Management Accounting Report: Planning and Financial Problem Solving

This report examines the application of management accounting principles within the context of Tech Ltd, a company involved in manufacturing and selling mobile chargers and electronic gadgets. The report begins by differentiating management accounting from financial accounting, highlighting its role in internal decision-making, and then delves into the importance of management accounting for effective business decisions, including forecasting, investment analysis, and make-or-buy decisions. It explores various management accounting systems such as cost accounting, inventory management, and job costing, detailing their advantages and disadvantages. The report also discusses the role of managerial reporting systems, including budget reports, job cost reports, receivable reports, and inventory reports, in facilitating informed decision-making. Furthermore, the report analyzes the use of absorption and marginal costing methods, demonstrating their impact on profit calculations and decision-making. It also presents the application of managerial accounting techniques in planning, including the use of different types of budgets, and their advantages and disadvantages. Finally, the report explains how managerial accounting tools can aid in responding to financial problems, offering a comprehensive overview of management accounting's role in achieving financial goals and optimal resource utilization.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 (a). Management accounting systems and their requirements in the context of business unit
.....................................................................................................................................................3
1. Explaining the manner in which management accounting differs from financial...................3
2. Importance of management accounting in decision making aspect........................................4
3. Cost accounting system...........................................................................................................5
4. Inventory management system................................................................................................5
5. Job costing system...................................................................................................................6
P2 (b). Managerial reporting system...........................................................................................6
1. Presenting varied managerial reports and their role in decision making.................................6
2. Stating reason behind the presentation of information in an understandable manner.............7
TASK 2............................................................................................................................................8
P3. Use of absorption and marginal costing method in decision making....................................8
TASK 3..........................................................................................................................................10
P3 Presenting the use of managerial accounting techniques in planning..................................10
Different types of budget and their advantages as well as disadvantages.................................10
Defining budget preparation process and methods pertaining to price determination..............11
Stating the importance of budget as s tool for planning and control purpose...........................12
TASK 4..........................................................................................................................................13
P5 Explaining ways in which managerial accounting tools help in responding financial
problems....................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
In the recent times, business units prefer to employ management accounting tool with the
motive to make optimum use of financial resources. Moreover, MA field of finance furnishes
information about cost and thereby helps in taking decision about future aspects. By using
management accounting techniques firm can do effectual financial planning which in turn makes
significant contribution in the attainment of goals. This report is based on the case scenario of
Tech Ltd which manufactures and offers mobile chargers as well as electronic gazettes to the
customers. In this, essential requirements of management accounting in the context of Tech Ltd
will be described. Further, report also depicts the role of managerial report indecision making.
Besides this, report will provide deeper insight about the use of marginal and absorption costing
in decision making. It also exhibits the manner in which MA techniques help in planning and
responding financial problems.
TASK 1
P1 (a). Management accounting systems and their requirements in the context of business unit
1. Explaining the manner in which management accounting differs from financial
Management accounting is the process of preparing managerial reports and accounts
which aid in the long & short decision making aspect of business organization. It lays high level
of emphasis on identifying, measuring, analyzing, interpreting and communication information
that contributes in the goal attainment (Mondal and Percival, 2010).
Management and financial accounting can be distinguished in the following manner:
Basis of difference Management accounting Financial accounting
Meaning It focuses on providing
managers with suitable
information about internal
operations so they become able
FA is concerned with the
recording of business
transactions and providing
stakeholders with the

to take prominent decisions. framework for decision
making.
Use Give input to the internal
management team for taking
decision about budget etc.
Enables both internal and
external stakeholders in
analyzing the financial
performance of firm (Financial
Accounting vs. Management
Accounting, 2018).
Form of reporting In this, no prescribed or specific
format is following for
reporting purpose.
Financial reports are prepared
by taking into account
standardized format.
Frequency or time duration As per the requirements of
management team managerial
reports are prepared.
On statutory basis, financial
accounting report are drafted
and presented on annually and
semi-annually basis.
Statutory compliance No Yes or mandatory
Rules Under MA, no need to follow
specific rules while preparing
reports
IFRS, GAAP, IAS
2. Importance of management accounting in decision making aspect
Manager of Tech Ltd can take suitable business decisions considering management
accounting aspects about following matters:
 Management team can make proper forecast about future aspects. Such field of finance
enables manager in deciding whether more funds should be invested in equipments or
not.
 It facilitates appropriate decision making at both strategic and operational level. Tech
Ltd’s manager can assess whether firm should purchase product from third party or
manufacture them in house (Lukka and Modell, 2010). Thus, management accounting
tools help company in taking the most important decision pertaining to make or buy.
 Variance analysis technique of management accounting enables manager to build on
positive results and make efforts to manage the negative aspects.

