Management Accounting Report: Agmet's Financial Analysis

This report presents a management accounting analysis of Agmet, a small chemical manufacturing company. It explores various aspects of management accounting including the importance of management accounting techniques, and essential requirements such as traditional, lean, and cost accounting systems. The report delves into job costing, batch costing, and inventory management, highlighting their significance for Agmet. It also discusses the benefits of implementing management accounting techniques, such as improved cash flow, expense reduction, and enhanced decision-making. Furthermore, the report includes financial reporting methods, such as job cost reports, inventory management reports, and sales reports. The report also includes a task involving calculations of marginal costing and absorption costing methods, providing a practical application of these techniques for Agmet's financial analysis. Finally, the report emphasizes the integration of management accounting into business activities and concludes with a summary of key findings and recommendations for Agmet.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1............................................................................................................................................1
M1...........................................................................................................................................2
P2............................................................................................................................................3
D1...........................................................................................................................................4
TASK 2............................................................................................................................................4
P3 & M2.................................................................................................................................4
D2...........................................................................................................................................7
TASK 3............................................................................................................................................7
P4............................................................................................................................................7
M3...........................................................................................................................................9
D3 & M4...............................................................................................................................10
TASK 4..........................................................................................................................................11
P5..........................................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting can be referred as a system through which any entity can carry
on their operations in an efficient and efficient manner so that they can achieve the
predetermined goals and objectives. In this report there are several techniques and methods have
been defined in which the concepts have been mentioned which can be utilized by an entity for
the management of cited entity. This report is based on the case study of Agmet which is a
chemical manufacturing company this company is having less than 50 employees and its annual
turnover is less than £500,000 hence it can be said that there are very less and limited financial
and non financial sources available with cited firm(Ajibolade, Arowomole and Ojikutu, 2010).
Hence it gets very important for any firm to properly utilize the available funds in a way so that
they can get the desirable returns in a specific time period.
TASK 1
P1.
Management accounting system can be defined as the type of procedure in which
concepts of both the financial accounting and management has been involved. The entity which
is adopting management accounting techniques can properly utilize its available resources.
Agmet is a chemical manufacturing company in United Kingdom which is considered as the
small business enterprise (Albelda, 2011). Because its employing less than 50 Employees in its
organisational structure and its having less than £500,000 as its annual turnover.
Hence it can be said that being a small business enterprise, Agmet is having very less
available financial and non financial resources which its management is required to make it
possible that they can utilize them in way so that they can get the best available results out of the
available sources and available techniques. Hence it can be said that management accounting
being a credible branch of accounting with its immensely credible methods which are universally
accepted and scientifically proved (Arroyo, 2012). Cited enterprise can use the methods of
forecasting and budgeting for the estimation of expenditure which is involved in any future or
present project further they can also estimate the amount and quantity of return which it can get
form such a project. There are certain essential requirements of management accounting
techniques which an user is required to maintain for the utilization of the specified techniques of
cost accounting. Such requirements can be classified in the manner of principles which are
described in financial accounting. As in financial accounting financial accounting International
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Financial Reporting Standards (IFRS) are there such as essential requirements of cost and
management accounting are also there which can be helpful for the ascertainment of the right
result or outcome which is in fact estimated by the customers and management of enterprise.
Some essential requirements are described below: Traditional Accounting system: This is all about recording of cost which is incurred
during the production of any particular product and after recording it the main aim of
this system is to allocate the cost and expenditures to the department of entity which is
accountable for such cost. When any product is produced then in such product various
cost such as variable, semi variable and fixed cost are involved further these expenses
can also be categorised as direct and indirect expenses (Bodie, 2013).
 Lean Accounting System: This system deals with the change in accounting estimates
and certain other facts which are related with the management accounting and its
techniques. When there is any change in the concepts which is earlier followed by the
any entity and then as per new system or it may be possible that new organisational
structure is demanding such change in the cost accounting structure. Hence lean
accounting system can have categorised as the method through which management can
cop up with the environmental changes of any business enterprise (Chenhall, 2012). Cost Accounting System: This is the system which is used to assess the cost of the
product for the making the profitability analysis, stock valuation and cost control.
Prediction of the exact cost of the product is so much critical for profitable practices.
