Financial Analysis: Management Accounting Report for Brightstar

This report provides a comprehensive overview of management accounting, focusing on its application within a UK-based financial services provider, Brightstar, and its client, Naked Wines. It covers essential aspects like management accounting systems, including inventory management, cost accounting, and price optimization. The report details various accounting reports such as performance reports, budget reports, and accounts receivable reports, highlighting their benefits and organizational applications. It further delves into costing methods, specifically absorption costing and marginal costing, providing detailed calculations and comparisons. The analysis explores how these accounting practices influence decision-making, improve operational efficiency, and contribute to financial success. The report emphasizes the importance of these tools for sustainable development and achieving business goals. It is a valuable resource for students seeking to understand the practical implications of management accounting.

Management Accounting

Table of Contents
Introduction......................................................................................................................................1
LO1..................................................................................................................................................1
LO2..................................................................................................................................................5
LO3..................................................................................................................................................8
LO4................................................................................................................................................12
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

Introduction
Management accounting also called managerial or cost accounting that help the manager to
analyse various operational activities. It helps in developing financial reports which further
required by the manager in order to take effective decisions and it also beneficial for the
investors who take their decision as per the financial position of the company (Baird, Schoch and
Chen, 2012). Management accounting help the organization to increase their operational
efficiency as well as effectiveness, which further increase the productivity or profitability. These
practices automatically generate more revenue for the organization. For the better understanding
of these concepts, this report choose the medium size company. Brightstar is UK based financial
services Provider Company that established in 2011. They provide various financial solutions to
their clients.
Naked wines in one of the client company of the Brightstar, which consult regarding their
financial solution. This report includes the various topics such as management accounting and
essential requirement of management accounting systems. It also includes the different types of
accounting reports, benefits of management accounting, costing techniques, advantage or
disadvantage of various planning tools that helps in controlling budget. In addition, it includes
that how organization solve their financial problems with the help accounting system or
reporting. Manager have to use appropriate way to resolve problems for the sustainable
development or success in the future.
LO1
Organizational overview: Naked wines is an independent wine maker company, it was founded
in 2008, and founder of the company is Rowan Gormley. UK based organisation provide their
products to the customers on wholesale price and situated in Norwich, United Kingdom. For
their internal operational activity, naked wines consult with the Brightstar Company that provide
the financial solutions (Naked wines, 2019).
Management accounting: It is the process of preparing management report, which help the
manager to develop accurate financial report. It further helps in building effective strategy for the
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future decisions that is beneficial for the organization. With the help of management accounting,
manager can efficiently take daily basis decision, which helps in formulating operational activity.
Manager of Naked Wines Company use the management accounting to enhance their internal
efficiency which is beneficial to develop their financial report by using various financial
information. Financial information useful for the stakeholders who take their decision regarding
further investment is totally based on the management report.
Management accounting system: It include various practices, which help the organisation to
maintain their operational activities. Manager try to manage their inventory level that help in
reducing waste along with product cost and it will further help in increasing organizational
efficiency or effectiveness. Manger of Naked wines use the different types of management
accounting system to enhance their operational functions, which increase productivity as well as
profitability.
Inventory management system: It is the system or software, which help the organization to
track their inventory level on regulation basis that helps in preventing shortage of material. If
company face the problem regarding shortage of raw material for the production then it will
negatively affect the manufacturing process (Barth and et.al. 2012). It automatically affect the
profit margin of the company. In Naked wines, manager use this management system to keep
track their stock level in the warehouse. It is essentially required to analyse their inventory level
because over stock cause the wastage that generate high product cost and low availability of
stock cause the shortage which affect the production.
Cost accounting system: It is also called costing system because with the help of this system
manager can identify each unit cost and further implementation helps in reducing and controlling
for the whole period of manufacturing. It is essentially required by the organization to reduce
their product cost that automatically generate the high profit. Manager of Naked wines company
use the cost accounting system for the analysis of their cost. With the help of this system,
organization reduce their product cost, which increase the productivity as well as profit margin.
It also help in maintaining same cost for the entire manufacturing process and try to reduce it.
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Price optimization system: It is a mathematical analysis where organization introduce the
different range of price that satisfy the customers need and their willing to pay specific price for
the product. It also helps in measuring customer buying behaviour that is also very important to
analyse. It is required to identify their product price where customer is ready to pay. In the
Naked wines, manager use the price optimisation system to know that customer willingness to
pay for their products or it is important to meet with their objectives too. With the help of this,
company identify the customer behaviour, so manager build their strategy as per the market
demand and their pricing strategy. Price optimisation system helps in manger's decision-making
process, which provide high productivity or profitability and, in the future, helps in achieving
business goals & objectives (Basu, 2012).