 Facilitates appropriate forecasting of cash flows through budgeting and helps in making
suitable estimation about the rate of return.
3. Cost accounting system
Management team of Tech Ltd can capture or assess the cost of production by using cost
accounting system. It lays focus on recording input cost associated with each step of production.
Cost accounting system offers opportunity in relation to doing comparison of actual performance
in against to the budgeted figures (Modell, 2010). Hence, by assessing deviations or variances
firm would become able to take corrective measure for improvement within the suitable time
frame.
Advantages
 CA system enables management team of Tech Ltd to detect loss and assess reason
behind the same
 Provides assistance in formulating future production policies
 Gives input for setting suitable prices of the products or services offered
Disadvantages
 Aspects regarding under or over overhead absorption leads problem
 In the case of partial capacity utilization, such system is not considered as useful
 This system presents past information, whereas management is taking decision about
future
4. Inventory management system
By employing inventory management tool manager of Tech ltd can maintain suitable stock
and thereby would become able to carry out operations without any difficulty. Through
undertaking economic quantity method Tech Ltd can decide the level to which they need o
maintain raw material within the business unit. This in turn helps in making control on ordering
and holding cost (Baldvinsdottir, Mitchell and Nørreklit, 2010). Further, FIFO method is highly
effectual which contributes in effective stock management and reduces risk level associated with
the introduction or use of new technological aspects.
Advantages Disadvantages

 Leads cost reduction
 Maximizes profit level
 Avoids bottlenecks in the production
activities
 For determining optimal inventory
level or value manager has to devote
more time.
 Training needs to be organized for
developing familiarity of personnel
regarding inventory software.
5. Job costing system
This system assists business unit in allocating manufacturing product to an individual or
batches of products. By using this, Tech Ltd can assess cost of material, labour as well as
overhead and thereby would become able to identify cost per unit (What is Job Costing?, 2018).
Considering unit cost such manufacturing firm can set suitable prices of the products or services
offered.
Advantages Disadvantages
 High flexible and provides assistance
in calculating indirect cost
 Offers opportunity in relation to
making assessment of expenses
incurred
 Enables to assign cost to the
individual product and thereby helps
in assessing profit margin
 It includes more clerical work in
relations to the recording of business
transactions.
 Includes measurement difficulties

P2 (b). Managerial reporting system
1. Presenting varied managerial reports and their role in decision making
For the purpose of effectual decision making Tech Ltd should make focus on undertaking
managerial reporting system. There are several reports which furnish information about internal
operations or departmental performance and thereby aid in competent decisions.
 Budget report: It helps in assessing department which is performing well and the one that
demand for improvement. Budget report reflects the level to each department has met
budgeted figures. Hence, referring the results of variances Tech Ltd would become able
to develop suitable strategies and employee’s incentive plan.
 Job cost report: This report renders information about the profitability of each job. On
the basis of such report, manager becomes able to make comparison of expenses incurred
on each job with the revenue generated. This in turn helps in assessing business segments
that is facing issues. Hence, by taking suitable measures firm can attain and improve
profitability to a great extent.
 Receivable report: Tech Ltd can identify the time period within which debtors are
making payment due to them. Such report helps in identifying customers who make
default in payment (Ezzamel, Robson and Stapleton, 2012). By taking into account
receivable report business unit can decide whether it should make changes in the existing
credit policy or not.
 Inventory report: Considering such report manager of Tech Ltd can get information
about inventory wastage, per unit labour hour and overhead cost. Hence, by comparing
all such aspects with standards and past figures company can assess the level of
improvement. Thus, inventory report gives quick indication to the manager of Tech Ltd
in relation to taking strategic action for improvement and controlling cost level.
2. Stating reason behind the presentation of information in an understandable manner
In regards to managerial report, information presented must be concise, complete and
clear. Moreover, objective of management team behind the preparation of managerial reports is
to take competent decisions which make contribution in the goal attainment (Kaplan and
Atkinson, 2015). Thus, management accounting team of Tech Ltd requires to present
information in a specific format which clearly reflects departmental and cost performance.

