Management Accounting Report: Financial Problem Solving in Business

This report provides a comprehensive overview of management accounting, focusing on its application within a manufacturing business, Volpi Ltd. It begins by defining management accounting and exploring its various systems, including cost accounting, inventory management, job costing, and price optimization systems. The report then delves into the different types of management accounting reports, such as job costing reports, departmental reports, performance reports, and operating budget reports. The core of the report examines cost calculation techniques, comparing and contrasting marginal costing and absorption costing, highlighting their advantages and disadvantages. Finally, the report analyzes the advantages and disadvantages of various planning tools, such as fixed budgets, and concludes by comparing how different organizations adapt management accounting systems to address financial problems.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting systems..........................................................................................1
P2: Management accounting reports............................................................................................3
TASK 2............................................................................................................................................4
P3: Calculation of costs using appropriate techniques................................................................4
TASK 3............................................................................................................................................6
P4: Advantages and Disadvantages of planning tools.................................................................6
TASK 4............................................................................................................................................8
P5: Comparison of organizations in adaptation of management accounting systems to solve
financial problems........................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is a process through which timely financial and statistical
information is prepared for the business managers which can help them a lot in taking day-to-day
and short-term decisions (Alamri, 2019). It use can be very useful for the managers to allow
them to analyse and interpret the financial information in an effective manner. Therefore in this
way they can find out problems and issues within the organization and use the right approach for
rectifying them to achieve a higher-level of efficiency and effectiveness. This report is based on
Volpi Ltd. It is a medium-sized business which deals in the manufacturing sector. In this
assignment, focus will be made on understanding of management accounting systems,
application of its techniques. Additionally, specific analysis on explanation of planning tools and
comparison of ways in which organizations make use of it to resolve financial problems will be
discussed as a part of this project.
TASK 1
P1: Management accounting systems
Management accounting- Management accounting is a tool through which decisions are
taken effectively by the management of the organizations (Management Accounting, 2020).
Different types of tools like budgeting, variance analysis, cost-volume-profit analysis and BEP
are used in it. Its use can be made by the management of Volpi Ltd. so that it is able to take the
right decisions in an effective manner.
There are various types of systems which are present under it. These are explained as
follows-
Cost accounting system- It is a system through which there is an estimation of various
types of costs. In an organization, there can be various costs like Fixed Cost, Semi-Variable Cost
and Variable Cost (Askarany, 2016). Thus use of this system is crucial for obtaining the right
information related to the different types of costs in an effective manner. Therefore the managers
of Volpi Ltd. Can make sure that they make use of it to assess the costs effectively and apply
techniques to reduce it.
Essential requirements-
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 It should be able to help the managers in ensuring that they are able to identify and
segregate the different types of costs. In Volpi Ltd. this can be quite useful for the
managers.
 It must be able to ensure that the managers are able to ensure the right apportionment of
the various types of overheads. Therefore, in the context of Volpi Ltd., this can help the
management a lot.
Inventory management system- In it, there is use of various techniques and methods in
order to ensure that the stock level is properly and effectively managed (Botes and Sharma,
2017). In Volpi Ltd., the use of this system is made to track and manage the different items in the
stock level. Thus in this way proper management of inventory can be ensured within the
organization.
Essential requirements-
 It must ensure that the different items in the stock of the organization are managed and
tracked properly. In Volpi Ltd., this can be quite useful for the proper management of the
different types of items.
 In it, there is a use of various techniques so that the overall costs in the company are
effectively reduced. In the context of Volpi Ltd., this can be quite helpful in the reduction
of inventory management costs.
Job costing system- In this system, accounting of various types of job orders is done in
an effective manner (Doktoralina and Apollo, 2019). In the context of Volpi Ltd., the use of this
system is quite essential so that the inwards and outwards movement of job orders is effectively
managed.
Essential requirements-
 It should be able to ensure that the different job orders are managed in an appropriate
manner. Thus, in the context of Volpi Ltd. This will be able to help the managers in
properly estimating and managing them.
 It must help the managers in identification and reduction of job costs. In Volpi Ltd., the
required help can be provided to the managers so that they can reduce the costs and
enhance the level of profits.
