Management Accounting Report: Analysis of TECH (UK) LTD's Financials

This report offers a comprehensive analysis of management accounting, focusing on its application within TECH (UK) LTD. It begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its essential requirements, including financial analysis, investment decisions, and resource allocation. The report then explores various techniques such as activity-based costing, relevant costing analysis, and different costing systems (actual, normal, and standard). It also covers inventory management and job costing systems. Furthermore, the report delves into presenting financial information through different management accounting reports like budgeting reports, job cost reports, and performance reports, emphasizing their importance in evaluating the company's financial position and decision-making processes. The report also discusses the benefits of management systems for TECH (UK) LTD and how these systems integrate within the company's processes.

Management Accounting

Table of Contents
INTRODUCTION.................................................................................................................. 2
a). Management accounting and the essential requirements of management accounting system
............................................................................................................................................... 3
B). Presenting financial information:...................................................................................... 7
M1 Benefits of management systems under the TECH (UK) LTD..........................................9
TASK 2.................................................................................................................................. 9
Calculation of net profit under marginal and absorption costing:-..........................................9
M2. Application of techniques:............................................................................................. 13
D2. Data interpretation:........................................................................................................ 13
TASK 3................................................................................................................................ 13
A). Budget and its advantage and disadvantage....................................................................13
b).Different types of common costing systems which can be used for budgetary control:.....14
c) Importance of budget as a method for planning and controlling purpose:.........................15
M3. Use of various planning tools for making budget:.........................................................15
M4 How financial tools are used for evaluating the financial problems:...............................15
TASK 4................................................................................................................................ 16
D3 How planning tools for accounting respond for solving financial problems:...................16
CONCLUSION.................................................................................................................... 16
REFERENCES..................................................................................................................... 18
·

·INTRODUCTION
According to this report a system of Accounting for management, which provide
necessary and important information to the management for discharge of its function. This
function includes planning, directing, controlling and decision making it assist management
to carry out these function more effectively and efficiently in a systematic manner for
company in brief. Under this report, TECH (UK) Ltd. Produce a special Headphone and it
consider that, this accounting for management introduce betterment in communication
between various department about level of acknowledgement about which it is available to
all departments for the improvement in discussion (Wickramasinghe and Alawattage, 2012).
in this accounting report company will create the management accounting reports for making
decision in a manner that is appropriate for company. There are various type of and
techniques which are use to evaluate overall performance of company to achieve business
goals in efficient and effective way.
TASK 1
l壱a). Management accounting and the essential requirements of management accounting
system
This is a process of determination, intimation and demonstrate of information about
accounting that is incurred with the method of financial accounting method and cost
accounting method (Lavia López and Hiebl, 2014). Management accounting is use in
regulating policies of company and making decision and also provides appropriate discussion
about operation of company to the manager and accountant of organization.
Useful and essential factor of management accounting system are:
Financial analysis and planning
Investment decision
Allocation and management of financial resources
Protecting management
Financial and structure decision for raising goals in favourable terms
1. Differences between management accounting and financial accounting:-

