Management Accounting Report: Claxton Engineering Financial Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within Claxton Engineering Ltd. The report delves into the essential requirements of a management accounting system, exploring various reporting methods and their benefits. It identifies key systems like inventory management, price optimization, and cost accounting, evaluating their importance in organizational processes. The report examines different planning tools, including budgetary control, and analyzes how management accounting systems can solve financial issues and contribute to sustainable success. The report includes analysis of financial statements and highlights the importance of accurate interpretation of business activities. It also includes a budget analysis for the years 2019-2021. This report is a valuable resource for students studying finance and accounting, providing practical insights into real-world applications of management accounting principles. The report also emphasizes the importance of management accounting in making effective decisions and achieving organizational goals.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1 Management accounting and essential requirement of management accounting system......1
P2 Different methods of management accounting reporting......................................................3
M1 Identify the benefits of management accounting system and it's application in the
organisational context.................................................................................................................4
D1 Critically evaluate that how management accounting system or management accounting
report linked within organisational process................................................................................5
PART B............................................................................................................................................5
Annex (A).......................................................................................................................................5
Annex (B)....................................................................................................................................6
M2. Application of management accounting techniques............................................................7
D2 Financial reports that accurately interpret the business activities.........................................7
PART A...........................................................................................................................................8
P4 Advantages and disadvantages of different planning tools of budgetary control..................8
Annex (c) ..................................................................................................................................10
M3 Different planning tools for preparing and forecasting the budgets...................................11
PART B..........................................................................................................................................11
P5 Management accounting system for solving the financial issues........................................11
M4 Management accounting system to solve the financial issues to achieve sustainable
success.......................................................................................................................................13
D3 Planning tools for accounting to solve the financial issues.................................................13
CONCLUSION..............................................................................................................................14
REFRENCES.................................................................................................................................15

INTRODUCTION
Management accounting is considered as a organised as well as systematic method which
involves the functions like determination, investigation, recording and demonstration of financial
data(Blouin, Martel and Gloaguen, 2013). These data is generally utilise by the managerial
personnel in order to make effective decisions, plans and control the operations. This aids
organisational management to perform effectually and execute the whole process as well as
activities such as plan development, maintaining activities and so on. Management accounting is
also the set of activities for accomplishing the objectives of organisation. It assists managerial
department to track essential events of business which occur within firm. The chosen company
for this report is Claxton Engineering Ltd. which is comes under the oil and gas engineering
services. It headquarters is in Great Yarmouth, England UK. The purpose of this report is to
explain the management accounting and significant needs of management accounting system.
Various methods used for management accounting reporting. Costs are calculated with the help
of proper techniques and advantages as well as disadvantages of different planning tools used for
budgetary control. Apart from this companies are compared to how both adapt management
accounting system to responds financial problems are also mentioned in this report.
Activity 1
PART A.
P1 Management accounting and essential requirement of management accounting system
Management accounting is refers as a managerial methods that assists firm manager to
manage data of the funds, finances and so on. For this manager utilise financial dat for
formulating strategies which assists into the process of decision making process(Bryer, 2013).
This is utilise for internal purpose which are further gainful for the company to attain its business
objectives. Its system is very essential accounting tools for the organisations. It involves both
types of data financial as well as non financial which is needed for effectual management of the
business. This help Claxton Engineering Limited to collect, process and communicate many
managerial data which assists in management plan as well as in preparing organisation strategy.
It consists different types of another management accounting system that are explained below:
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Inventory management system:
This is the system which tracks the various product and services movements into whole
process. This also assists to check the quantity of raw materials as well as finished products
which aids the business organisation to perform production or facilitates services
consequently(Busco and Quattrone, 2015). Also, it provides a manner to match product and
services demand as well as services. The crucial key functions of inventory management system
is to keep records of whole products which transfer into the warehouse. Claxton Engineering
Limited executes teh system of inventory management into many services and projects. They
apply it to check the inventory for providing services such as hubs, adaptors and cross overs,
conductor centralizers and so on.
