Financial Analysis Report: Management Accounting for Edwards Company

This report provides a comprehensive analysis of management accounting practices within Edwards Company, a vacuum-based engineering company. It explores various management accounting systems such as price optimization, job costing, inventory management, and cost accounting, detailing their benefits and applications. The report defines different types of management accounting reporting, including budget reports, accounts receivable aging reports, performance reports, and cost managerial accounting reports. It also delves into cost calculation using different management accounting techniques. Furthermore, the report assesses the integration of management accounting systems and reporting, highlighting their interrelation. The report also examines the use of planning tools for forecasting and the application of management accounting systems to mitigate financial problems faced by the company. Finally, the report calculates revenue under absorption cost and marginal costing, providing a detailed financial analysis of Edwards Company's operations.

Management Accounting

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
Activity 1..............................................................................................................................................3
Part 1................................................................................................................................................3
P1. Defining requirement of management accounting system types...............................................3
P2. Defining types of management accounting reporting....................................................................5
M1. Benefits and application of MA systems within organisation..................................................6
Part 2................................................................................................................................................8
P 3. Calculation of cost using various MA techniques....................................................................8
ANNEXURE A ....................................................................................................................................8
ANNEXURE B..................................................................................................................................15
Activity 2............................................................................................................................................15
Part A.............................................................................................................................................15
P 4 The advantages & disadvantages of different types of tools of planning................................15
M3 The use of different applications & planning tools for forecasting & preparing...................19
Part B.............................................................................................................................................19
P 5. MA system for mitigating financial problems being faced....................................................19
ANNEXURE C..................................................................................................................................20
CONCLUSION..................................................................................................................................21
REFERENCES...................................................................................................................................22

INTRODUCTION
The term management accounting is a process which main focus is on making plans, strategies,
organising & directing the system and operations of business for the betterment of company's goals.
It is related with preparation of internal managerial report for management decision making process.
The present report is based on Edwards (formerly known as BOC Edwards) Company which is a
Vacuum based engineering company having its headquarter in Burgess, UK. It is engaged in the
function of manufacturing and supplying abatement equipments, vacuum which are used in the
processes of advanced manufacturing function. It will focus on use of various management
accounting system along with its benefis and application in organisation use. Further, for better
understanding different management accounting reporting will be described. Also, by using costing
techniques income statement will be prepared. Explanation related to budgetary control with its
planning tool will be streamline. At last, report will focus on adaption of different management
accounting system by the company for overcoming all the financial issues being faced by the
company in an accounting period.
MAIN BODY
Activity 1
Part 1
P1. Defining requirement of management accounting system types.
This system involves business practice, concept related to preparation of business accounts,
reports by considering every financial part of the business operations. It assists managers in making
decison related to day to day business operations of short term nature. It includes all the business
standards and methods which are necessary for making effective plans for making a choice among
given business actions and practices . Further, it controls the flow of business operations by making
continous evaluation of performance level thereby making proper interpretation as well for the
better understanding of stakeholders and managers. Following are types of management accounting
system, by use of which Edwards can seeks benefits:
1. Price optimization system - a process which helps in determining the trend of consumer
demand at different price levelto be charged from its customer. It analyses consumers
behaviour by changing price of particular product (King and Clarkson, 2015). This tool
effectively evaluates the price of the varied products and services thereby combining data
with the levels of cost and inventory information to make suggestion or recommendations
related to different prices which will improve profit margin. By examining change in

