can
be achieved on time. Managers make use of this report to frame the effective strategies so that
forecast can be done in efficient manner. It also helps in getting the information that the task are
performed as per the set target so that perfection can be met.
Account receivable ageing reports- As the business highly relies on the credit so this report
plays a vital role in knowing the payment need to be made and the time period within which they
are to be paid. It helps in identifying the information about the defaulters and the collection
process of the company. In TSR pvt Ltd if there are large number of defaulters then company has
to take corrective steps in relation to tightening the credit policies. It assists in maintaining the
cash flow efficiently as it is essential for keeping the sound cash position.
Cost managerial accounting reports- It helps in computing the manufacturing cost and the cost
of other articles in the business. It facilitates the managers in ascertaining the realizable cost in
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contrast with the sales made. This report shows a clear picture in relation to all the costs that are
incurred in the production so that profit margins can be estimated accurately by the enterprise.
Benefits and applications of management accounting system in an organisation
Inventory Management system-
Advantages Applications
 To decouple or separate various parts
of the production process of TSR pvt
Ltd.
 To split up the firm from fluctuations in
demand and provide a stock of goods
that will provide a selection that is
variety for customers.
 To take the advantage of quantity
discounts.
 To survive against inflation.
 It is applied in maintaining the physical
inventory.
 It assists the store manager of TSR pvt
Ltd keeping the record of the inventory
and the requirement of the raw
material.
 For assessing the data regarding the
transfer of stock outside and
warehousing management.
Cost accounting system-
Advantages Applications
 Cost accounting system benefits the
TSR pvt Ltd in ascertainment of cost.
 It facilitates the decision making in
relation to the buying, replacing,
continuing, accepting or rejecting the
orders.
 It helps in measurement of efficiency.
 It enables the organisation in
preparation of budgets.
 Identify the unprofitable activities and
 It is applied under different situations
using different techniques and system
of costing to ascertain the cost.
 It determines the value of closing
inventory for preparing the financial
statements of the TSR pvt Ltd.
 It provides a base for operating policies
which may be determination of cost
volume relationship, whether to close
or operate a loss, to manufacture or buy
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material losses.
 Improves the productivity of the firm .
from the market etc.
Job Costing method-
Advantages Applications
 It is beneficial in knowing the cost of
product design per unit.
 It helps in reaching the economies of
scale in the production process of TSR
pvt Ltd.
 This method is more precise in
assignment of costs to projects than
process costing.
 It provides more useful information for
determining the profitability of
particular project.
 This method is applied for estimating
costs when preparing bids on future
jobs.
 It is applied to special order type of
industry which is devoted to the
execution of specific orders such as
ship building, printing press and road
construction.
 For ascertaining the cost and profit or
loss in respect of each job, contract or
project undertaken, the job costing
method is applied.
Optimisation System-
Advantages Applications
 This method will find the true optimum
of a response with fewer trials than the
non- systematic approaches.
 Facilitates Quantitative information
regarding the demand and the price.
 It is applied for preparing the
mathematical analysis of the price and
the demand of the product.
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LO2.
Preparing profitability statements using marginal and absorption costing method
Income statement of TSR Pvt. Ltd as per marginal costing technique (10000 units)
Absorption costing
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Critical evaluation of how management accounting systems and management accounting
reporting is integrated with organizational process.
Management accounting system provides TSR pvt. Ltd with both qualitative and
quantitative information which helps evaluate operational efficiency and financial performance
of business. Management accounting system helps in assessing operational efficiency,
productivity and performance of TSR pvt. Ltd and helps make strategic decision for development
and continuous improvement of the company.
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Management accounting system helps improve working and productivity of company by
integrating cost management system(How Do Managerial Accounting Systems Contribute
Toward a Company's Continual Improvement, 2019). This helps company measure cost
associated with input and take necessary action in reducing and eliminating cost that adds no
value to the development of business. Management accounting system helps in measuring and
evaluating quality related cost which helps in continuous improvement and development of TSR
pvt. Ltd. This helps company in delivering high quality products and services.
Producing financial reports as per the outcome derived
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Flexible budgets
5000 units 10000 units
Sales 125000 250000
cost of sales 50000 100000
prod contri margin 75000 150000
Variable S and A 15000 30000
net contribution margin 60000 120000
Less: total fixed cost
Fixed manufacturing o/h 40000 40000
Fixed S and A 30000 30000
Net profit -10000 50000
Management accounting reporting consists of various financial statements like profit and
loss statement income statement, balance sheet, job cost report, inventory report, budget report,
cost managerial report, account receivable report, performance report which are used by mangers
and internal staff of organization for critical evaluation of company's operational and financial
performance and helps in taking strategic decision to achieve goals and objectives of the TSR
pvt. Ltd.