Hence, emphasis should be placed on presenting information systematically rather than
haphazardly.
TASK 2
P3. Use of absorption and marginal costing method in decision making
Marginal costing: It may be served as a decision making technique which assists in
ascertaining or assessing the total cost of production. Under this costing method, variable cost is
recognized as product cost, whereas fixed terns as periodical (Nawaz, 2013). In this, PV ratio
presents profitability associated with the operations.
Profitability statement as per marginal costing
Particulars
Figures
(in £)
Figures
(in £)
Turnover 52500
Less: Variable expenses
Direct labour 10000
Material 16000
Variable production overhead 4000
Less: Ending inventory 7500 22500
Contribution (sales – variable cost) 30000
Variable selling & dist expenses (52500 * 15%) 7875
Net contribution 22125
Less fixed cost:
Fixed Production Overhead 15000
Fixed Selling, dist and administration expenses 10000 25000
Net loss -2875
Absorption costing: In this, total cost of production is determined through the means of
expenses apportionment as per respective centre. This is also known as full costing method
because it considers both fixed and variable expenses for the assessment of manufacturing cost
(Absorption Costing, 2018). It presents cost data in a conventional way and helps in highlighting
net profit per unit.

Income statement under absorption costing method is presented below:
Particulars
Figures
(in £) Figures
(in £)
Sales revenue 52500
Less: COGS (refer working note 2) 30000
Gross profit (Sales – COGS) 22500
Less: Under absorption 5000
Net gross margin 17500
Less: selling, dist and adm. expenditure
Fixed 10000
Variable 7875 17875
Net loss (375)
By applying the tool of marginal and absorption costing method it has assessed Tech Ltd
will suffer loss. However, as compared to the marginal costing method, absorption tool presents
lower level of loss such as 375 GBP significantly. The rationale behind the difference in the loss
derived through absorption and marginal costing method is the variations take place in
manufacturing cost. Absorption costing method considers both fixed and variable expenses so on
the basis of this manufacturing cost implies for 20 GBP. In contrast to this, due to exclusion of
fixed expenses, under marginal costing, manufacturing cost accounts for 15 GBP. Thus, due the
inclusion and exclusion aspect of fixed cost differences take place in the results of marginal as
well as absorption costing method.
Working note 1:
Manufacturing cost per unit: Material + labour + fixed and variable production overhead
5 + 8 + 2 + 5
= 20

Working note: 2
Particulars Figures (in £)
Production cost 2000 * 20 40000
Less: Ending inventory 500 * 20 10000
Cost of goods sold (Opening
stock + purchase – closing
inventory)
40000 – 10000= 30000
Reconciliation statement
Particulars Amount
Net loss according to absorption costing method (375)
Less: Fixed production overhead pertaining to closing stock (500 units @ 5 each) (2500)
Net loss condition in accordance with marginal costing method) (2875)
TASK 3
P3 Presenting the use of managerial accounting techniques in planning
Different types of budget and their advantages as well as disadvantages
Budget presents revenue which will generate during the specific time frame over the
expenses. For making optimum use of monetary resources Tech Ltd makes focus on preparing
budgets. Varied budgets which Tech Ltd can prepare for planning purpose are as follows:
Cash budget: Such budgeting framework helps company in assessing whether it has
enough cash for performing business activities or not. This budget includes an estimation of cash
inflows and outflows pertaining to the specific time frame (Kemp and et.al., 2015). Hence, cash
budget includes information about revenue generated, expenses paid, loan receipt etc. Using cash
budget Tech Ltd can evaluate its financial performance and control the same.
Advantages Disadvantages
 Provides information about  It is based on estimated figures

company’s cash position
 Helps in identifying the amount of
cash needed for fulfilling short term
obligations without overdraft
which in turn limits its significance
level
 Lack of flexibility
 Includes manipulation
Capital expenses budget: This financial plan presents amount and time when fixed assets
will be purchased by the business unit. Capital expenditure budget provides high level of
assistance in organizing activities for the upcoming time period.
Advantages Disadvantages
 Ensures appropriate planning
 Facilitates appropriate investments on
time
 Time intensive activity
Static budget: This budgeting framework remains same at each level of activity or output.
In other words, such budget is not affected from the changes take place in the number of
production units (Drury, 2013).
Advantages Disadvantages
 Facilitates prioritization of activities
 No need to update on continuous
basis
 Helps in performing budgetary
control
 Inflexibility
 Static budget does not facilitate
allocation of additional resources
Defining budget preparation process and methods pertaining to price determination
By using below mentioned process manager of Tech Ltd can draft suitable budgeting
framework such as:
 Assessment of cash inflow and outflow by taking into account activities which need to be
performed during the specific time frame.

