Management Accounting Report: Costing, Planning, and Integration

This report provides a comprehensive analysis of management accounting principles and techniques. It begins with an introduction to management accounting, its requirements, and various types such as inventory management and job costing. Task 1 explores the types and importance of management accounting reports, including cost, performance, and budget reports, along with the merits of job costing and inventory management systems. It also examines the integration of management accounting systems and reporting within an organization. Task 2 delves into costing methods, explaining absorption and marginal costing, preparing income statements using both methods, and analyzing break-even points. Task 3 focuses on planning tools, including budgetary control, and their application in analysis, forecasting, and problem-solving. The report compares different management accounting systems, evaluates techniques for financial problems, and identifies planning tools for financial solutions, culminating in a conclusion and references.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
B. Types of management accounting report with its importance................................................5
C. Merits of job costing and inventory management system along with its application............6
D. Integration of management accounting system and report in organisation............................7
TASK 2............................................................................................................................................8
A.1 Explaining absorption and marginal costing........................................................................8
A.2 Preparation of income statement by both methods............................................................10
B Applicability of formula of Break Even................................................................................11
C. Significance of task 2...........................................................................................................12
D. Interpretation of task 2.........................................................................................................13
TASK 3..........................................................................................................................................14
A. Merits and demerits of planning tools with context of budgetary control...........................14
B. Application of planning tool for analysing, forecasting and preparing................................15
C. Comparing methods of management accounting system in context of financial problem...15
D. Evaluating management accounting techniques for financial problems..............................16
E. Identifying planning tools which can be used for solving financial problems.....................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is considered as most important aspect for any organization or
industry whether it is small or big. Whole report is classified in three tasks which is signifying
importance of different management system and techniques. The present report is giving brief
understanding about different system of management accounting techniques which are adopted
by Ovation system who is one of SME. As it operating with 23 employees but in proper
condition. It will be discussing about various requirements along with its types. There is presence
of understanding on different reports such as performance report and many more than how they
are impacting organization with its significance. There is representation on importance of
integrated management accounting system in Ovation system. In next task it is reflecting
importance of various costing methods such as marginal and absorption costing method along
with income statement. There has been presentation of introducing new product which has been
analysed by Break even and margin of safety with its significance and importance. In the last
part it is replicating importance of different kinds of planning tool in context of budgetary
control along with its examples. It has also reflected its application, merits and demerits which
can be applied. It has also specified comparison on adopting different management accounting
system and problems with its solutions which lead to sustainable success of organization.
TASK 1
A. Defining management accounting with its requirement along with its types
Management accounting replicates information in context of accounting information for
formulating policies which has to be adopted through management and it must be able to assist
its daily routine activities. It is used by management for performing its various functions such as
controlling, planning, organising, staffing and directing. Management accounting is very
important to any organization as it increases the level of efficiency as its main advantages are in
given series below:
 It helps in identifying objectives on the basis of specific information which is already
given.
 It has huge contribution in preparing plan with appropriate analysis.
 It helps in providing better services to customer by proper control device of control as ut
decreases price of product.

 It provides ease in providing judgement for identifying policy.
 There is presence of different budgetary techniques which enables measurement of
performance.
 Efficiency of business has been increased by management accounting.
 Effective management control has been given by management accounting.
There are various types of management accounting system which are elaborated as
below:
Inventory management: It is used for keeping record of various application, orders and
its component of its production of goods. It usually manages inventory and stock of Ovation
system. There is presence of various element of supply chain management and inventory
management consists of controlling and observing the orders of inventory along with its storage
and amount has been controlled with amount of sale of product. In the present scenario, Ovation
system is an electronic manufacturer organization so in this it manages inventory of its raw
materials such as cables, barcode printers and different video surveillance equipment (Zhao, Liu,
Zhang and Huang, 2017).
Job costing system: It is replicated as system which is used for assigning different cost
of manufacturing to a specific individual product or different batches of product. It has its main
application during products are manufactured and they vary from each other.
B. Types of management accounting report with its importance
Ovation system is a SME but for reviewing performance for each employee and
organization it uses different reports such as:
 Cost report: In management accounting, manufacturing of any single item has been
calculated which includes labour, raw production overheads and any other cost which is
used and its sum is distributed into production of goods. The formation of each product of
Ovation system is briefed in this specific report. All items cost price has been compared
to its selling price which has been given by manager. The profit margin has been
estimated and monitored in this cost managerial accounting report. There is presence of
optimum utilisation of resources of each department as this report clearly depicts its
original picture.
 Performance report: The main objective of this report is to monitor performance of
ovation system. Huge turnover has been generated by big organizations so in these