Price optimisation system:
This is considered as a systematic mathematical analysis utilise through business
enterprise for defining how consumers react towards the prices for their products and services by
various channels. This aids the select the prices which will assists management to accomplish
their goals. It is the system that intent to facilitate consumer satisfaction at the time of optimising
the product and services price. Claxton Engineering Limited apply it for ascertaining the price of
their services that aids them to attract more number of customers. It is essential as this help them
to know about customers sensitivity into product pricing.
Cost accounting system:
This is the systematized manner of figuring the overall products and services costs so that
firm can examine profit as well as loss upon various goods and services that they are providing.
Mostly this system is appropriate for that firm which deals in broad range of goods and services.
It is essentials as it ascertain the producing as well as serving cost of all product and services that
are provided by the firm. It is characterised in two different parts first one is job order costing
and the second one is process costing system. Claxton Engineering Limited can apply both cost
accounting system that are mentioned below: Job order costing system: This is the system which is suitable for service as well as
products facilitating industries. This includes the job cost sheet, labour and material cash
flows to examine many goods and services costs(Cazier, 2015). Also, it perform when
clients provide order for any kinds of services or products that company is serving.
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Claxton Engineering Limited used this system for assessing the many services and assists
them to examine appropriately in context of profitability and loss.
 Process costing system: This is considered as a process to assign the whole cost to
various output units. In this the overall cost of many methods is computed and also
known as the sum of different goods and services total cost. Claxton Engineering Limited
utilise this system of cost accounting so that they can estimate the total of of services by
examining cost at many process of projects.
P2 Different methods of management accounting reporting
Management accounting reports checks the business organization performance as this
consider a broad range of reports in it (Donelson, Mcinnis and Mergenthaler, 2013). With the
assistance of these reports firm cam examine the efficiency level of its many activities. It is
formulated for the further planning as well as this involves the company and also the workers
performance. Also, this is the bases for making decisions for upcoming plans and policies.
Claxton Engineering Limited make various types of management accounting reports that are
explained below:
Performance report: This is the report which are prepared to measure the performance
of employees and company. This report is crucial for firm as it assists them to analyse the
activities that are providing effective as well as expected outcomes and which are not. Also, it is
useful for the manager in order to make effectual decisions. Generally, performance report works
as per the actual outcomes of specific activity with standard level. For this it is essential to
ascertain the performance measurement standard as without accurate standard level performance
can not be measured appropriately and easily. Claxton Engineering Limited prepare this type of
report to appraise its performance as well as make strategic decisions about various services.
Within company it is important due to its services offering as well as working nature.
Account receivable ageing report: this report is useful to prepare list of those
consumers who have done credit transactions within organisation. With the assistance of this
report, firm can get to know about the amount that has to be received from their clients. Herein,
transactions date are written that assists them to know that from whom the payment have to be
received. Claxton Engineering Limited finance department make this type of reports so that
whole collection as well as due amount in marketplace in order to formulate strategic plans and
policies. Also, this reduce the burden to remember the transactions that are done on credit.
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Budget Reports: This is the report which are utilise by the department of management
for comparing the actual performance with budgeted targets. Mainly, it is essential for internal
management of the company. This is prepared for the specific time duration it can be quarterly,
monthly and annually basis. Manager of Claxton Engineering Limited prepare this kinds of
report to compare exact outcomes with budgeted targets. Also, helpful for them in examining
that which engineering projects and services are gainful and which are not.
Cost management accounting reports: Cost management accounting reports is a type
of management accounting report which calculate the whole cost that occurs at the time of
products and services offerings (DRURY, 2013). It is an effectual manner of analysing the total
cost which can be a base doing cost comparison with sold one. It facilitates a structure to create a
comprehensive examination of the incurred cost as well gained amount in respect of selling or
providing services. In case the cost is greater than sold money then it is a loss where as if cost is
less than selling amount it would be a profit. Thus, with the assistance of this firm cam take
decisions regarding goods and services that are to be facilitated more into market. Herein,
managers of prepare this cost management accounting reports to compute the overall costs of
services thereafter analysis their profit as well as loss.
