Management Accounting: Costing, Planning, and Financial Reporting

This report delves into the core concepts of management accounting, focusing on its application within a small business enterprise, Zylla. It begins with an introduction to management accounting, its importance, and the essential requirements of various accounting systems, including cost accounting, inventory management, and price optimization. The report then examines different methods of management accounting reporting, such as budget reports, job costing reports, and performance reporting systems, highlighting their significance in decision-making and performance evaluation. The report also explores the merits of using a management accounting system, emphasizing its role in financial transaction management and the enhancement of profitability and efficiency. Furthermore, it contrasts marginal and absorption costing methods, detailing their applications and differences. Finally, the report analyzes the advantages and disadvantages of different planning tools and addresses the adaptation of management accounting systems to respond to financial problems, concluding with an evaluation of financial issues and planning tools.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essentials requirements of various type of management
accounting systems......................................................................................................................1
P2 Various methods used for management accounting reporting...............................................3
M1 Merits of using management accounting system..................................................................4
D1 Integration of management accounting systems and reporting with organisational process 5
TASK 2............................................................................................................................................5
P3 Calculate cost using marginal and absorption costing...........................................................5
M2 Use of management accounting techniques..........................................................................8
D2 Financial reports that apply for interpret business activities.................................................9
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of different types of planning tools......................................9
M3 Evaluation of planning tools...............................................................................................11
D3 Planning tools for respond financial problems....................................................................11
TASK 4..........................................................................................................................................11
P5 Adaption of management accounting system to respond financial problems......................11
M4 Evaluation of financial issues.............................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Concept of management accounting is the one which is use by managers for collect data
related with accounting. This help managers in achieve better control over business operations
and contribute in achieve end goals and objectives in an effective way (Zimmerman and Yahya-
Zadeh, 2011). Whether a business is small, medium or large, it is a significant part of every
organisation. One of the main benefit of this concept is that help firm in execute all operations in
an effective way which contribute a lot in success and growth of organisation. This make the
managers aware about current financial position of firm and help in take right decisions related
with planning, organising, directing, controlling and resource allocation. Zylla, a small business
enterprise under which less than 50 employees work is taken under this report for study. Concept
of management accounting and requirements of different type of accounting systems in an
enterprise is all mentioned under this report. Various methods of management accounting and
integration of business process with this system of management accounting is all given under
this. Further, various methods which an organisation use for calculation such as absorption and
marginal costing is detailed in this. In addition to this, benefits and disadvantages of different
planning tools is all covered in this report.
TASK 1
P1 Management accounting and essentials requirements of various type of management
accounting systems
Process of preparing financial reports on timely basis which helps managers in take right
decisions for business is known as management accounting. One of the main benefit of this, is
that help manager in get better control over business operations which contribute in success and
growth of company (Hutaibat, 2012). Concept of management accounting helps managers in
prepare reports related with performance of employees. Collection of right and accurate data
helps managers in execute all business activities in an effective way. Various sources of data
such as internal and external are all use under this. It is very essential to analyse the collected
data and communicate the same at different level of organisation. Mainly this concept is relate
with collecting information related with financial aspect of company such as variation take place
in stock, raw material and in financial condition of company. Objective of Zylla is achieve
sustainability and execute all business operations in minimum cost. Concept of management
accounting also improve financial condition of company. For get all benefits of this concept, it is
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very essential for firm to hire accountant to collect and keep a financial record of business
activities.
Number of problems and issues arise while execute business activities, and management
accounting is the one which help firm in overcome with these issues and contribute in success of
enterprise (Pimentel and Major, 2010). For achieve its set goals and objectives, Zylla also need
to keep and maintain a record of its financial activities. Importance of management accounting
system can be understood by the points given below: Qualitative data: For execute all business operations in an effective way and to achieve
control on business activities, it is very important that collected data must be relevant and
effective. Management accounting helps in achieve the same and help in find effective
solutions of critical business issues. Ongoing training as well as information: It is very important for Zylla to conduct
training programmes for its employees so they can also understand and learn about this
concept. Provide relevant data: One of the biggest advantage of this concept is that it helps
manager in collect and analyse relevant information which helps managers in take right
decision about business activities.