departments, it is framed as department wise. The performance has been observed by
accountants in context of expected outcome or any other differences which should be
rectified. At every year end, there is preparation of performance report and it has
originally quantified financial information for performance report. It plays essential
contribution in perspective of strategic decision making. It provides deep insights in
context of operation of organization's performance.
 Budget report: It is considered as most fundamental report in context of management
accounting. Usually every organization prepares this report as it gives proper
understanding of schemes which are useful (Hu, Martinez and Yang, 2017). The budget
has been set by considering previous year as base as it alters different forecast for
circumstances which might arise in the future. The budget of Ovation system provides
gives all sources of revenue and expenses. The accomplishment of objective in specific
budgeted amount, all efforts are practice by Ovation system. It keeps record of alteration
in expenses and sales and it also helps in setting incentives of employees, negotiation of
raw material and reducing cost.
C. Merits of job costing and inventory management system along with its application
Job costing system: Its procedure can be mentioned in stated manner such as cost of
direct material in context of job which is extracted from copy of Material requisitions which is
costed by section of stores accounting. Direct wages cost is obtained through time tickets on
basis of department of payroll. If there is presence of direct expenses then they are also included
in this. There are different manufacturing overheads which are applicable on the absorption rate
which is predetermined and it is traced in context of cost sheet. There are different variable
overhead which are traced in separate column and then in cost sheet it is summed up for getting
cost ODF direct expenses, labour and material.

Illustration 1: Specimen of job cost sheet
Advantages
 It determines profitability of every job.
 It gives an appropriate basis for identifying cost of jobs which are similar and to be
undertaken in the future.
 Detailed analysis has been provided by cost of labour, material and overheads of every
job whenever it is required.
 The efficiency of plant cab be maintained and controlled by giving specific attention to
cost in context of individual job.
 It is considered as most essential for contract of cost plus where price of contract is
identified directly on specific cost basis.

Inventory management: It is considered as most necessary aspect of business as it
includes both retail and manufacturing facilities. In ovation system it maintains proper inventory
level as it is determined as most crucial factor because it could be very expensive. The flow of
merchandise which is incoming and outgoing has been balanced and controlled by inventory
management system. The strong management inventory system gives advantages to many
organisations due to:
 Presence of adequate supply and demand of specific product for fulfilling customer
requirements. As it increases both sales and customer service.
 Inventory of supply must be maintained by manufacturing facilities as it is very vital for
production of their specific products.
 It is considered as very important management system as it identifies the time for
maintaining order at certain times and especially for items which vary lead times.
 One of the most significant benefit is that it decreases liabilities and loss which has been
created by overstock (Hu, Martinez and Yang, 2017).
D. Integration of management accounting system and report in organisation
The integration of management accounting system reporting and system in process of
organization is termed as integrated management accounting system. It benefits organization in
various aspects such as:
 If only one set of account has been maintained in this system then it will state only one
profit figure as its necessity of preparing statement of reconciliation will not arise for
Ovation system.
 If only one account will be maintained then it will reduce chances of duplication of
efforts and time and cost which is also saved.
 Information will be not delayed by records of accounting for purpose of costing and
finance.
 If its operation will be in computerized format and accounting which is mechanized then
it will be a huge advantage to organization (Cooper, Ezzamel and Qu, 2017).
 If cost and financial accounts are integrated then accounting and information both will be
centralized if there are possibilities as it saves expense and time as well.
 The procedure of accounting is simplified as it helps in controlling operations in effective
manner.