Above mention system, help the Naked wines to increase their operational efficiency or
effectiveness, which further increase the productivity or profitability.
P2
Management accounting reporting: This report prepared after collecting all the financial
information that required producing various report. Accounting reports used to evaluate the
performance, planning, regulation and decision making process. It includes the various report,
which help the business to take further actions as per the requirements. These reports produce in
the financial year and manager will take decision according to it. There are various management
accounting reports that are used by the manager of Naked wines and some of it discussed below:
Performance report: This report prepare for the performance evaluation of organization as well
individual who work in company as an employee. It is used by the organization to measure their
employee’s performance, which helps in future to build strategy or take decision. Manager of
Naked wines use the performance report to measure performances of their employees as well as
whole business. With the help of this, they identify the progress or if they required any
improvement then done accordingly. It provide the deep analysis which help in developing
strategy to complete their organizational goals & objectives. Therefore, manager have to ensure
that, individual perform their task well in order to increase their productivity or profitability.
Performance report help the manager to provide incentives to the high performer employee that
motivate them to perform well in the future.
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Budget report: It is very critical report, which help the organization to measure the performance
of business as per the different department. Almost every company produce budget to understand
their internal functions, which provide clarity in their task. Budget include the estimated
expenses and revenue because of previous results and experience. Manager of Naked wines uses
budget report that include all the resources, which required the company to performing its task in
order to increase productivity or profitability. It further helps in achieving their business gaols &
objectives. With the help of budget report, organization spend money as per their budget which
further help in maintain each product cost which further helps in increasing their productivity as
well as profitability. It is beneficiary for the business to achieve their organizational goals &
objectives.
Accounts receivable report: This accounting report used by those organisation, which deals in
credit terms. Because it is not easy to remember all the creditors who buy products on credit, so
it is good method to record which help in measuring all the creditors. With the help of this report,
organization identify their defaulters and it will be used by small to large size organization. It
further helps in recovering their money from the creditors (Burritt and Schaltegger, 2014). In
Naked wines, manager use this report to know exact people who do not pay their pending
amount.
Above mention reports used by the manager of Naked wines in order to maintain their records,
which further helps in producing various strategy, which is required at the time of decision-
making process.
M1 Benefits of management accounting systems and their organizational applications
System Benefits
Inventory management
systems
 It helps in maintaining and controlling their inventory
level and keep track.
 It help the Naked wines to increase their efficiency as well
as productivity because it reduce the wastage.
Price optimization system  It help the manager of Naked wines to develop various
strategy regarding different price range which meet the
customers objectives.
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 It also help in measuring customer buying behaviour,
which further helps in formulating strategy.
Cost management system  With the help of this system, manager reduce the product
cost (Cooper, 2017).
 Reduce the cost and control in the manufacturing duration
that increase the productivity as well as profitability.
Nevertheless, Naked wines as an organisation perform various activities, which help the business
to run their operational activities in order to achieve business goals and objectives. Management
accounting system helps in enhancing their internal functions that increase the productivity.
Besides, inventory management system helps the organisation reduce the wastage and it will
directly affect the cost of per unit that is automatically reduce and increase the productivity or
profitability of the organization. Conversely, accounting report helps in analysing organisational
as well as individual performance. With the help of performance report, manager identify the
individual performance either is good or bad. If it is bad, then manager have to provide relevant
training to increase their efficiency or if it is good then offer various rewards & incentives.
Accounting system or reports both are linked with the organisational functions.