Price optimization system- In this system, the management of the organizations uses the
appropriate techniques to determine the prices of different types of products (Endenich and
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Trapp, 2020). In Volpi Ltd., the use of this system can be made so that the appropriate
estimations and forecasts can be made in an effective manner. In Volpi Ltd., the use of this
system can be made by the managers to identify the ways through which level of profits can be
enhanced.
Essential requirements-
 The use of this system must be made so that the estimation of the prices can be made
effectively in the organization. Therefore, in Volpi Ltd. this can be useful for setting
prices.
 This method is used by the organizations so that they are able to make sure that they can
enhance the overall level of profits. Thus, in Volpi Ltd. This can help in targeting
maximization of profits.
P2: Management accounting reports
There are various types of reports which are used in management accounting. Some of
them are explained as follows-
Job costing reports- These reports are quite useful for the managers to manage the job
costs in a proper manner (Ghasemi and et.al., 2016). Using them, the managers of an
organization can easily ensure that they are able to estimate and manage the job orders in a
proper manner. Therefore, in the context of Volpi Ltd. it is very useful to ensure that they are
effectively managed. By using them the managers of the company can identify the ways through
which they will be able to estimate the profits in a better manner effectively and efficiently.
Departmental reports- An organization is formed by different types of departments.
These are Production, Finance, HR, Sales and Marketing. With the use of these reports an overall
estimation of the level of efficiency and effectiveness of these departments can be made in an
effective manner. Thus, in Volpi Ltd. the use of these reports is quite helpful in ensuring that the
problems and issues which are faced by the departments can be estimated and the right steps are
taken in order to rectify them. Thus in this way an overall improvement can be facilitated in the
performance of the departments.
Performance reports- The use of these reports is made by the managers in an
organization so that they are able to estimate the overall performance in an effective manner.
Their use can be made by Volpi Ltd. in order to ensure that its managers are able to identify the
deviations and variations in the performance against the set standards and use appropriate ways
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to rectify them. Also they can be used so that a comparison can be facilitated with the other firms
and thus the right recommendations are provided to the managers which will enable them to use
effective techniques to facilitate the required improvement in the performance.
Operating budget report- These reports are used by the management so that it is able to
frame the budgets in an effective manner (Jack, 2017). Volpi Ltd. Can make use of them so that
it is able to ensure that the overall efficiency and effectiveness can be judged by it. Thus in this
way the management of the company will be able to derive the right conclusions and
recommendations for facilitating improvement in its processes.
TASK 2
P3: Calculation of costs using appropriate techniques
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The use of different types of techniques can be made by the organizations in order to
estimate the costs. These are explained as follows-
Marginal costing-
It is a technique through which the management can assess the level of profitability in the
organization (Lindholm, Laine and Suomala, 2017). By using it, a Break-even point can be
prepared which is a point where there is no profit and no loss for the organization. This method
is quite useful for the management of Volpi Ltd. So that they are able to assess the Break-even
point and take effective decisions for the future time period.
Advantages-
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 This technique is quite useful for the organizations to ensure that they can control the
various types of costs in an effective manner. Thus its use can be made by the managers
of Volpi Ltd. so that they are able to ensure that they can identify the costs and reduce
them.
 The use of this method is useful for the managers of the firms because it helps in the
assessment of Break-even point. Thus in this manner the managers of Volpi Ltd. will be
able to ensure that they are able to estimate this point which will be quite helpful for them
in the analysis and interpretation.
Disadvantages-
 With this method, the managers of the organizations cannot ensure the proper treatment
of the various overheads. Thus in the context of Volpi Ltd. this can lead towards a
disadvantage.
 The use of this technique is based on certain assumptions. Thus if these assumptions are
wrong then a disadvantage can be created due to the use of this technique. In Volpi Ltd.,
this can create a disadvantage.
Absorption costing-
It is a technique through which an estimation of the different types of costs can be made
in an effective manner within the organizations (Nitzl, 2018). By making its use, the managers of
the firms will be able to make sure that they can estimate the costs in a proper manner and
segregate the overheads in a proper manner. Therefore the management of Volpi Ltd. can use it
so that it is able to assess the costs effectively and efficiently.
