Management Accounting Report: Financial Analysis of C&K Holding Ltd

This report provides a detailed analysis of management accounting principles and their application within C&K Holding Limited, a construction business. The report covers key aspects of management accounting, including management accounting requirements, systems, and reports. It explores various costing methods such as absorption costing and marginal costing, along with break-even analysis to determine profitability. The report also examines budgetary planning, the advantages and disadvantages of planning tools, and the role of management accounting techniques in solving financial problems. It includes calculations and interpretations of financial data, offering insights into how these tools can be used to optimize pricing, manage costs, and improve inventory management. The report emphasizes the importance of management accounting systems and reporting in enhancing financial performance and decision-making within the organization.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Management accounting requirements and management accounting system:..................1
C. Benefits of management accounting system in the organisation:......................................3
TASK 2............................................................................................................................................4
(A). 1 and 2 Calculation of absorption costing, marginal costing and break-even point......4
C. There are the explanation of two techniques of management accounting;.......................6
D. Interpretation of data:........................................................................................................6
TASK 3 ...........................................................................................................................................7
A. Advantages and disadvantages of planning tools..............................................................7
B. Analysis of budgetary planning........................................................................................9
C. Planning tools are useful in eliminating the financial problems........................................9
D. Management techniques are crucial to solve financial problems....................................11
E. Planning tools which helps in handling financial issues..................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is the process of managing or preparing management reports
and accounts which are needed for financial information. This report discuss about C&K
Holding Limited which was founded in United States and it is dealing in construction business.
Apart from this, it also discuss about management accounting requirements, management
accounting system, management accounting reports, costing methods and budgetary control
system. These various management accounting tools and techniques helps the management to
solve the financial problems and lead the organisation to sustainable success.
TASK 1
A. Management accounting requirements and management accounting system:
Management accounting:
Management accounting is a accounting process in which accounts and management
reports are prepared to provide true and fair information about financial data of company.
Through management accounting, manager can take better decisions for the growth of company.
Management accounting officer of C&K Holding Limited can use management accounting for
better and effective results in the company. Management accounting system is consider the
internal working system which is use by the organisation to measure its financial performance. It
includes planning as well implementation of management accounting system in the organisation.
C&K holdings Limited can use different types of management accounting system which are
required for better results. These managements accounting systems are such as follows:
Price optimising system:
Pricing optimising system is used by the organisation to control the resources. This
system is use to consider the price of resources at different point of time. Management
accounting officer of C&K Holdings Limited can use this system to know the price of resources
which is uses in its construction company. For a construction company is very important to know
the accurate price of raw material which is use for the construction of building. For example, if a
company wants to launch a new smart phone then it will try to minimise the prices to attract the
more number of customers which can be availed with the help of price optimising system. C&K
Holding Limited can use this technique to identify the pricing of the products which will be able
to stimulate the demand of the services offered by the company. (Bodnar and et. al., 2012).
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Cost accounting system:
Cost accounting system helps to know the actual cost of product. Analyse the actual cost
of products is complicated for profitable operations. An organisation should know which
products are profitable and which ones are not, and it can be possible when it has estimated the
accurate cost of the product. Management accounting officer of C&K Holding Limited can know
the cost of its construction project. For example, if C&K Holding Limited completes a
construction project of a building and they want to know the over all cost incurred in that
construction project. By using cost accounting system C&K Holding Limited can know the over
all cost of that project and what is the profit margin from this project (Dunford and Palmer,
2012).
Inventory management system:
This system helps to know the stock which company has to maintain on day to day basis
or a period of time. Management accounting officer of C&K Holding Limited can use this
system for inventory management. For example, C&K Holding Limited can manage its
inventory over a period of time so they can avoid the cost of holding of excess inventory. This
system provide helps to maintain appropriate inventory so that company will not waste its money
for maintaining excess stock which is beyond the requirement. This system is require for
maintenance of proper inventory. Management accounting system is required for pricing
optimise system, cost accounting system and inventory management system so that company can
take better decision. If company is able to take better decision then financial position of company
will automatically improve (Types of Management accounting system, 2017).
