Management Accounting Report: Financial Analysis of Abeam Consulting

This report provides a detailed analysis of management accounting practices, specifically focusing on Abeam Consulting Ltd. It begins with an introduction to management accounting, its principles, and different types of accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. The report then explores various management accounting reports, such as accounts receivable aging reports, budget reports, cost managerial reports, and performance reports, and explains their integration within organizational processes. The core of the report delves into the calculation of net profit or loss under marginal costing and absorption costing methods, providing a comparative analysis of these techniques. Additionally, it discusses the advantages and disadvantages of planning tools used for budgetary control and examines how different management accounting systems assist in solving financial problems. The report references relevant literature to support its findings, offering a comprehensive overview of management accounting applications within a financial consulting firm.

Management Accounting

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
LO 1 .....................................................................................................................................................3
P1 Meaning of Management Accounting and Different types of accounting systems....................3
P 2 Different methods of accounting reports prepared by Abeam consulting Ltd ..........................5
LO 2......................................................................................................................................................6
P 3 Calculation of net profit or loss under Marginal costing and Absorption costing ....................6
LO 3....................................................................................................................................................10
P 4 Advantages and Disadvantages of Planning Tools Used for Budgetary Control.....................10
P 5. Different management accounting system assisting in solving financial problem.................11
REFERENCES...................................................................................................................................15

INTRODUCTION
Management Accounting is the system where all the transactions related to the financial
transactions are analysed, summarizes and recorded in the various to prepare the financial
statements for the organisation (Chenhall, 2015). Accounting helps in recording all the monetary
transactions of the company in order to know the financial position of the organisation. Abeam
Consulting is the medium sized financial consulting firm founded on 1st April, 1981. At present,
company is having 5915 employees all over the world. Company is having its headquarters in
Tokyo, Japan. The main business of the company is management consulting, business process
consulting, IT Consulting etc. Company is having 33 countries and 65 offices all over the world.
Total capital of the company is ¥6.2 Billion and net sales as per year 2019 is ¥85.8 billion. This
report consists of presenting the management accounting and the various methods of accounting
aspects of the company. It also covers the cost accounting systems and valuation methods of
inventory and financial problems and how resolve all the problems using various techniques.
MAIN BODY
LO 1
P1 Meaning of Management Accounting and Different types of accounting systems
Management Accounting is the process where the company analyses, summarizes and
records all the transactions related to the financial transactions for preparation of financial
statements of Abeam consulting Ltd. Management Accounting is prepared for internal and external
stakeholders of the company. Financial Statements of Abeam consulting helps in taking various
decisions for the company. They help in make trend analysis and forecasting for the company
through the various financial statements of the company.
Management Accounting systems are the systems which consists of measures and evaluating
the financial statements of Abeam consulting Ltd. Various elements of the accounts are compared
with each other in order to know where the extra cost has been allocated and how to eliminate the
extra cost from the company (Schmid, 2019). These are systems are important to integrate within
the organisation because the systems help the company in evaluating the financial statements of
Abeam consulting Ltd. Management Accounting covers the various other accounting such as
financial accounting, cost accounting and managerial accounting.
Origin of Management Accounting
Management Accounting was first emerged at the time of industrial revolution and rose after

the financial accounting. The two leading industries played main role in bringing management
accounting i.e. Textile industry and railroads. These industries were having large cash receipts from
numerous customers because of which both financial and management accounting was raised in
order to measure the efficiency of moving passengers and freight.
Role of Management Accounting
The main role of management accounting is to measure and evaluate the financial statements
of Abeam Consulting Ltd. This helps in decision making for the company and also helps in
elimination of extra cost of the company. The another main role of management accounting is to
prepare the reports for the company which shows the financial position of Abeam consulting Ltd.
Principle of Management Accounting
Principles of Management Accounting are disclosure of financial statements with
transparency and disclosing all the facts and figures related to the financial statements of Abeam
Consulting Ltd. The another principle of management accounting is to compile all the financial
statements of company as per the accounting standards (Pearce, 2016). The other two principles of
management accounting are causality and analogy. Causality Principle states the relation between
the quantitative output and quantitative input which has been consumed to achieve the output for
the company. Analogy principle is to use the past outcomes for forecasting the future targets for
Abeam consulting Ltd. It mainly focus how the user of information best uses the information of
financial statements.
Different types of Management accounting systems are
Various types of management accounting system are as follows
Cost- accounting systems
Cost Accounting systems is also called product costing system. It calculates the cost per unit
obtained in production of one unit of good for Abeam consulting Ltd. These systems also obtains
the information related to the total cost of the company and where the extra cost had been allocated
and how the cost can be eliminated within the different department where the extra cost is not
benefiting (Pearce, 2016). The system helps in preparation of cost reports related to raw materials,
work I progress and finished goods.
Inventory Management systems
Inventory Management system is the method where all the events related to the inventory
are recorded in order to know the sales and production budget for Abeam consulting Ltd. The
system helps the company in managing all the transaction related to the inventory in the system so