 In the next stage, manager also takes input from the managers of each department for
developing appropriate plan
 Presenting financial estimation to the budget committee for getting approval
 Circulating final budget at all respective or concerned department
 Execution of budget
 Matching actual income and expenses with the budgeted figures
 Assessing deviations and taking measures for performance enhancement
Price can be determined by Tech Ltd through doing demand and supply analysis. In the
case of more demand and low supply firm can set high prices of the offerings. Further, by
making evaluation of competitors policy manager of the business unit determine the prices of its
own offerings (Ellul and et.al., 2015). In addition to this, by adding margin, which firm wishes to
attain, in per unit cost company can set appropriate prices of the mobile chargers and electronic
gazettes offered by it.
Stating the importance of budget as s tool for planning and control purpose
Significance of budget as a planning and controlling tool can be presented in the
following manner:
 Budget provides manager with the standards and helps in comparing the same with actual
financial performance. Through this, Tech Ltd can assess the extent to which budgeted
figures are met. Budget or budgetary control tools offer opportunity to the manager to
identify reasons take place behind deviations. Hence, considering deviations firm can
take corrective measure on time and thereby becomes able to improve or control
performance.
 In addition to this, deviations assessed through budgetary control help in setting suitable
standards for the upcoming time period (Otley and Emmanuel, 2013). By taking into
account reasons take place behind deficiency Tech Ltd can set realistic and achievable
budgeting plan.
Thus, by taking into account above depicted aspects it can be mentioned that Tech Ltd can
develop suitable financial plan and control performance by taking into account budgeting or
budgetary control tool.

TASK 4
P5 Explaining ways in which managerial accounting tools help in responding financial problems
From assessment, management team of Tech Ltd has found the loss of 1.5 GBP millions
which is not good from the perspective of company’s growth. Hence, for dealing with such
situation Tech Ltd is planning to undertake balance scorecard strategy. Moreover, such tool helps
in aligning actions or strategies with the business goals. The reason behind this, balance
scorecard tool helps in investigating issue from several perspectives such as learning & growth,
business process, customers and financials (Holsapple, 2013). Hence, by making evaluation of
performance on the basis of such four main aspects Tech Ltd would become able to develop
suitable policy framework. Further, by using BS firm can ensure that each individual is
performing as per the strategic framework or not. Hence, with the help of balance scorecard tool
business unit can measure and monitor progress in the context of strategic targets.
In addition to this, there are several management accounting tools which leading business
units such as Dixon and Vodafone plc employs for responding monetary problems such as:
 KPI’s: Sales, profit margin, customer base, market share etc are considered as the main
indicators which presents the extent to which company’s performance is good. With the
motive to get the desired level of outcome or success Dixon and other firms lay focus on
setting specific key performance indicators. Thus, comparing performance in against to
KPI’s firm would become able to develop framework which helps in gaining competitive
edge over others.
 Benchmarking: Using benchmarking tool firm can assess deficiencies which take place
in financial aspects. It enables firm to compare performance on periodical basis and give
indication about improvement. Companies can easily assess the reasons behind
deficiencies take place in revenue and expenses by using benchmarking tool. Hence, such
tool helps in taking remedial measure within the suitable time frame and thereby helps in
getting the desired level of outcome or success (Mondal and Percival, 2010). However,
on the critical note, it can be depicted that high benchmarks or unachievable standards
decreases the level of employee morale and motivation. l
 Financial governance: In accordance with such tool, companies evaluate their
performance by taking into consideration stringent rules as well as guidelines (Kaplan

and Atkinson, 2015). Using financial governance tool firm can assess loopholes and take
action for improvement.
CONCLUSION
In conclusion to this report, it can be presented that managerial tools such as cost
accounting, job costing and inventory management aid in suitable decision making. It can be
seen in the report that by undertaking managerial reporting system manager of Tech Ltd would
become able to evaluate the performance of department. Further, it has been articulated that
absorption costing method presents fair view of manufacturing cost by taking into account both
fixed and variable expenses. It can be depicted that by undertaking budgeting management team
of Tech Ltd can do prominent panning in relation to the usage of financial resources. Besides
this, it can be summarized from the report that budgetary control tools such variance analysis
offers opportunity to Tech Ltd in relation to evaluating departmental performance and taking
corrective measure for improvement.

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