B. Management accounting reports and the importance of such reports to management:
Management accounting report provides help for maintaining accurate management
report which is needed for important decisions of management. Management accounting report
help to provide accurate and fair information about company. Management accounting officer of
C&K Holdings Limited can prepare management accounting report for better decisions in
management retarding finance. Management accounting report has various types such as follows:
Budgeting Report:
Budget is prepare for the future to know the revenues and expenses. Actual expenses is
compare with standard budget at the end of the year. Budgeting report is a plan to evaluate the
performance of business and its different departments. For making budget actual revenues and
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expenditures are taken to evaluate the performance. If revenues are more than previous year then
it encourages and motivates the management and employees that they work better. Management
accounting officer of C&K Holding Limited can use budgeting report to analyse and evaluate
the performance and it can help to increasing the revenue by minimising the expenses (Fullerton
and et. al., 2013).
Accounts receivable aging report:
This report helps to manage receivables for the organisation. Those organisations which
are engaged in giving credits to customers and proper distribution of unpaid invoices to know
the remaining balance of customers. Management accounting officer of C&K Holding Limited
can use accounts receivable aging report to frame its credit policy regarding credits to its
customers.
Job cost reports:
Job cost report helps to analyse and identify the cost so company can identify its profits
from a particular job. For C&K Holding Limited it is important to minimise the cost and
maximise the profits. Management accounting officer of C&K Holdings Limited can use job cost
report to analyse the cost of its each construction project.
Performance reports:
Through this report an organisation can know its over all performance from each
department. This report can be made monthly, quarterly or yearly. Management accounting
officer of C&K Holding Limited can use performance report to know the performance of each
construction projects. Through this management can know its capabilities.
Management accounting report is very important to evaluate the over all performance of
an organisation and it guide to applying proper methods and tools of accounting. By using this
company can minimise its cost and able to maximise its profits (Hilton and et. al., 2013).
C. Benefits of management accounting system in the organisation:
There are many benefits of management accounting system such as follows:
Types of management accounting system Benefits
Price optimising system C&K Holdings Limited can use this system to
optimise the prices of its resources and
determine the right pricing for its products and
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services.
Cost accounting system C&K Holding Limited can use this system to
consider the cost of each projects of
construction. To know the cost of each project
helps the company to know the profits.
Inventory management system C&K Holding Limited can know its inventory
by this system which is needed for
construction. Inventory in the form of
resources or raw material which is need for
construction.
D. Evaluate integration of management accounting systems and management accounting
reporting
Management accounting system and management accounting report both helps to
improve financial performance of organisation. Management accounting system and
management accounting report both has some specific features which are important for the
management. Both are important for management because it help in management and accounting
plan and policies, rules, regulations, implementation, controlling and better decision making.
These are the important things of such reports to management. By using such reports, C&K
Holdings Limited can improve its financial position because of better management. (Lavia López
and Hiebl, 2014).
TASK 2
(A). 1 and 2 Calculation of absorption costing, marginal costing and break-even point
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16)
1280
0
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
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Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Marginal costing:
Marginal costing implies where additional or extra cost incurred for production of a extra
unit of output. C&K Holding Limited can use this costing to know the extra cost in its
constructions.
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Absorption costing:
It is a costing method which is use to analyse the cost incurs of a finished unit in
inventory and it includes fixed and variable overheads. C&K Holdings Limited can use
absorption costing to analyse the cost in its construction projects.
AA Total number of product sold
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
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Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
Break- even analysis:
It is that situation where company is neither earning profits or nor getting loss. C&K
Holdings Limited can use this costing method to know its break- even point which helps to know
the margin of profit (Sánchez-Rodríguez and Spraakman, 2012).
c. Calculation for getting desire
profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
C. There are the explanation of two techniques of management accounting;
Historical costing technique:
This technique provides the data from past records relating to the cost of each activity to
the management. So that the analysation can be made by management by comparison made on
the basis of standard cost. Such analysation is useful for management in order to control cost
and budget.
Standard costing:
It is the process of analysing the expected cost for actual cost in financial records. This
process depicts alternative of cost layering systems and identifies the variation between standard
and actual cost. Moreover it is the engaged with calculation of estimated cost and takes time to
collect actual cost. Overall it is the close approximation to actual cost.