Advantages-
 When this technique is used by the organizations it can ensure that the different types of
fixed costs are considered by them. Thus in the context of Volpi Ltd. it can be helpful in
ensuring that the overall costs can be effectively calculated.
 The use of this method by the firms can lead towards better segregation of the different
types of overheads. Therefore, in Volpi Ltd. this can be quite helpful in ensuring that the
overheads can be apportioned in an effective manner.
Disadvantages-
 The use of this method by the firms can lead towards skewness in the accounting of profit
or loss. Therefore, in Volpi Ltd. this can create a disadvantage.
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 When this technique is used by the organizations no influence is created on the overall
operational efficiency. Thus in Volpi Ltd. a disadvantage can be created due to it.
Thus, both of these techniques are used by the management of Volpi Ltd. to effectively
estimate the costs in the organization. By making use of both of them the managers of the
company will be able to make sure that they can appropriately draw the required
recommendations and conclusions. This will help a lot in bringing the necessary improvements
in an effective manner within the firms. Therefore it is required from the managers of the
company that they use these techniques to estimate the profits and identify the strategies to be
applied in the future for targeting its enhancement.
TASK 3
P4: Advantages and Disadvantages of planning tools
In the organizations, the use of different types of planning tools can be made. This allows
them to be able to make appropriate plans for the future time period. In Volpi Ltd., the following
planning tools are used-
Fixed budget-
In these type of budgets, the organizations keep fixed values in their calculations (Orelli,
Padovani and Katsikas, 2016). They can be used by the management when there are very less
fluctuations which are witnessed in the organizations. The use of these budgets is made by the
management of Volpi Ltd. so that it is able to estimate the level of profits in an effective manner
without problems and issues.
Advantages-
 Using these types of budgets can help the firms to be able to maintain a stability in their
calculations. Thus in this way this can create an advantage for the managers of Volpi Ltd.
 These budgets are quite easy to implement and follow and thus in this way create a
benefit for the enterprises. Thus for Volpi Ltd., an advantage is created due to this.
Disadvantages-
 When these budgets are used it affects the level of flexibility in the organizations. This is
so because the figures cannot be changed quickly. Therefore, this creates a disadvantage
for the managers of Volpi Ltd.
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 These budgets are based on the previous data of the organizations and thus there can be
difficulty in establishing and implementing them. Thus, this creates a disadvantage for
Volpi Ltd.'s managers.
Flexible budget-
In this budget, there is a relative flexibility which is available for the organizations so that they
are able to ensure that they can achieve a higher-level of efficiency and effectiveness (Ostaev
and et.al., 2019). The use of this budget can be made by Volpi Ltd. so that it is able to estimate
its requirements in a proper manner.
Advantages-
 If a firm needs to perform calculations at different activity levels then the use of this
budget can be quite useful. Thus in this way it creates an advantage for Volpi Ltd.
 It provides the desired level of flexibility to the organizations so that they can adjust their
figures in an effective manner. For Volpi Ltd., this can create an advantage.
Disadvantages-
 It estimates the different types of variances in the figures. However, it does not identifies
the specific reasons due to which the variances have been created. Thus for Volpi Ltd., a
disadvantage can be created due to it.
 If its prepared wrongly then it can lead towards inaccurate figures which can impact the
reputation of the company. Therefore for Volpi Ltd. a disadvantage can be created due to
it.
Sales budget-
In this budget, an overall estimation of the sales of the organization is made (Procházka,
2017). Therefore it can be quite useful to identify and assess the requirements related to the sales.
By making use of it, Volpi Ltd. can ensure that it is able to assess its sales figures in an accurate
manner.
Advantages-
 The use of this budget can be helpful for the organizations in properly estimating the
sales figures. Thus in this way an advantage can be created for Volpi Ltd.
 Using this budget can help the firms in performing comparisons with other organizations
in an effective manner. Therefore this creates an advantage for Volpi Ltd.
Disadvantages-
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 It is a time-consuming process to prepare a Sales budget. Thus this creates a disadvantage
for Volpi Ltd.
 It is quite costly to prepare a Sales budget. Therefore in this way a disadvantage is
created for Volpi Ltd.