Type of accounting system Cost accounting system: This system of management accounting helps managers in
estimate the cost of products and services which effective use of various approaches such
as cost control, profitability analysis and many more (JOSHI, and et. al., 2011). Estimate
the right cost is very difficult for firm so all these methods can be use by Zylla to make
the business operations more profitable.
 Inventory management system: This approach of management accounting helps manager
in keep and maintain a optimum level of cost which helps in reduce overall cost of
business operations. Main tools which can be use by Zylla for this are as follows:
Just in time approach
Economic order quantity (EOQ)
Both these tools help firm in maintain the minimum cost and also help in achieve end
goals and objectives of business.
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 Job costing: This tool consists accumulation of various type of cost such as labour,
overhead, and material cost. Mainly, the main focus of this approach is to control all cost
and expenditures of business and increase revenues of company (Sisaye and Birnberg,
2010). Firm calculate and determine the production cost which is mainly divided into
three categories such as Labour cost, direct material and overhead.
 Price optimisation system: This is mathematical approach which is use by enterprises to
analyse how customers react to different prices of a product. One of the main benefit of
this is that it helps manager in set the right prices for the product which help company in
achieve its end goals and objectives in an effective way. Information which is use by firm
for price optimisation consists operating cost, historic prices, inventory and sales.
P2 Various methods used for management accounting reporting
The major advantage of management accounting is taken by small business enterprise.
Thus it is the duty of manager to to regulate and control the performance level of an organisation.
Constructing of appropriate data and other vital information needs to be delivered to the top
management of Zylla company and this entire process is said to be as reporting of management.
This is considered as continuous process of reporting which is highly essential in the decision
making. In order to make effective reports it is essential to use them so that effective outcomes
can be obtained.
Significance of management reporting system:
Beneficial in profitable operations- In this kind of approach, aid is being provided by the
reporting system so that effective outcomes can be obtained and thus conduction of operations
can take place in smooth manner.
Effective in managing system of control- In this kind of system, it is highly essential for
setting up of targets and objectives (Stergiou, Ashraf and Uddin, 2013). It is the main duty of an
employer to look after the employees regarding achieving up of aims and objectives in effective
manner under allocated time. In order to determine and evaluate an exact and correct position,
help can be taken of system.
There are number of methodologies which are utilised by the business process of Zylla
for constructing an accounting reporting:
Budget report- This kind of methodology is being utilised by business process for
identifying and evaluating performance level of an organisation. It can be stated as essential
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report which is being utilised by top management in order to evaluate the budgeted project with
the actual performance level so that aims and objectives can be attained in smooth manner.
Necessary modifications needs to be done if the previous year budget has been over budgeted in
order to develop an effective budget for the current year on the basis of requirement of an
organisation.
Job costing reports- In this kind of report, actual expenditure is being shown by the
company which is related with particular and essential tasks of an organisation. In order to
enhance level of profit, it is highly essential that the expenses should match with the estimated
revenue of firm (Abrahamsson, Englund and Gerdin, 2011). The main focus of the company
should be on reduction of wastages and enhancing the margin of profit in an effective and proper
manner. Instead of process, costing is related with methodologies of production cost monitoring.
With the kind of tool, management of Zylla company can easily track the records of work done
along with the performance level of employees in effective and systematic manner.
Performance reporting system- In this kind of system, the main focus is on determining
the financial statements so that actual performance of organisation can be regulated and
measured. It is highly important to construct a final performance report, so that effective
decisions can be taken for acquiring all kind of benefits. Evaluation can be done and completed
through the accurate and genuine data from the current and past years.