that the company can know the time period of converting inventory into sales. The main benefit of
inventory management system is to prepare the sales and production budgets on the basis of
previous year sales occurred in Abeam consulting Ltd.
Job Costing systems
Job costing system helps in knowing the total cost applied in every department and what is
extra cost allocated in Abeam consulting Ltd. The system shows the cost allocated in production of
various units in the company and how to eliminate the various cost in the job. It includes the various
costs such as direct material costs, direct labour cost and overheads cost. Cost sheets are prepared in
Abeam Consulting in order to know the over absorption and under absorption of costs through
evaluating cost sheets.
Price- optimization systems
Price optimization system shows that how the customers will respond to the price of goods
given by Abeam consulting Ltd in market for sale. It also helps the company in maximizing its
operating profits of the company and decreasing the extra costs of the company. The main benefit of
Price Optimization system is to know the potential buyers of the products and helps in determining
the price models for the different products of Abeam consulting Ltd.
P 2 Different methods of accounting reports prepared by Abeam consulting Ltd
Management Accounting Reports are prepared in order to evaluate the financial statements
of Abeam Ltd. It helps in taking various decisions for the company and what are the main problems
of the company where extra cost has been eliminated. The various types of reports are-
Account Receivables Aging Reports
Account Receivables Aging reports helps in knowing the company that in how much time
company converts its debtors of the company in cash. This report help Abeam consulting Ltd in
making the account receivable related policies for the company. The main benefits of reports is to
know that where the company is lacking in no collecting the cash from debtors on time.
Budget Reports
Budgets Reports are prepared in order to set the budgets for the company and to compare the
actual performance of Abeam consulting with budgeted performance of the company. It also helps
the company in setting up target for achieving those targets in future in order to achieve the budgets
profits for the company.
Cost Managerial Reports

Cost Managerial Reports helps in knowing the total cost of the company in production of
goods Abeam Consulting Ltd. The report helps the company in knowing the various cost allocated
in various department and how to eliminate the cost for the company (Schmid, 2019). It also helps
in calculating the best price for the goods which can be sold to customers by the company.
Performance Reports
Performance Reports helps in knowing the performance of various department in Abeam
Consulting Ltd in order to know that which department can give more benefits to the company. It
also helps in knowing the that which department is efficiently and effectively working in the
organisation (Leung, 2015). Performance Reports also help in knowing the under- performers and
over- performers of Abeam consulting Ltd.
Management accounting systems and management accounting reporting are integrated in
organisational process because both are inter-related and interconnected to each other. They both
help in preparation of financial statements and evaluates and measured the various elements in the
financials statements.
Benefits of management accounting system
Management accounting system assists company in making improvement in its internal
business operations as well as system. Also, it helps Abeam Ltd in its decision making process in
following manner:
Inventory management system
 It helps Abeam in ensuring proper flow of inventory in the business thereby reducing overall
cost of maintaining inventory and leads to increase in profit levels as well.
 Also, it ensures that overall efficiency and performance of business operations improves
thereby increasing productivity level.
Cost accounting system
 It helps in determining unproductive business areas which are contributing to increase in
business expenses and lowering of profit margins thereby eliminating such business
operations for the betterment of company as a whole.
 Assists in making proper estimation as well as allocation of cost amount for conducting of
smooth business operations.
Integration of management accounting system and reporting
Management accounting system and reporting are considered as most integrated part for
every business organisation as both aspects of business are highly depended on each other. On the