 The information related to costing can be generated from original entry of books as it
avoids delay in getting information.
 Whole information is furnished in context of cost of every item, operation or job and it
also highlights differences for purpose of effective control.
 All information about profit and loss will be provided of full organization and it will be
indicating financial position will be helping management for better control on its specific
operations.
 It will directly ensures pertainment of marginal cost, abnormal loss and gains and along
with its variations.
TASK 2
A.1 Explaining absorption and marginal costing
Absorption costing: It is a costing system which has its applicability in valuing
inventory. It absorbs all expense related to manufacturing of any specific product which consist
of both fixed and variable cost. All the expense which are direct such as material cost and in this
series indirect cost such as overhead expense are considered as inventory's price. It provides very
accurate and comprehensive view on amount which is actually produced inventory and then
method for variable costing (Absorption Costing. 2018). It is also replicated as full costing.
There is brief explanation about elements of absorption costing such as:
 Direct material
 direct labour
 Fixed manufacturing overhead
 Variable manufacturing overhead
The cost which is considered under this method as it does not include in specific cost of product
such as:
 Variable selling and administrative
 Fixed administrative and selling

Illustration 2: Overview of cost
(Source: Absorption Costing, 2018)
Marginal costing: Under this method all variable expense are included in costs unit and
fixed cost which is directly attributed to specific period which is written off in full as not in
favour of specific contribution of that mentioned period. It pertains marginal expense and its
impact on alterations of profit in context of volume or outcome by creating variation in fixed and
variable expense. Usually cost are classified in both variable and fixed costs.
Illustration 3: Approaches of marginal costing
(Source: Marginal costing, 2018)

It is directly on basis of cost behaviour which varies from volume according to volume of
result. It is also replicated as variable costs which is directly accumulated along with per unit of
cost while pertaining with variable cost. The marginal and direct costing is specified as
interchangeable terms mostly (Marginal costing. 2018). The key difference between them is that
expenses which are determined as variable nature is covered in marginal cost and cost which is
fixed in nature is justified as objective of cost.
A.2 Preparation of income statement by both methods
Marginal costing
Particulars Amount Amount
Total revenue 33000 33000
Direct material 5600
Direct labour 4800
Variable production overhead 1600
Variable sales overhead 800 12800
Less: Closing inventory
Direct material 1400
Direct labour 1200
Variable production overhead 400
Variable sales overhead 200 3200
Cost of production(per unit) 9600
23400
Less: Fixed cost
Overheads (Production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500
5900
Net income 17500
Absorption costing
Particulars Amount Amount

Total revenue 33000 33000
Direct material 5600
Direct labour 4800
Variable production overhead 1600
Variable sales overhead 800 12800
Less: Closing inventory
Direct material 1400
Direct labour 1200
Variable sales overhead 200
Less: Variable sales overhead 600 3400
Less: Absorption of Overheads
(Fixed)
Cost of production 9400
Per unit contribution 23600
Less: fixed cost
Overheads (production) 3200
Fixed administrative expense 1200
Fixed selling expense 1500 5900
Net Income 17700
B Applicability of formula of Break Even
Break-Even analysis
Particulars Formula Figures
Selling price (per unit) 40
Variable cost (per unit) 13
Contribution (per unit)
Selling price per unit -
variable cost per unit 27

Fixed expense 6000
a Break Even Point (in units)
Fixed cost / contribution per
unit 222
b
Break Even Point (in value or
monetary terms)
Break Even Point (in units) *
selling price per unit
8888.8888
888889
Units need to sell for attaining desired profit margin
Particulars Formula Figures
Fixed expenses 6000
c Desired profit 10000
Contribution per unit 27
Number of units required to sell
Fixed cost + desired profit
margin / contribution per unit
592.59259
25926
d Margin of safety
Actual sales – Break even
point / Actual sales
0.72
C. Significance of task 2
In the context of absorption costing all fixed cost are replicated for purpose of
production. The fixed cost considers inclusion of valuation of major closing stock or items which
can be justified. If there is absence of fixed cost in inventory valuation as it replicates loss in
specified books of accounts if goods are not sold and vice versa then it reflects huge profit. If
production remains constant but simultaneously sales fluctuate then it will be replicating that
there is presence of less fluctuation of profit. Cost and revenue must match and it is termed as
correct measure. Most important in this context is about its advantage to owner of Ovation