M1 Identify the benefits of management accounting system and it's application in the
organisational context
In management accounting system, there are many systems such as inventory
management, cost accounting, price optimisation and so on. All these have its own significance.
Claxton Engineering Limited can use and their benefits are mentioned below:
Management accounting systems Benefits
Inventory management system  It tracks the product as well as services movements
through which company can manage their stock
appropriately. Within chosen firm it assists them to
a check the availability of materials of projects and
for providing services.
 It is useful to utilise the available resources of firm
efficiently. As this assists them to know which
services needs resources.
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Price optimisation system  It is helpful in ascertaining the goods as well as
well as services prices. So, it facilitates a structure
to Claxton Engineering Limited for distributing the
price of various services that they are providing.
 It facilitates a bases for examining the impact upon
consumers because of many pricing.
Cost accounting system  It is the essential for calculating the whole cost of
projects as well as services.
 This system measure the actual profit of firm
through comparing total gained amount with
obtaining cost.
D1 Critically evaluate that how management accounting system or management accounting
report linked within organisational process
All businesses need to adapt few management accounting system as this aids firm to
perform effectively into its operative activities(Edwards, 2013). Management accounting system
involves various systems such as price-optimizing, inventory management and so on. Every
systems is crucial for the formulation of accounting reports as needed data are obtain from these
system only. Both are integrated with organisational process. Claxton Engineering Limited is
applying different accounting system as that assists them to create various reports like budget,
performance etc. through which their manager made effective decisions in order to perform
organisational process successfully.
PART B.
Annex (A)
Budget 2019 2020 2021
Cost
Centre
Budgeted
production
overhead
Basis of
production
(overhead
Cost
per
Hour
Hours Cost Hours Cost Hours Cost
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costs in £) absorption)
A 66000 22000 3 24200 72600 26620 79860 27500 82500
B 75000 15000 5 16500 82500 18150 90750 19500 97500
C 83600 41800 2 45980 91960 50578
10115
6 51500
10300
0
Annex (B)
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
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Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
M2. Application of management accounting techniques
The manager of the Claxton Engineering Limited applied the budgeting as well as
standard costing techniques so that are mentioned below:
Budgeting: It is considered as a methods of developing a plan spends money as it
enables firm to ascertain spending in advance. This is the easy techniques of balance the income
and expenditure. Therefore, the budget cost of A, B and C are 72600, 82500 and 91960 in year
2019. Future budget cost that is of 2020 is 79860 of A, 90750 of B and 101156 of C. In 2021, A-
82500, B- 97500 and C-103000 respectively.
Standard costing: This is the process that is utilise to examine the differences among
standards as well as actual cost of the firm. If company has the higher standard cost in
comparison to actual one then this outcomes in favourable results. In case the actual amount is
more than budgeted figures then it outcomes in unfavourable conditions for the business
organisation. By using it total overheads are identified that are £72,000 for X and £192,000 for
Y. Also, by using ABC approach total overheads are 82749 for X as well as for Y -181,255.
D2 Financial reports that accurately interpret the business activities.
Financial reports are very important for interpreting the all business activities. It consists
various kind of tools and techniques for presenting the the activities(Goretzki, Strauss and
Weber, 2013). The above selected company Claxton engineering limited solves annex A,B and
C. The company use activity based costing system for the interpretation. They are getting
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budgeted overhead in three activities which are of £ 66000, 75000 and 83600. As well as
company is incurring the cost of £ 72600 in the year 2019 and that is going to be increase in the
future and will become 79860 £ in year 2020 and 82500 £in the year 2021. Apart from these in
the project X total cost is of £ 82749 and in project Y it is of £ 181255.