basis of management accounting system such cost and inventory system, it assists Abeam Ltd in
preparation of cost accounting report depicting about cost structure of the business. Also, with the
help of such reports, the management of the company can make effective decision for making
improvement in overall business as well as employees performance and profitability level. The cost
accounting report prepared on the basis of cost accounting system helps the company in making
decision regarding to elimination and minimizing of unnecessary cost expenditure in order to
increase the profitability. Furthermore, with the help of job costing system. Abeam Ltd can prepare
job costing report so as to identify profitability of business regarding to specific job.
LO 2
P 3 Calculation of net profit or loss under Marginal costing and Absorption costing
Cost is the element which can be defined as the total cost absorbed in the production of
goods by Abeam consulting Ltd. It consists of various cost such as raw material, labour, overhead
costs (Gavva, and et.al., 2016). Cost analysis is the relationship between cos and output of the
company. It shows the various cost applied in production of goods and the number of units are
output for the company.
Flexible budgeting is prepared on the basis of level of activity of the company. The budget
can be easily calculated and can be changed with the change in the level of activity of Abeam
Consulting Ltd. The various cost are fixed costs and variable cost (Nobre, 2016). Fixed cost does
not change with the change in the output whereas variable costs changes with the change in the
output of Abeam consulting Ltd. Normal costing is the actual costing incurred in the company on
the basis of actual performance of the company. Standard Costing is the set budgets by the company
which are to be achieved by the managers of the company in order to achieve the costs of the
company.
Marginal costing and Absorption Costing
Marginal costing uses only marginal costing at the time of valuation of closing inventory of
the company. Under this method, Marginal Costing deducts all the variable expenses to calculate
the contribution of Abeam consulting Ltd. All fixed expenses are deducted from contribution in
order to calculate the net profit or loss for the company (Ray, 2015).
Absorption costing helps in calculating cost amount as associated with the business
operations such as manufacturing or production of a specific product or services. It is defines that
all the cost amount incurred on manufacturing operations have been assigned to all the units
produced. It calculates absorption cost per unit in order to value the closing inventory of Abeam

consulting Ltd. All the fixed costs and variable costs of the company are taken into for calculation
of absorption cost per unit (Schmidt, 2015). All the fixed and variable production costs to calculate
gross profit for the company. Fixed and variable selling costs are deducted in order to calculate net
profit or loss for the company. Absorption costs considers all the cost which are absorb at the time
of production of goods.
Calculation of an income statement under Marginal cost
Computation marginal cost per unit
Under marginal costing
Particulars Cost per unit
Direct Material 8
Direct Labour 5
Variable O/H 3
Marginal cost per unit 16
Selling price 50
-Marginal cost per unit -16
-variable selling price -2.50
Contribution per unit 31.50
Computation of net profit or loss under marginal costing method for the month of May and June
Particulars Working Note Amount (£)
Net profit or Loss
in the month of
May
Sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Variable o/h (500*3) 1500
8000
-Closing inventory (200*16) -3200.00
-4800
10200
-Variable selling cost -750
Contribution 9450
-Fixed costs -4000
Actual Net profit/(Net Loss) 5450
Particulars Working Note Amount (£)
Net profit or Loss
in the month of
June
Sales (500*50) 25000

Cost of sales:
Opening inventory (200*16) 3200
Material (380*8) 3040
Labour (380*5) 1900
Variable o/h (380*3) 1140
9280
-Closing inventory (80*16) -1280
-8000
17000
-Variable selling cost -1250
Contribution 15750
-Fixed costs 10000
Actual Net profit/(Net Loss) 5750
Computation of Absorption cost per unit
Particulars Cost per unit
Direct Material 8
Direct Labour 5
Variable O/H 3
Fixed o/h 10
Total absorption cost per
unit 26
Computation of net profit or loss under absorption costing method for the month of May and June
Particulars Working Note Amount (£)
Net profit or Loss
in the month of
May
sales (300*50) 15000
Cost of sales:
Opening inventory 0
Material (500*8) 4000
Labour (500*5) 2500
Fixed o/h 4000
Variable o/h (500*3) 1500
12000
-Closing inventory (200*26) -5200
-6800
Gross Profit/Loss 8200
-Variable selling cost -750
Fixed administration 2000
Fixed selling 4000
Actual Net profit/(Net Loss) 1450
Particulars Working Note Amount (£)
Net profit or Loss
in the month of
June