Management accounting reports helps in analysing actual performance in comparison
with the budgeted report. Management accounting report helps in critically evaluating the future
course of action which leads to strategic decision making for achieving desired goals and
objectives.
The major drawback of management accounting is that it is mainly dependent on the
financial and cost accounting management reports. This reports provides only data which leads
to intuitive decision making.
LO3
Advantages and disadvantages of different types of planning tool used for budgetary control.
Budgetary control is an important tool used for evaluating the actual performance with
the budgeted plan(Van der Stede, 2015). The main purpose of preparing budget is to provide
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management with clear guidelines about the organization resources and also helps in evaluating
performance of employees and various departments in the TSR pvt. Ltd. Budgetary control helps
management in comparing budgeted reports with actual performance and in case of any
deviation corrective measures will be taken. This helps in eliminating wastage and leads to
achieve economies of scale.
BUDGETS
A budget is a financial plan to estimate cost, revenue, expenses resources, capital for a
particular period of time to achieve desired task and objectives.
ADVANTAGES OF BUDGETING
Budgeting helps in strengthening and coordinating the activities across various
department of TSR pvt. Ltd. It also helps in timely evaluation of deviation and take necessary
action to resolve the problem. Further, the benefit of budgeting is that it assist as planning the
future needs of the company and make strategic decision according to the goals and objectives.
In addition, it helps in analysing and evaluating the most profitable unit of the company and take
measures to enhance the performance.
DISADVANTAGES OF BUDGETING
Preparation of budget is a very time consuming process and staff is focused on achieving
the desired target and not exceed it which leads to lower operational efficiency of TSR pvt. Ltd.
Further, staff of the organization may feel demotivated if targets set are too high to accomplish.
In addition, budget are only concerned with the financial outcomes which may not give accurate
and reliable results.
FIXED BUDGET
A fixed budget is also known as static budget. It is a financial plan which do not flex
throughout the financial period. Costs are largely fixed to minimize expenses even if revenue
fluctuates(Miller, 2018).
ADVANTAGES OF FIXED BUDGET
This tool of budget helps in easy application of budget throughout the financial period
without any change in the budget plan. Static budget plan gives clear insight of the TSR pvt. Ltd.
Cost and profit. In addition, flexible budget is prepared for the whole business for useful analysis
of data and forecasting future needs. Fixed budget helps in measuring profits and performance of
business.
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DISADVANTAGES OF FIXED BUDGET
The greatest disadvantage of fixed budget is that it lacks flexibility. This type of budget
has to be rigidly applied in the working of organization to achieve desired target. Further, fixed
budget is not the fundamental and reliable way to analyse expenses. In addition to this, fixed
budget operates at only particular unit or department.
FLEXIBLE BUDGET
Flexible budget is a budgeting planning tool which can vary or change according to the
need of the TSR pvt. Ltd. This financial plan is more useful than fixed budget. A flexible budget
plan is applied to the whole company in various departments.
ADVANTAGES OF FLEXIBLE BUDGET
Flexible budget helps in better control of cost for effective operational efficiency and
productivity. This planning tool of budget gives more accurate and reliable data according to the
needs of company and helps measure performance of the budgeted plan from actual. It also helps
in better coordination between various department of the TSR pvt. Ltd.
DISADVANTAGES OF FLEXIBLE BUDGET
The major drawback of flexible budget is that it makes prediction difficult for mangers
which limits the ability to make effective decision to achieve desired target and goal. This
planning tool makes estimation of tax difficult. In addition, flexible budget plan may be difficult
to apply as it is complicated and difficult to understand(Otley, 2016).
INCREMENTAL BUDGET
Incremental budget is a planning tool used to prepare new budget with the incremental
value added to the budget for a particular period by considering previous years budget or actual
performance.
ADVANTAGES OF INCREMENTAL BUDGET
This method is simple to implement and easy to interpret(Budgeting Methods -
Incremental Budgeting, 2018). Incremental method helps in operational and funding stability.
DISADVANTAGES OF INCREMENTAL BUDGET
This method of budgeting do not encourage innovation. In addition, this method assumes
that operations of the organization will continue in the same stable way.
ZERO BASED BUDGET
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