There is need to know about which products are profitable and which are not, and this
is possible only at the time when it has forecasted the correct cost of the product. A
product costing system assist in predicting the closing value of the material stock,
work- in- progress and finished products keeping in mind ofr making the financial
statements. Job costing system: It is the costing method in which the cost of the entire product is
ascertained. Now, it has been seen that this method is used for assigning manufacturing
costs to batches of the projects. Under this method a particular costing technique is used
in order to assess the cost of a particular cost of a job.
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 Batch costing technique: It is a form of specific order costing. It is like job costing
technique. There are so many quantities within a batch so there is need to know the cost
of that particular batch. This technique is basically used in the pharma sector.
 Inventory management system: This is the most considered tool in the business
organisation. As this is useful for managing the inventory of the business which is most
important for any business. With the help of inventory management system, the
company would able to implement their resources in a better manner.
M1.
There are certain important benefits of implementing management accounting techniques
in the organisational structure of Agmet. Such benefits and importance are mentioned and
described below in detail:
 Increase and improvement in cash flow: cash flow is the movement of cash through the
movement of transactions. Cash flow can be either inflow or it can be outflow also.
Which depends on the movement of cited enterprise and transactions related to business
enterprise (France, 2010). When any payment is made to the outsiders in cash then the
movement of cash flow gets negative. But when any payment is received then the cash
flow gets positive hence through implementing better system and methods in the financial
and organisational structure of Agmet the management can improve its cash flow.
 Reduction in expenses: The expenses which are associated with operating and non-
operating activities of cited enterprise can be controlled and managed in a way so that
they will not adversely affect the overall profitability of the firm (Hiebl, 2014).
 Assist in decision making: This can assist the managerial personnel of any enterprise for
framing and managing any decision in reference of the future operations and process. As
the decisions should be made effectively so that employees of Agmet can easily follow
them with a view to achieve the targets which are predetermined by the top level
management of it (Hülle, Kaspar and Möller, 2011).
 Assist in Financial Planning: It can be observed that budgetary control methods like
capital budgeting can allow an entity to decide the optimum capital construction for its
processes. As best capital composition is not possible in practical life because of this
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manager requires to find out the sources of finance which have less obligations and
provide high returns.
P2.
There are several methods in it that can be used for financial reporting and other
processes. Such methods of management accounting reporting are mentioned below:
 Job Cost Reports: It show expenses for a specific project. They are usually matched with
an estimate of revenue so the company can evaluate the job's profitability. This helps to
identify higher earning areas of the business so the company can focus its efforts. Job
cost reports are also used to analyse expenses.
 Inventory Management Reports: Companies with physical inventory can use
managerial accounting reports to make their management processes more efficient. These
reports generally include items such as inventory waste and hourly labour costs. The
manager can then compare different assembly lines within the company to see where one
can improve to the best-performing departments.
 Accounts Receivable Reports: The accounts receivable report is a critical tool for
managing cash flow for companies that extend credit to their customers. This report
breaks down the customer balances by total amount of time have been owed it. Sales Report: A record of calls made and products sold during a particular time frame by
a management is called a sales report. A typical sales report might incorporate data on
sales volume observed per item and how many new and current accounts were contacted
when any costs were involved in promoting and selling products
 Budgetary Control: Budgetary control can be further explained as the forecasting
technique which can be used by the cited enterprise for the management of the future and
present projects through which they can make some estimates and they can also check
whether the expenditures which are made in reference of the project are as per plan or
not. Because an actual expense which is more than the budgeted one shows negativity
(Kinney, Raiborn and Poznanski, 2011).
D1.
Management accounting system can be understanding very easily hence it gets easier to
implement it in future oriented activities. Following are some points described through which it
can be ascertained that how management accounting system can have integrated in an entity:
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 Relevant cost analysis: This can be used for the analysis of relevant cost. Here relevant
cost means that the cost which affects the decision making procedure of any enterprise
and its management. Variable cost is always considered as the relevant cost as it changes
as per the change is quantity or volume of production (Macintosh and Quattrone, 2010).
But as fixed cost doesn't change as per the change in the production level because of this
fact fixed cost is not included in relevant cost. And through various techniques of cost
accounting it gets easier for an entity to manage its cost which can make impact over the
decision making process. Activity Based Costing Methods: This can assist an enterprise to ascertain that who will
be the customers of the enterprise and what they want or desires from them. Activity
based costing methods changes when the activity changes (Quinn, 2011).