D. Interpretation of data:
Interpretation: From the analysation of given information the by two methods of costing
namely, marginal costing and absorption costing. By calculating from marginal costing the profit
of company is 17500 and by absorption costing the profit is 15675, hence the marginal costing
method is more profitable for company, because the marginal costing involves the deduction of
production expenses and closing stock with the deductions of cost of goods sold after the actual
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contribution occurs. And on other side, according to production break-even point occurs on sale
of 500 units and according to sales revenue break-even point occurs on sales revenue of 20000.
If company is willing to earn the profit of 10000 then company has to sale 1333.33 units of
produced goods. Margin of safety is 37.5, when actual sale is 800 units and break-even sales unit
are 500.
TASK 3
A. Advantages and disadvantages of planning tools
Budget: the term 'budget' refers to the pre-planned set which pertains the planned income
and spendings, and 'budgetary control' means a function of management under which the
management compares actual income and spending with the planned income and spending. In
order to find out that there is a need to change the plan or not.
There are three types of planning tools used under the budget control namely, Forecasting
planning tool, scenario planning tool, contingency planning tool.
Forecasting planning tool: It is the traditional technique of predictions based upon the
quantitative(from historical past records) and qualitative(based on unstable averages; time series,
regression and casual method). For example, the manager of C&K holdings planned that after
two year their profit will increase by two times of current profit and the contracts of construction
and registration will increase. But, due to a natural disaster company incurred huge losses. Hence
failure of forecasting.
Advantages :
 This method is based on past records and is scientific and also involve in individuals
predicting the forecast.
 Predictions under forecasting may be almost correct in stable developing environment,
which involves monopoly and oligopoly market conditions.
Disadvantages :
 Does not work in dynamic environment, as due to instability in market conditions.
 Predictions are almost based on opinion and judgements and therefore may or may not be
truth.
Scenario planning tool: This planning is based on assumptions that what might happen
in future of business, by identifying and analysing the set of uncertainties may be happen in
future. Moreover it is the scenario analyses that companies uses to make flexible long term plans.
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Advantages:
 This method of planning ensures flexibility which is helpful and crucial for dynamic
environment.
 Analysing a wider range of possibilities and taking these into account in organisational
decision making.
Disadvantages:
 The wider range of future uncertainties can leads to heavy stress to individuals in order to
form decisions . Hence sometimes results in delays in decision making.
 Method is based on art more than science, hence sometimes involves irrelevant
certainties and uncertainties.
Contingency planning tool: It is the plan used as the backup plan in order to make
successful the other plans. It helps in minimising the affects of uncertainties and contingencies
occurs in unforeseen future. The aim of plan is minimising disruption and keep the activities of
business safe as possible. For Example, after the preparation of final statements of C&K holdings
losses the Data due to natural disaster and after that the contingency plans helps the company to
estimates the data loss.
Advantages:
 Contingency plans helps the business in minimises the damages. Under this plan quick
steps are taken in order to reduce the uncertainties which could stop the production, shut
down the work and miss credit payments.
 Helps in operating the activities of business continuing, by reducing the factors that cause
circumstances like lack of working capital, machinery breakdown, office shut down etc.
Disadvantages:
 Contingent plan involves inadequate matters. Contingent plans does not involves the
adequate steps which should be taken under different types of situations.
 Contingent plans are reactive in nature and not proactive in nature. Contingency plan
reduces the affect of uncertainties occurs but it cannot works in avoiding such
uncertainties before they occurs.
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B. Analysis of budgetary planning
The budgetary planning tools namely; forecasting, scenario, contingency planning tools
helps the manager in planning for the business success. These planning tools ensures a great
ability to make regular improvements and solving problems. Also helps in improving the
financial situation of company by providing several budgeting techniques which ensures the
quick decision making and meet business objectives. Besides these all, these techniques helps in
improving the clarity and focus. Not only this it indicates the costs and revenues of a particular
financial era and providing a way of information and supporting management decisions. By these
techniques the C&K holdings can analyses the differences between actual budgeted income and
planned budgeted income.