LO2
Absorption Costing: It is a costing method, which help the organization to evaluate their
product cost in the accounting period (Darabi, Moradi and Toomari, 2012). It include the
different types of cost such as materiel, labour and other manufacturing overheads that affect the
overall product of the organization. Here, Galway Plc sell single product in the market so they
have to calculate their product with the help of absorption costing method and it is calculated
below:
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Particulars May June
Selling Price 50 15000 25000
Less: Absorption Costs
Direct materials per unit 8 4000 3040
Direct labour per unit 5 2500 1900
Variable production overheads per unit 3 1500 1140
Fixed Production cost 10 3000 3800
Total 11000 9880
Less: Opening inventory - 5200
Add: Closing Inventory 5200 2080
Gross Profit 9200 17200
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Less: Sales commission 750 1250
Net Profit -550 6150
Marginal Costing: It includes those cost that charged as per the addition unit produced in the
organization. This costing method use the variable cost for the further decision which taken by
the manager to reduce their product cost which increase the productivity or profitability. Below
mention calculation, show the net profit with the help of marginal costing method:
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Particulars May June
Selling Price 50 15000 25000
Less: Marginal Costs
Direct materials per unit 8 2400 3040
Direct labour per unit 5 2500 1900
Variable production overheads per unit 3 1500 1140
Total 6400 6080
Less: Opening inventory - 3200
Add: Closing Inventory 3200 1280
Gross Profit 11800 17000
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Fixed Production cost 4000 4000
Less: Sales commission 750 1250
Net Profit 1050 5750
Using Average Cost Method:
Date Purchase Issues Inventory
Units Cost Total Units Cost Total Units Cost Total
01/05/19 40 3 120 40 3 120
12/05/19 20 3.6 72 20 3.6 72
60 192
15/05/19 36 3.2 115.2
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Average cost of
Inventory (1) 24 3.2 76.8
20/05/19 20 3.75 75 20 3.75 75
44 75
23/05/19 10 3.45 34.5
27/05/19 25 3.45 86.25
30/05/19 5 3.45 17.25
Total inventory:
Date Units Valuation Amount
15th May 36 20*3.6 = 72
16*3 = 48
120
23rd May 10 10*3.75 = 37.50 37.50
27th May 25 10*3.75 = 37.50
15*3.00 = 45
82.50
30th May 5 5*3 = 15 15
255
Cost of Issue 4*3 = 12 12
TOTAL 267
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M2
Management accounting includes the various technique, which help the organisation to produce
various financial documents. It further help the manager or external parties such as stakeholder
to develop strategy that is beneficial for the company to achieve their business gaols &
objectives. Accounting techniques help in preparing financial statement, so they required
financial information because of this accountant produce various information. Manager of Naked
wines record daily transaction that helps in preparing incomes statement and balance sheet of the
company, which shows the financial position of the company.
D2
With the help of financial report, stakeholders of the company analysis the financial performance
of the company, which affect investors, decision regarding investment. It also helps in
identifying financial position of the company weather it is in profit or in loss. If financial report
not available then it is impossible to understand or identify the actual condition of the business
activates (Hajjawi, 2012). Financial statement of the company includes various reports such as
profit and loss account, cash flow and balance sheet.
LO3
P4
Budget: Budget is an estimated plan of all operational and functional which are required for the
success of business objectives in a particular period. It covers estimation of revenues and
expenditures, which may take place in organization. This financial statement is prepared with the
help of previous information available regarding operations have already take place. Budget
represents evidence regarding financial condition hence it is used by the external stakeholders as
well as internal users.
Budgetary control: Budgetary control is the process of comparing budgeted estimates with
actual results. This process helps the organization in preparing the budget, making comparisons
and controlling costs and operations. It assists in co-ordinating different departments of the
organization.
Cash Budget: Cash budget is an estimated statement for cash related transactions, which may
take place in order to operate daily business activities for a specific period. It includes all
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operations related to cash inflow as well as cash outflow. All cash receipts, expenses paid,
repayment of loans, etc. are recorded in cash budget. Accuracy of cash budget is based on the
estimation of sales budget, purchase budget and capital budget (Harrison and Lock, 2017).
Naked Wines that is an online wine retailer company has so many cash transactions on daily
basis. The company can adopt the cash budget statement within its records:
Advantage:
 Cash budget helps to determine whether the organization managing sufficient cash for
operating daily transactions.
 It ensures that enough funds would retain in the organization and others are used for
productive activities.
 This budget helps the management to make better decisions regarding borrowings and
repayment of loans.
Cash budget has some inherent disadvantages with it that may not allow the selected
company to choose this statement. Some of these disadvantages are:
Disadvantage:
 Cash budget is based on estimates, which are not always correct.
 This budget does not include non-monetary transactions, which may be material
information for the organization.
 It bounds the organization in spending limits and eliminates the profits of credit
transactions (Jones, 2014).
Master Budget: Master budget is an overall summary of all subsidiary budgets. This budget
includes all major information about sales budget, purchase budget, cash budget, capital budget,
production budget, general expenses budget and other budgets. This budget is prepared after
preparing all other budgets. It provide information about all the departments working in the
organization in one go. Management of Naked Wines may include the master budget in its
accounting records because it can provide many advantages to the company, which are:
Advantage:
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