demand and supply as per variation in price of the goods and services offered by Edwards.
2. Job costing system – a system which encompasses all information pertaining to the amount
of cost expenditure which has been incurred in conducting of some specific job or
production function. Job costing system provides information in form of short summary
which depicts all the details it has covering related to direct materials, direct labour and
overhead cost amount. By distributing cost expneses to individual production resulting into
better attainment of business goals. Thus it helps the management in analysing profitable
business unit for making it on priority so as to achieve high growth. Also, by keeping track
of all cost expenses associated with each job, business decision can be made.
3. Inventory management system - This method is related with the function of keeping track
on the quantity and amount of inventory and stock hold by the company at a specific time
period. It assists the management of Edwards company in managing its inventory level so as
to satisfies its customer needs and demand. By monitoring inventory situation via supply
chain, it supports company in making proper valuation of its inventory. Also, it ensures
improvement in inventory level by maintaining continuous workflow thereby reordering it
on time for smooth functioning. Thus, inventory valuation can be done with the help of three
methods:
Economic Order quantity – It helps Edwards company in determining the quantity of inventory to
be ordered for becoming capable of delivering customer services. EOQ is related with order
quantity which Edwards should place in order to minimize cost of ordering, holding and carrying
such inventory.
LIFO – Last In First Out method in which goods bought at last are available for sale at first place.
FIFO – This stands for First In First Out is related with selling stock on first priority as purchase in
first place.
4. Cost accounting system - Mechanism in which the cost expneses related to business
production are ascertained (Novas, Alves and Sousa, 2017). It helps Edwards in identifying
amount of cost value incurred for carrying on all manufacturing and production activities. It
focuses on maximizing profit margin with minimum operation cost thereby improving
product and service quality. It should always frame business concepts for identifying and
controlling unnecessary cost expenses & has following parts:
1. Job Order Costing Method – It determines cost amount incurred by Edwards in relation with
development of a specific product or group of products.
2. Process Costing Method – It assists in collecting and assigning process of the cost amount to all

units produced during a specific time period. This method is best for Edwards in case of identical
units produced i.e. where large production is taking place.
P2. Defining types of management accounting reporting.
A process emphasizes on designing of internal report considering all the managerial and
financial information of a definite time period. With the help of such report, management can make
crucial and relevant business decision for benefit of business as a whole. It further assist in
improving the performance level and focuses on maximization of profit level. By reviewing
different managerial report, Edwards company can take several decision which affects the overall
business performance:
1. Budget Report – provides assistance to company related to formulation of budget amount
for a specific period. Such report measures and compares performance of actual business
results with the estimated one. With the help of a proper and effective financial plan, every
business organisation can make right and accurate allocation of its limited business &
financial resources available with it. Budget helps in preparing estimated amount of
expenditure to be incurred for carryong on future business operations (Maas, Schaltegger
and Crutzen, 2016). Also, Edwards company can forecast its level of revenue after meeting
all the deductions associated with operations thereby focusing on attainment of business
goals and objectives. It further assist the management in allocation of financial resources as
per the need of business departments.
2. Account Receivable Aging Report – This reporting is suitable for those business
organisation which relies heavily on the function of extending credit facilities. By
considering such report, it helps the management of the company in identifying the amount
of balance due on part of its clients, customers or any business vendors. It defines the
average or specific time period in which Edwards will be able to recover its business and
credit amount due. By evaluating account receivable aging report, the managers of the
company can easily evaluates and determines all the problems and issues which the
company is facing in money collection procedure by depicting about defaulters contributing
in issue of money collection process. For overcoming such issue, it is essential for Edwards
to design strict credit policy and standards for smooth performance of credit business.
3. Performance Report – It provides detailed review of the performance level of both
company and its employees as well. This report provides a base on the basis of future
business operations are conducted. Performance report provides deep insight about the
success and progress level of its business operations and of employees as well. By
monitoring performance on regular basis, Edwards can assess which business department

and area is lacking or performing weak i.e. Which requires to be improved for increasing
profitability and productivity aspects. It helps in determining whether company and
employees are working effectively towards the attainment of set defined business goals or
not. By formulating sound business polices, plans and strategies in line with aims and goals
can help Edwards company in seeking competitive advantages.
4. Cost Managerial Accounting Report – Also known as Cost report, is related with the cost
expneses being incurred by the company at the time of carrying of business operations. Cost
accounting report defines cost amount which has been associated with the process of
manufacturing and production function (Craig and et.al., 2018). It provides a brief summary
of all the cost heads covering raw material, overhead, labour expneses. It helps in realising
cost price and selling price of the item or product being produced. Thus, by monitoring cost
and selling price, profit margins can be estimated to be received from the future business
production function. It also assist in determining unnecessary cost expenses and reduces it
therey increasing profit level.
M1. Benefits and application of MA systems within organisation.
By using proper and relevant management accounting system, Edwards can maximizes its
value of firm and can minimize its overall cost of capital:
MA System Benefits
Price Optimization system  Company can determine behaviour
of its customer demand at different
price level.
 Also, by using this system Edwards
company can fix its product and
service prices in manner which
provides profit to the company
(Otley, 2016).
Job Costing System  This method of job costing system
assist in identifying cost per job
assigned to each business unit with the
aim of effective decision making.
 This system of jo costting helps
Edwards in monitoring, reviewing &
tracking performance of individual