Manufacturing and inventory report- Management accounting should be utilised for
developing the production process in an effectual and efficient manner and it can be mainly used
by the business organisation who have the physical stock. The main involvement is of overhead
cost, labour cost, wastage of inventory and many more in this report. Thus manager can control
and regulate the stock available in an organisation.
Thus, from the above statements it can be stated that there are various number of methods which
are being used by the company in order to manage the accounting standards. Various tools and
techniques are being used to determine the essential elements of reporting system.
M1 Merits of using management accounting system
Essential role is being played by the management accounting specially in managing and
monitoring the financial transactions which are taking place in an effective manner. It is highly
essential for the company for utilising number of systems in accounting like price optimisation
and job costing system which in turn can help them to obtain effective profitable outcomes. This
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kind of usage of accounting system is done with the motive of enhancing the profitability and
efficiency of the company by which a sustainable position can be gained by company.
D1 Integration of management accounting systems and reporting with organisational process
Growth stability is one of the main purpose behind using reporting system. It is very
significant for managers of Zylla to prepare reports with help of past data and relevant
information available. In this way, managers can analyse the overall performance of business.
This help firm in take its investments decisions. Main techniques of reporting which can be use
by Zylla include performance report and accounts receivable.
TASK 2
P3 Calculate cost using marginal and absorption costing
Mainly, management accounting is use by enterprises for formulate reports and minimise
the cost of business operations. With help of appropriate cost approach company can achieve
better and effective results.
Marginal costing: In this, company consider fixed expenses on continuous basis. This
helps in reduce cost and increase production cost by manufacture one extra unit. This method of
costing is very effective where both fixed and variable cost is change for specific period of time.
Absorption costing: This is another expenditure method of management accounting
which consider all costs related with production of goods and services. This method is based on
the assumption that all incurred cost should be recover from selling price.
Difference between marginal costing and absorption costing can be better understood by
following points:
Basis Marginal costing Absorption costing
Meaning Under this method of costing, variable
overheads are deducted per unit cost of a
single product and fixed expenses to
calculate net income of business.
In absorption costing,
calculation of production cost
with all overheads such as
direct expenses is done.
Cost identification Under this, production cost is consider as
variable and fixed cost remain same during
whole time of production.
In this, both variable and fixed
cost is consider for calculate
final cost of production.
Costing and Only variable cost is consider under this. Both fixed and variable cost is
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inventory
valuation
consider in this.
Treatment of fixed
overhead
Under this costing methods, fixed cost is
consider as period cost and profitability of
various products is judged by profit ratio.
In this, fixed cost is charged
against production cost. Every
product share fixed cost
through apportionment of
fixed overheads.
Unit cost of
production
This get not affected by variation in
opening and closing stock.
This get affected by unit cost
of production due to impact of
fixed cost.
Lucrativeness Under marginal costing, profitability is
calculated with help of cost volume
analysis.
Due to deduction of fixed costs
this affect the overall
profitability.
High spot High spot of this is contribution per unit Calculation of gross and net
profit of various department is
the high spot of this technique.
Categorisation of
expenses
Under this methods, costs are classified
into headings of fixed and variable. This
helps in find contribution and net profit
easily and separately.
Under this, cost is collected
through customary way.
Calculation as per Absorption costing.
Working notes:
Absorption costing
Working 1: Calculate full production cost
Direct material £6
Direct labour £5
Variable cost £2
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Fixed cost £3
Total £16
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*19 = £13300 100*16 = £1600
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £2100
Fixed overhead: £2000
Total £100(over absorbed)
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Production Cost: £700
Selling cost: In this budgeted cost is £400 and Actual cost is £600
Net profit using absorption costing £ £
Sales
(-) Cost of Sales:
Opening stock
Manufacturing
Closing stock
(Under)/ Over absorbed fixed prod.