TASK 4
P5: Comparison of organizations in adaptation of management accounting systems to solve
financial problems
Financial problem- It refers to a situation in which the organization's financial position
is affected (Quinn and Hiebl, 2018). Like other organizations, Volpi Ltd. also faces certain
financial problems. These are explained as follows-
Excessive overhead costs- In Volpi Ltd., the overhead costs have increased a lot. This is
creating problems and issues for the company because it is leading towards an increase in the
overall costs. Thus an impact is being created on the profitability level of the organization.
Mismanagement of job orders- Volpi Ltd.'s job orders are not being managed in a
proper manner. Therefore in this way a problem is being created for the organization because it
is leading towards an overall increase in the job costs and a reduction in the level of profits.
Techniques to solve financial problems-
 KPIs- It refers to Key Performance Indicators (Tucker and Lawson 2016). They are used
as metrics so that a thorough assessment of the level of performance can be made. In this
way the managers of Volpi Ltd. can make sure that they are able to solve the problem of
overheads because by using this technique the company can assess the areas where the
costs have increased and apply proper methods for facilitating their reduction.
 Balanced scorecard- It is a strategic tool through which an organization performs a
thorough assessment of the activities performed by the staff (Wnuk-Pel, 2018). The
management of Volpi Ltd. Can use it so that they are able to solve the problem of job
orders as accountability of staff members can be fixed in case of mismanagement of job
orders in the organization.
Comparison of organizations
Basis Arcadia Group Marks & Spencer
Financial problem It is facing the financial It is facing the financial
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problem of mismanagement of
inventory due to which there
has been a substantial increase
in the overall inventory
management costs.
problem of setting of wrong
price. This is impacting the
overall level of profitability in
the organization and is
affecting its operations.
Management accounting
system used
The company makes the use of
Inventory Management
System to solve the problem.
The organization makes the
use of Price Optimization
System to solve the problem.
Application of the system Inventory Management
System can be applied in the
company to assess and track
the various inventory items.
Price Optimization System can
be applied in the company so
that the prices can be set after
forecasting and estimation of
the relevant data.
Thus, learning from the examples of Arcadia Group and Marks & Spencer, the
management of Volpi Ltd. can make use of management accounting systems so that it is able to
solve its financial problems in an effective manner. It can make use of the Cost Accounting
System to solve the problem related to overheads and can use the Job Costing System so that the
problem related to the job orders can be solved in an effective manner.
CONCLUSION
From the above report, it can be concluded that management accounting is a process of
taking of effective decisions by the management of the organizations. It is helpful in performing
the relevant analysis and interpretation by the management of the firms so that they can derive
conclusions and recommendations which can be very useful for them in the future. There are
various types of systems which are used under it. Its reports are quite useful from the point of
view of the firms. Costs can be calculated using the techniques of Marginal Costing and
Absorption Costing. Planning tools can be used to create appropriate plans in the organization.
Organizations can make the use of management accounting systems to be able to solve the
various types of financial problems in a highly effective manner.
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REFERENCES
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Askarany, D., 2016. Attributes of innovation and management accounting changes.
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Endenich, C. and Trapp, R., 2020. Ethical implications of management accounting and control:
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Ghasemi, R. and et.al., 2016. The mediating effect of management accounting system on the
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Jack, L., 2017. Strong structuration theory and management accounting research. Advances in
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Lindholm, A., Laine, T. J. and Suomala, P., 2017. The potential of management accounting and
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Nitzl, C., 2018. Management accounting and partial least squares-structural equation modelling
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Orelli, R. L., Padovani, E. and Katsikas, E., 2016. NPM reforms in Napoleonic countries: a
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management accounting in agriculture. Amazonia Investiga. 8(20). pp.135-143.
Procházka, D., 2017. The unintended consequences of accounting harmonization in a transition
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Contemporary Economics. 11(4). pp.443-458.
Quinn, M. and Hiebl, M. R., 2018. Management accounting routines: a framework on their
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Tucker, B. P. and Lawson, R., 2016. Moving academic management accounting research closer
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Online
Management Accounting. 2020. [Online]. Available through:
<https://efinancemanagement.com/financial-accounting/management-accounting>
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