 Make or Buy Analysis: The management of cited enterprise can evaluate that what they
need to buy from outsiders and what they can produce internally. Through integrating it
the managers can think over and analyse that whether it is economical for an enterprise to
produce any article internally or it is economical to acquire it from the external sources.
TASK 2
P3 & M2
Selling price £35
Unit costs
Direct materials £6
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £1
Budgeted production for the period is 600 units
Fixed costs for the month are given below
Budgeted cost Actual cost
Production overhead £1,800 £2,000
Administration cost £800 £700
Selling cost £400 £600
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Sales (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable cost -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed overheads -2000
Admin & selling cost (700+600) -1300
-3900
NET INCOME AS PER MARGINAL COST 9300
NET INCOME AS PER ABSORPTION
COSTING:
Sales (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
less;over absorbed fixed production overheads -100 -1800
NET INCOME AS PER ABSORPTION
COSTING: 9600
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D2.
As per the above mentioned income statements which have been prepared using
techniques of management accounting it can ascertained that there is difference in the net profit
calculated from the both methods of absorption and marginal costing. In the above given
statement it can be observed that the contribution of Agmet is 13200 out of which when Fixed
expenses gets reduced i.e. 3900 then the net profit can be calculated through these steps. Both
absorption and marginal costing techniques are appropriate and scientific but they follows
different principles because of this it can be find out that both of these statements are showing
different net profit figures (Renz, 2016). Absorption costing is showing less profit in comparison
to the other one i.e. marginal costing as in first one the amount of net profit is 9300 and in case
of later one the amount of net profit is 9600 this difference can be because the absorption method
of cost accounting considers fixed and variable cost but the marginal costing techniques
considers only variable cost associated with production of units hence due to this it might be
possible that the profit figures are different in each of the statements.
TASK 3
P4.
There are certain advantages as well as there are some disadvantages of implementing
methods of budgetary control in cited enterprise. Some planning tools of budgetary control can
be used for the analysis of situations which are there in organisational process of Agmet. Various
planning tools with their advantages and disadvantages are mentioned below:
Advantages:
 The planning tools of budgetary control can be helpful in determining the goals of
business enterprise as it helps in forecasting of data which are necessary in planning and
organising or organisational process.
 It can assist the management of Agmet to fix their targets. Each department of cited firm
is allotted a particular task which can be determined as their targets and they have been
provided with a certain time limit hence any particular task can be compiled in a
particular time period. Due to this targets can be achieved on time and it will bring
efficiency in entity's composition.
 It provides cost consciousness between the employees so they can can easily go through
the cost composition of the products which have been produced by cited enterprise.
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 Further it can be observed that producing articles as per the predetermined process and
estimations gives a control over the quality and price of goods and services.
 Budgetary control facilitates centralized controlled which makes it possible to take
decision on the will of one single person.
 Smooth running of business operations gets easy because of the predetermined planning -
Not Achieved assessment criteria- You need to
 address the requirement of the task well. Examples
 of management accounting reports include
 a. Job cost reports
 b. sales reports
 c. account receivable reports
 d. inventory managemeand objectives. Employees from different departments can utilize
their available financial and non financial tools in a way through which they can easily
achieve the targets that has been set by the top level management.
 If any departments is performing below then the level of expectations then it gets easy to
detect the element which is responsible for such lower performances.
Disadvantages:
 There are certain disadvantages of budgetary control system as there may be chances that
the responsible supervisors of departments estimate high expenses to escape out of the
situation of the case where the expenses gets higher then the estimated one (Salehi,
Rostami and Mogadam, 2010.). So in that situation the top management may ask to them
that why they haven't controlled the total expenditures so because of this they may frame
an estimated budget which have higher expenditure.
 In case of budget the fixed targets are given to the supervisors of company due to which
it can be said that budgetary control tools provide rigidity and it ignores the flexibility
factors. Because of which when situation gets changed then they cant change their
procedures to cop up with the circumstances.
 Preparation of budgets is really a difficult task and it gets worst in the case where the
circumstances are inflationary.
 It involves huge investment as budget is a large process which is carried on by the
management of an enterprise. Due to which it involves huge investment so it gets tough
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for small business enterprise like Agmet to cop up with the procedures of budgetary
control.
 Budgets are specifically prepared for the future periods which are totally unpredictable
due to which it might be possible that budgets will not give the accurate data or
information as per the scenario.
 Budgets can be defined as only a tool hence it cannot abolish the management and its
importance because the decision making is the work of management. In that process
budgets can only assist the managerial personnel’s (Setthasakko, 2010).