O/h
Gross Profit
Less Expenses
Variable sales expenditure
Fixed administration expenses
Fixed selling expenditure
Over absorption
0
11200
(1600)
600
700
600
(100)
21000
(9600)
11400
(1800)
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Net Profit 9600
Working 1: Calculate variable production cost £
Direct material 6
Direct labour 5
Variable production O/h 3
Variable production cost 14
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
0 700*14 = 9800 100*14 = 1400
Net profit using marginal costing £ £
Sales value
Less: Variable costs
Opening stock
Manufacturing
Closing stock
Contribution
Less Fixed costs
Variable Production expenses
Administration cost expenditure
Selling cost
Net Profit
0
9100
(1300)
2000
1300
600
21000
(7800)
13200
3900
9300
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M2 Use of management accounting techniques
There are various tools and techniques which are being adopted by Zylla in order to attain
the financial stability and desired objectives. The main focus of the management should be on
utilising the controlling techniques so that resources which are limited can be managed and
utilised in optimum manner (Dosch and Wilson, 2010). Those techniques are standard and
control techniques which can be utilised. These techniques can be utilised in order to extract the
genuine data so that effective decision making process can take place. One of the vital techniques
can be reporting which in turn can be used to share the information at the different levels of an
organisation. This can aid in analysing and determining the overall performance in an accounting
year.
D2 Financial reports that apply for interpret business activities
From the above given information, it can be said that two techniques are there which can
be used by enterprises to calculate its net profit known as marginal and absorption costing. All
this help enterprise in make investment decisions as firm evaluate net profit with help of these
methods.
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budget: This is known as a written plan contains financial activities, which is formulate
by every enterprise for a particular period of time. Mainly, this indicate the total sum of funds
which is allocated for execute all business operations and to meet company's expenditures. This
help managers in identify the amount of funds which must be invest by firm over its business
activities (Gates, Nicolas and Walker, 2012). Mainly, budgets are prepared for one year or more
than one year as per the objectives and requirements of business enterprise.
Budgetary control: This is very popular and effective tool of budgeting which is use by
managers to carry out activities which are very essential for firm such as planning, directing,
organising and resource allocation. This is also relate with other areas of business such as budget
centre. One of the main benefit of this is that it helps managers in utilise all business resources to
an optimum level.
Process of budgetary control Consult with managers: An enterprise can not achieve control over its business
operations and activities if there is lack of coordination among manager of various
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departments (Harris and Durden, 2012). So it is very significant that there must be
effective coordination among managers of every department of Zylla. It is very important
for manager to discuss on relevant topic related with expansion of business activities. Do assumption: After collection of all relevant data, it is very significant for managers to
do assumption on basis of that as this help in decrease the amount of loss. One of the
main feature of this is that it help manager in achieve control over business expenses.
This cover all expenses related with business. Fix data to attain business targets: Under this step, manager collect huge amount of
information related with every department of company (Suomala, Lyly-Yrjänäinen and
Lukka, 2014). This helps in make the process of planning more effective and provide
various long term benefits to organisation. Compare actual data with budgeted information: In this step, actual business
performance is compare with the standard performance. After that, manager identify the
gaps and find out the areas of improvements. All this contribute in success and growth of
enterprise.
 Review analysis: This is the last step of budgetary control in which managers examine all
the above steps in order to evaluate the effective of every step (Schäffer, 2013). For
achieve set results, it is very essential that every step must be execute in an effective
manner.
Planning tools: Procedure of decide future actions of enterprise by consider its main
gaols and objectives is known as planning (Fourie and et. al., 2015). One of the main feature of
this is that it provide direction to managers and at the same time ensure optimum utilisation of all
business resources. Various tools of planning are there which can be use by the managers of
Zylla. This can be understood by following points: Forecasting tools: This is a tool in which manager do planning on the basis of some
assumptions supported by skills, knowledge and judgement of management. Use of
historical data is done by manager in this for decide future action of company.
Advantages: It is very important for mangers to have relevant information in order to take
right and effective decisions for business. This help managers in predict the right amount of sales
and cost of business.
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