Sales (500*50) 25000
Cost of sales:
Opening inventory (200*26) 5200
Material (380*8) 3040
Labour (380*5) 1900
Fixed o/h 4000
Variable o/h (380*3) 1140
15280
-Closing inventory (80*26) -2080
-13200
Gross Profit/Loss 11800
-Variable selling cost -1250
Actual Net profit/(Net Loss) 10550
Interpretation analysis of net profit or loss under marginal costing and absorption costing
Abeam consulting Ltd is having more net profit under absorption costing in the month of
May because absorption costing charges fixed cost per unit and in marginal cost fixed cost is
charged fully for calculation of closing inventory. In the month of June, Abeam consulting Ltd is
having less profit under absorption costing than net profit under marginal costing (Schmidt, 2015).
It is because of closing inventory is calculated at higher cost because of which total cost increases
and which leads to decrease in net profits under absorption costing method.
The company has to follow absorption costing method as it is yielding high returns to the
company in comparison of Marginal costing method. Also, with the help of this method Abeam can
make proper allocation of cost amount as incurred related to manufacturing business process.
Preparation of Budget for 1000 units
Particulars
Budgeted
Cost at 1
unit
Budgeted
cost at 1000
units
Actual cost
at 1000
units
Material (in
kg) 2 2000 2200
Cost per unit
(in £) 10 10 9.5
Total cost (in
£) 20 20000 20900
Actual cost of Abeam Consulting Ltd has been increased than the budgeted cost for
production of units because of increase in the consumption of units of raw material by the goods.
The cost per unit has been decreased of raw material but due to increase in the consumption of raw
material the total cost of 1000 units has been increased.
Valuation of closing inventory under LIFO method

Date Particulars Amount (in £)
01/05/19 Opening inventory of 40 units £3 each 120
12/05/19 Purchased 20 units @ £3.60 72
12/05/19 Balance as on 12 may (60 units) 192
15/05/19 Sold 36 units -120
15/05/19 Balance as on 15 may(24 units) 72
20/05/19 Purchased 20 units @£ 3.75 each 75
20/05/19 Balance as on 20 may (44 units) 147
23/05/19 Sold 10 units -37.5
23/05/19 Balance as on 23 may (34 units) 109.5
27/05/19 Sold 25 units -82.5
27/05/19 Balance as on 27 may (9 units) 27
30/05/19 Sold 5 units -15
30/05/19 Balance as on 30 may (4 units) 12
Under LIFO method, Abeam consulting Ltd is using LIFO method for the valuation of
closing inventory for the month of May. Under this method, it is assumed that the last purchased
goods are sold first and closing inventory is calculated at the cost of goods which is first purchased
by the company.
LO 3
P 4 Advantages and Disadvantages of Planning Tools Used for Budgetary Control
Budgetary control can be defined as preparing the budgets for Abeam consulting Ltd in
order to achieve the set targets by the company. It is prepared in order to measure the actual
performance of the company with the budgeted performance of the company. These budgets also
helps in knowing that where the extra cost has been allocated and how to eliminate the extra cost
from the department in order to earn higher profits for the company. These are various planning
tools used for budgetary tools are as follows-
Incremental Budgetary control
Incremental budgetary control prepared the budget on the basis of previous year's budget.
These are generally prepared in order to know measure the budgets with the actual performance of
Abeam consulting Ltd. The budget considers a percentage and adds that percentage in the previous
year budget to prepare the new budget for current period (de Campos, 2016). They are prepared in
order to know the changes in the current year's expenses as compared to past year's budget.
Advantages Disadvantages
It is simple to calculate incremental budgeting
and easy to implement in Abeam consulting
Budget does not takes into account various
expenses such as inflation rates, interest rates

Ltd.. etc.
The budget is useful in small and medium
companies where seldom changes occur.
It does not show true picture of current year's
budget because many expenses are not taken
into account.
Activity Based Budgeting
Activity Based Budgeting is the budget in which each and activity recorded in the company
are first analysed and than they are recorded in the budget. The preparation is rigorous activity as
compared to the other budgeting planning tools (Ohemeng, 2016). Every activity in Abeam
consulting Ltd is scrutinized properly in order to know in which department they are to be allocated
as per requirement of the department. It takes into account all expense such as inflation rates,
interest rates in order to properly allocate the expenses in the company.
Advantages Disadvantages
The budget takes into account all the expenses
and allocate the expenses as per the needs of
department.
It takes a lot time in scrutinizing each and every
activity in Abeam consulting Ltd.
The budget scrutinizes each and every activity in
Abeam consulting Ltd.
It needs professionals in order to scrutinize each
expense needs in various departments.
Zero Based Budgetary control
Zero Based Budgeting starts from the “Zero Base”. Under this method all the expenses are
justified by the managers in order to know that in which the expenses are to be allocated (Oraka,
2016). Each and every expense in Abeam consulting Ltd is to be justified that in which department
they are needed and what is the need to allocate in that particular department only.
Advantages Disadvantages
The budget justifies each and every expense
which eliminates the extra cost allocated to the
department.
It takes a lot of time in justifying each and every
activity in Abeam consulting Ltd.
Managers in Abeam consulting Ltd has to justify
each and every expense in the company.
It is not economical because each and every
expense in the company has to be justified.
LO 4