C. Planning tools are useful in eliminating the financial problems
Financial problems for a business means the problem arises due to weakness of
organisation in absorbing funds from financial sources. Due to financial crisis the company faces
many problems, the main problem arises of bad credit ratings which reduces the trust of financial
organisation and they refuses to support the company financially and not only this due to low
credit ratings leads to downfall in profits and hence the market price of shares decreases. The
main financial problems faces by the small scale company C&K holdings due financial crisis
are,
High overhead expenses:
Sometimes overhead expenses can be more than the income receives by the business.
Overhead expenses like rent of building and utilities etc. high operating costs incurred by the
business which affects the cash flow statements of business.
Excess inventory:
Over manufacturing and storage of goods leads to to excess inventory. The company
produces according to the market demand but due large number of competitors or may be due
low quality or may to high prices or any other reasons the stock of goods almost remains unsold.
The expected sales remains less than actual sales.
Insufficient gross margins :
The small scale companies sells their goods and services at low prices and faces negative
or low gross margins due to high competitive market. Because of small brand names and less
trusty products they fails to covers the market like a good brand named companies.
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There are some financial problem solving techniques namely, Benchmarking, KPI,
Financial governance.
 Benchmarking:
The bench marking is the process used by the strategic managements.
Under this techniques several weak aspects of the processes are analysed and compared with
aspects of best practising and financially sound companies. By analysing the inventory stock of
best practising companies set the production target according to the sales from past records of
C&K holdings should manufactures the goods for construction so that problem of over stock can
be avoided.
 Key performance indicators (KPI): These are the indicators or measurable units helpful
in achieving the key business objectives. Companies uses these indicators at several
levels to measures their success in reaching goals. High KPI depicts the overall
performance of the organisations and low level KPI depicts Micro level processes or
workings of various department like sales, finance, marketing etc. the company C&K
holdings begins with setting up the lower level KPI' s in order to improve the workings of
each departments like production, sales, marketing. After that it implies the high level
KPI in order to improve the top level authorities issues like solving the problem of
insufficient gross margins.
 Financial Governance:
◦ This is the process by which the company records, manages and controls the financial
information. By this technique companies records the financial transactions, manage
performance, control data and performs functions like compliance, operations and
disclosures. By this process the C&K Ltd. Can maintain a better flow of financial
information and performs the essential measures to correct it.
C&K holdings AIRDRI Ltd.
C&K uses benchmarking in order to cover each
weak aspects at micro level.
AIRDRI uses Just In Time(JIT) in order to
improve the conditions at broad or macro
level.
KPI is used by this company in order to
indicates the target set up at different
JIT is used by this company in order to
achieve production and other target within the
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departments like production, to improve
performance.
time.
Financial governance technique is used by this
company to record, manage, control the
financial data.
Only JIT is used by this company in order to
achieve the target of financial performance by
ensuring better performance hence increases
the creditability.
D. Management techniques are crucial to solve financial problems
Management accounting techniques are essential in solving the financial performance of
the organization like C&K holdings. Management accounting techniques involves three
measures to solve the financial problem. Benchmarking(analyse each weak aspects of downfall
and compares with best practising and find the differences) second is KPI(Key performance
indicator depicts the performance target for each department) third is Financial governance(it
records and analysed the financial informations) hence it solves the financial problem.
E. Planning tools which helps in handling financial issues
Besides the financial measures the planning tools also helps in solving the financial
problems by forecasting (it predicts regarding future conditions of company and forecasts the
future financial conditions and take action to improve it) scenario planning (flexibility of this
technique in dynamic nature can improve financial condition by maintaining creditability of
company also in financial crisis) contingency plan(it acts as the backup plan after occurring
uncertainties and in financial crisis the contingency can recover by using extra funds and
reserves held with the organisation.
CONCLUSION
From the above project report,it has been concluded that management accounting system
and reporting helps the internal stakeholders to records and analyse and evaluate the issue
regarding financial performance and other factors which affects the performance of organisation.
Here, the analysation the several techniques and measures in order to improve the financial
performance of the organisation. Planning tools are also analysed to secure the future of
organisation and to ensures the long growth of organisation by avoiding the various financial
problem by using the various financial problem solving approaches.
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