Activity 2
PART A.
P4 Advantages and disadvantages of different planning tools of budgetary control.
Budgetary control- Budgetary control is a kind of controlling technique for managing
different kind of budgets(Grabner and Moers, 2013). In addition, it is a method of setting
financial and non financial goals and after that comparing the actual performance with budgeted
standards. On the basis of this controlling tool organisations make future plans and policies to
achieve the pre-determined targets effectively. The selected company Claxton engineering
limited use this controlling tool for manage their financial and non financial performance.
Basically, budgetary controlling tool includes various kind of planning tools whose advantages
and disadvantages are following:
Budgets- Budget is an estimation of future income and expenses for a particular time
period. It includes various performance measurement frameworks that compares the actual
performance with standards. Budgets are also known by the financial plans and these are useful
for not only to the businesses but also for the governments, families and others. Herein, it is
important that estimation of income and expenses should be accurate and it is done with the help
of past financial activities and budgets. The Claxton engineering limited company prepares the
budgets for measuring the actual performance. As well as they guide their plans and policies
according to the estimated targets. Apart from this, budgets have some advantages and
disadvantages which are following:
Advantages-
 Budgets help the company for identifying those areas where funds are required.
This is possible because of estimated targets which exists in the budgets.
 It helps to the company in measurement of actual performance of different
engineering products and services.
Disadvantages-
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 Budget making is a complex process it requires lot of past financial information
due to this it becomes time consuming and costly.
 Inaccurate estimation of income and expenses may result in a big loss to the
company because all the policies are guided according to these assumptions.
Forecasting tools- Forecasting tools play a crucial role in the context of strategies of
organisation. This tool helps the companies in making forecast about various factors which
impact to the financial performance. As well as it provides a framework to cope with the
uncertainty of future activities. In this tool, forecasting is done on the basis of past relevant
informations and activities. The Claxton engineering limited company use this tool as the
important aspect of budgetary control. It forecast the demand of needed engineering products and
services and they manage their strategies accordingly. On the other it has some advantages and
disadvantages which are following:
Advantages:
 It provides important information to the company for decision-making about
future and for making plans.
 This tool makes ensures the better utilisation of available resources because it
helps in determining which activities are needed resources and which ones are
not.
Disadvantages:
 It does not forecast accurately, this tool makes just an estimation because
environment is variable. Some times too much dependency on this tool can be a
disadvantage.
 Decision making on the basis of wrong forecasting information can create a big
financial and non financial loss for the company.
Contingency planning tool- Contingency planning tools are the kind of tools which
helps an organisation to protecting from the future uncertain activities that may happen or
not(Houghton, 2013). This tool activates only if that particular event happens for which this
planning is done. It is also known by plan “B” and it works if major planning fails. The Claxton
engineering limited company use this planning tool for those situations which can happen in
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future. It provides protection to the company and they can focus on other important activities.
This tool has some advantages and disadvantages which are described below:.
Advantages:
 Contingency planning tools helps in minimisation of damages because it can
implement very fast in the problem situation.
 This tool helps to the company to remain safe and secure for future.
Disadvantages:
 All the resources can be waste if that event does not happen for which
contingency planning is done.
 This planning tool consumes too much time in providing actual result.
Annex (c)
Year X PV@ 12%
Dis Cash
Flow Y PV@ 12%
Dis Cash
Flow
0 -5000 -8000
1 2500 0.893 2232.143 1500 0.893 1339.286
2 1000 0.797 797.194 2000 0.797 1594.388
3 1000 0.712 711.780 2500 0.712 1779.451
4 500 0.636 317.759 1000 0.636 635.518
5 1500 0.567 851.140 1000 0.567 567.427
6 1000 0.507 506.631 2500 0.507 1266.578
Total 5416.647 7182.647
Payback Period = Initial Investment
Average Cash Flow
Project X = 5000 = 4
1250
*Average Cash Flow = 7500 = 1250
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