employee & of team as a whole for
bringing relevant changes in relation to
minimizing cost expenses, improving
business efficiency, productivity and
profitability as well.
Inventory Management System  Edwards can get benefits in form of
reducing unnecessary cost expenses as
associated with the unproductive
business operations.
 By using this system, Edwards can
avoid stock out situation and have
proper inventory level by reordering it
on time.
Cost Accounting System  It helps in designing financial plan
for every accounting period so as to
compare actual costs incurred with
estimated one. It thus assess highly
cost incurring business area.
D1. Critically evaluating integration of MA systems and reporting.
Management Accounting system and reporting is a business practice or concept which
provides assistance in effective preparation of report for relevant accounting period. By making
sound and proper business strategies, plans and policies it can acquire large market share and
competitive advantages as well. Both are integrated to each other as in preparation of management
accounting report such as performance report, budget report, different methods of management
accounting system are used.
Such reports are considered as base for MA systems and thus are interrelated (Chenhall and
Moers, 2015). Absence of any one concept in the company can result in inaccurate preparation of
financial statements for that accounting period. For example, Job cost reports are prepared with the
help of Cost accounting system because all the costs related activites and information are available
there which assist in making decisions. These reports are useful at the time of report or accounts
preparation of Edwards company.

Part 2
P 3. Calculation of cost using various MA techniques.
ANNEXURE A
Assessmentof revenuew under the absorption cost & marginal cost for pretaining the 'table'
Cost
a cost is basically value for the money which has been used for producing something and delivering
the services and also it is not available for using any more. Cost is one of the effective acquisition
where the amount of the money has been expanded for acquiring the cost which has been counted.
Cost is a type of metric which totalling up the results of the process and also differential of the
decisions of all the results.
Marginal cost
Marginal cost is generally a change of the total cost which has been arising the quantity that has
been produced with incremented more units of the goods. At each and every level of the
manufacturing and time which has been considered for the marginal cost involves all the cost with
all the level of productions. The main function of the marginal cost is quantity of the cost function
which is non-linear and it fixed. It has been include the changes in the total cost which has been
arises. This cost added by producing the additional units of the goods and services.
Difference between marginal and absorption cost.
Cost Marginal Cost Absorption
It has been apply the all cost of inventory which
has been occur when each and every single unit
has been producer.
It has been apply the manufacturing cost of all
the units that has been produced.
It determined the variable cost which has been
considered the period of amount and cost.
It is fixed and variable cost which has been
considered the products cost.

Period 2
Particulars Amount (in £) Amount (in £) Net Amount (in £)
Sales (1700*590) 1003000
Cost of sales:
Opening inventory (650*330) 214500
Material (5200*215) 1118000
Labour (5200*90) 468000
Variable o/h (5200*25) 130000
1930500
-Closing inventory (4150*330) -1369500
-561000
442000
Contribution 442000
-Fixed costs -361500
Actual Net
profit/(Net Loss) 80500
Interpretataion: the table valuation and marginal cost has been analysed that the actual and net

profit of the incopme and revenues is high and it gives profit to the company.
Under Absorption Costing
Absorption cost
it is a process of all the cost of accounting that imply the full cost of producing and providing the
services. Total absorption cost just not involves the cost of all materials and all the overheads of
manufacturing. Cost of each and every cost has been centred where all the direct cost easily find out
the individuals cost centres.
Particulars Cost per unit: in £ (Period 1
Direct Material 215)
Direct Labour 90
Variable O/H 25
Fixed o/h 61.5
Total absorption cost per unit 391.5
Period 1
Period 2
Cost per unit for Period 2
Direst Material 215
Direst Labour 90
Variable O/H 25
Fixed o/h 69.52
Total absorption cost per unit 399.52

Interpretataion: it has been analysed that the absorption cost of the compnay has been getting out
in the net profit where the it comes out in a way of profit and make it profitable for tehcompany.
Assessment of profit absorption costing & marginal costpertaining to ‘Chair’
Under marginal costing (Chair): Cost per unit