No.BaseManagement accountingFinancial accountingobjectiveManagement accounting is
a system of giving proper knowledge about the execution of its function for managementIt is
recording of transaction and event or evaluate business results and financial position in
appropriate manner.Set of rules and regulationThere is no any Application of accounting
principles and convention are imply in this accounting system (Christ, 2014). This system is
concerned with a various type of rules and regulations or prescribed manner as applicable to
the organization PeriodReports and financial statement for management accounting can be
prepared in intervals or periodically throughout the yearIn financial accounting accounts are
made at end of financial yearResources Management accounting use financing data as well
as non-financial data both for the purpose of overall performance of companyFinancial
accounting use the financial data for preparation of final accounts.Criteria In this
accounting system criteria of allocation is separate for every department Criteria for
allocation is only the organization as complete for accounting.
2. Importance of management accounting information as a decision- making technique
for the department managers which are given below:-
Activity based costing:- (ABC) is an accounting function that identifies and assimilate
costs to overhead activity and assimilate those costs to product. An activity based costing
system recognises the relation among costs, overhead activity and manufacturing produce
with this relationship, it assigns indirect cost to product less arbitrarily than traditional
methods (Moser, 2012). (ABC) helps to reduce overhead cost which is targeted by the
company and also this costing system is used in targeting costing, process costing, product
line profitability analysis customer, profitability analysis in the company. Activity based
costing enhance the costing process in three ways. First, it expands the number of cost pools
that can be used to be assemble overhead cost. It also create new bases for assigning
overhead cost to such that cost allocated based on the activities that generate cost instead of
on volumes measure, such as machine hours or direct labour cost .
Relevant costing analysis:- Relevant costing is analysis of managerial accounting term that
refer avoidable costs that are incurred when making business decision. It is useful in short
term cause any decision should be approached by using relevant costing principles. Relevant
cost for company means that cost or charges which do not reflect additional cash spending
(such as depreciation and notional cost) should be ignore for the purpose of decision making.
Relevant cost are also incremental cost for the company which increase in cost and revenues.

The exercise of useful and important data:- Management accounting provide data that is
useful in preparation of financial reports and final accounts for company. Information and the
data provided by management accounting is used to formulate policies or strategies for the
development of company. The manager use data and exercise these data for the future
planning of the business sand future forecasting on the important data and also makes
strategies for the improvement of productivity of business in future or help to achieve pre set
data in pre-determined period for the company.
Buying decision:- Buying decision is the decision making process used by company
regarding market transaction before, during and after the purchasing. It can be seen as
particular form of cost-benefits analysis in the presence of multiple alternative (Hilton and
Platt, 2013). It is important action for management to select the best one between external
supplier or market. The manager doing this analysis is able to ascertain which option is
profitable for company.
3. Cost accounting system (actual, normal and standard costing):- This system is
framework used by the firms for the estimate of cost of the product for profit analysis,
inventory valuation or controlling cost. A company should know which product are profitable
and which one are not company as per the requirement of, and this can be ascertained only
when there is correct estimation of cost..
Difference between the NORMAL COSTING, ACTUAL COSTING AND STANDARD
COSTING:-
1NO.NORMAL COSTINGACTUAL COSTINGSTANDARD COSTINGActual direct
cost which are directly assigned with particular job as it is incurredActual direct costs are
assigned to job as incurredStandard direct costs are assigned to job as incurred.
1
1Manufacturing overhead is apportioned by using predetermined rate of overhead (Becker,
Ulrich and Staffel, 2011).Actual manufacture overhead apportioned only when actual costs
are knownManufacturing overhead rate is apportioned by using standard overhead rate.In this
costing actual cost are used to determine normal costingIn this costing actual cost are usedIn
this costing standard cost of actual cost is usedThis costing is accurate and fair method when
budgeted numbers for standard overhead is betterIn this method the cost control and
measurement of performance is not in the hand of companyThis method is useful for cost

controlling and the performance of standard. 4. Inventory management system:- inventory
management system basically a system of managing stock of company by using corrective
method of managing inventory. Inventory management has various option to balance
inventory of the organization. Inventory management system used by both who sell product
and produce the product. This system helps to prevent bugs in flow of inventoey.
The two important essential are:
· Planning and replenishing strategies (Jalaludin, sulaiman and nazil, 2011)
·Physically and monetarily both type of management of inventory.
5. Job costing system:-
Job costing system involves the process of collecting cost for each job specifically
related to that job (Eierle and Schultze, 2013). Each job is separate and independent of each
job. The information provided by job costing is useful in determination of accurate
estimation of company.
Job costing process inclusive of ;-
·Information about job order
·Pre-determined price of each job unit
·Period of completion of each job
·Job order
·Cost recognising
·Determination of cost for each job
·Production order
·B). Presenting financial information:
1. Following are the different types of management accounting reports:-
(MAS) are tools for understanding the TECH(UK) LTD. What is happening in the company
in quanty. in accordance to the standard accounting reports that the company must complish
for tax purpose, managerial reporting includes all type of collection of data that can give
useful information about operations. The various type of managerial accounting reports help