M3.
There are various tools and techniques which can be used by the cited firm in order to make
budget and running a business in an effective manner. These are:
Operating Budget: It is related with the manufacturing companies which helps to estimate the
overall cost in advance by using various tools and techniques in an effective manner.
Cash Budget: This is another approach which associated with the cash and other related
activities. Such budget can be divided in to operating, financial and investment activities.
D3 & M4.
A sustainable success can be defined in many different way people, plan and profit. A
sustainability success is not a simple a vision to conserve natural sources. It is the thought
innovation creative to as we increase and bringing new solution to new markets to help to solve
various challenges and to cover all business operations along entire value inked to performs, task
the business with creating a sustainable success in entity. A management accounts are trusted to
a business decision and drive strong business performances. they combine expertise and
businessman to achieving sustainable success. The characteristic of management accounting
have to form a joint venture to elevate the best practices profession of the management
accounting. Financial and non financial information qualitative problems to solving all those
problems. the issue of sustainable developments has grow since its introduction in the report.
Were success to present a need of the without comprising the ability of future generations yo
own needs they change of the starting way of business thinks and react with the idea that
generate a form of competitive advantages for organisation by using development practices in
area (Ward, 2012). A management accounting has been financial reporting and taxation
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auditing are including to planning and control of the organisation operations. a sustainable role
of the management accounting the active part of decision making and evaluate strategies
formulation and implement. the study of the management accounting identify and understanding
of their contribution to this process. A management accounting is important role playing in the
organisation to developing several tools aid management facilitators of decision making. A
objective to the rest of the activity they will help the bards to reach its aims of leading the
company long term sustainable growth.
TASK 4
P5.
Management accounting methods can be helpful for the achievement of sustainable
success and in responding the financial problems. As the enterprise is having less financial and
non financial sources because its a small business enterprise. Due to which it gets necessary for it
to cover the entire expenditures in a definite limit of expenses. Other than this it can be said that
they can utilize their limited and available financial sources for the specified projects. Cited firm
is having less than £500,000 as their annual turnover which means they are earning less revenue
in comparison to the other big entities (Zang, 2011). Due to which they are required to make
some plans through which they can coordinate with the situations of less finance availability.
Financial resources can be utilized with proper planning so that proper and adequate returns can
be generated out of using proper resources with effective planning. If they utilize and exploit the
available business opportunities then it will gets easier for them to achieve the targets and
objectives which were previously determined by them.
There are some of the tools which have been used in order to respond the financial problems
within the organisation. Some of them have been mentioned hereunder:
Key performance indicators: They are a set of quantifiable measures that a company uses to
improve its performance. These are used to determine a company's progress in achieving
strategic and operational goals. KPI is also referred as key success indicators depending upon the
pertinent criteria. Some of the most common Key performance indicators revolve around
revenue and profit margins. The most basic profit metre is net profit . The gross profit margin,
which measures revenues after accounting for expenses directly associated with the production
of goods for sale, is a profit-based KPI.
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Budgetary targets: It is a system of managing a business by applying a financial value to each
forecast activity. Actual performance is compared with the estimates. An itemized summary of
expected income and expenditure of a company is over a specified period.
Benchmarking: It is comparing one's business processes and performance measures to industry
bests practices from other companies. In the process of benchmarking, management identifies the
best firms in their industry where similar processes exist. Benchmark assessments are short
assessments used by teachers at various times throughout the school year to monitor student
progress in some area of the school curriculum. These are known as interim assessments.
CONCLUSION
As per the above mentioned facts and figurers it can be ascertained that the management
accounting and its methods can be helpful in managing financial as well as non financial sources
of any enterprise. The better way to achieve the targets is necessary for small business
enterprises as they have limited sources hence optimizing the available sources in a better way
gets important for the enterprise. In this report various methods of management accounting have
been mentioned and their advantages and disadvantages in the context of Agmet is also covered.
In this report the income statements has been prepared through the methods of absorption and
marginal costing. A detailed observation of both the statements shows that there is difference in
the profit figures which can be possible due to different calculations which are as per different
concepts. Further in this report absorption and marginal costing have been defined in detail with
appropriate working notes which carries the calculation of information which is presented there
in the income statements under both the methods.
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Zang, A .Y., 2011. Evidence on the trade-off between real activities manipulation and accrual-
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