the management in preparation of effective management reports. The various type of reports
prepared by the management and advantage are given below:-
·Budgeting reports:- these report are prepared for planning to measure
performance of company while making analysis about the determination of
performance of company and also controlling cost. The past data are used in
preparation of financial budget that is actually incurred in past (Akbar, 2010). These
reports are useful to give bonus and more incentives to employees and also motivate
them to achieve the standard goals of company. The budget which are forecasting
based on reports which assist business to consolidate data and information.
·Job cost reports:- job cost are those cost which are associated with specific job,
work and contract of company. Each job cost will treated as single cost with
accordance of costing job costing also known as single costing. Job cost may be
inclusive of all similar job with same cost but single costing is applied on these job
cost.
·Inventory and manufacturing reports:- Company use this report to become more
efficient process of manufacturing and also company involve these kind of reports in
manufacturing so that it will better than previous. These report has overall
information about the cost per unit, labour overhead which are concerned with the
stock and helpful in distinguish between assigned cost or opportunity cost.
·Performance report:- these reports have overall preview of performance of
company which is concerned with the managerial accounting data and information.
These reports are prepared for the comparison between planned budget and actual
cost of the company. These reports are made whenever needed by the company for
evaluating performance either half-yearly or quarterly.
2. Importance of using these reporting system:-
All above given reports are useful for management accounting to evaluate financial
position of company and reflecting effects of these reports in business. All above discussed
reporting tools are used to recording of all essential transaction and event which are
concerned with set-format. Exactly the same reports of receivable and payable will used to

determination of collection and payment from various creditors and debtors. As well as
inventoey reports is used to ascertain the stock held with the company.
l壱M1 Benefits of management systems under the TECH (UK) LTD.
By using all these method or function, TECH (UK) LTD. can operate and run the
organization without any difficulty. There are is various tools which are used by company to
attains business objective and goals in effective or correct manner. Under this it can be seen
that company will able to run its business more effectively by adopting these method and
techniques (Leitner, 2013). Management accounting provides more beneficiary objective to
company when providing important information and data also company will able to increase
in the liquid profitability ratio with the use of management accounting system(MAS).
l壱D1. How management accounting system and management accounting reporting integrates
within the company process
Managerial accounting system help to TECH(UK) LTD. To prepare the managerial
accounting reports within effective and more appropriate decision so that company will be
able to attains business goals in effective manner with budgeted figures and period. This is
correct action taken by the company to achieve their business goals by running their business
smoothly. So the both the system of management accounting reports and management
accounting system is integrated.
·TASK 2
·Calculation of net profit under marginal and absorption costing:-
Marginal costing: marginal costing is system of costing whereby all variable fixed
cost excluded from the total cost and variable cost is inclusive in total cost of product for
costing. It is used to ascertain the change in the volume of activity with the change in
variable cost or profit. The marginal costing requires a clear difference between fixed and
variable cost and this is the widely usable method of costing.
Absorption costing:- absorption costing is method of costing in which direct variable
cost and direct fixed cost both are inclusive in the charging of all cost. It is different from
marginal costing, the main difference is exclusion of fixed cost for costing in marginal
costing method.

Income statement on the basis of Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing£Amount £ AmountSales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
Variable sales overheads

Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
NIL
30000
(7500)
15000
10000
52500
(22500)
(7875)

22125
(25000)
Net loss-2875
Income statement on the basis of Absorption costing method
Selling Price per unit£35Unit costsDirect materials cost£8Direct Labour cost£5Variable
Production overhead£2Variable sales overhead £5.25Budgeted
production during the year is 3000 units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: under this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material £8
Direct labour £5
Variable cost £2
Fixed cost £5
Total £20
Working Note 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000

Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: £15000
Fixed overhead: £10000
Total £5000 (under absorbed)
Net profit using absorption costings£Amount £AmountSales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)